_On 25 March 2020, Luxembourg implemented certain provisions of the 5th anti-money laundering directive (the ‘AMLD5’) by way of a law (the ‘Transposition Law’), which entered into force on 30 March 2020. The purpose of the Transposition Law is to amend the amended law of 12 November 2004 on anti-money laundering (the ‘Amended AML Law’).
As a reminder, the AMLD5 should have been implemented by January 2020 and voices among the European Union’s Commission continue to push for a stronger fight against money laundering1, whereby discussions are ongoing that could lead to an EU regulation on AML, which would be directly applicable2. Some of the commonly raised criticisms against the lack of efficiency are partly tackled by the Transposition Law, as it aims, amongst other things, to foster cooperation between national authorities across the EU member states.
Whilst the possible evolution of the AML directives into a regulation should be kept in mind, professionals ought to closely monitor the new rules set out in the Amended AML Law.
The Transposition Law first provides clarifications to some definitions as well as on the scope of the AML regulation (I) and sets out stronger or new obligations for professionals (as defined in the Amended AML Law) (II).
I. Clarifications provided by the Transposition Law
The Transposition Law broadens the scope of AML regulation.
For instance, the Transposition Law extends the meaning of financial institutions, as defined in the Amended AML Law to every person [in each financial institution being] subject to the control of the CSSF for anti-money laundering purposes.
Furthermore, the Transposition Law expands the signification of ‘control by other means’ of a beneficial owner over a client which is a corporate entity, whose criteria may be found at articles 1711-1 to 1711-3 of the law of 10 August 1915 on commercial companies, as amended, as the Transposition Law provides for a new set of criteria for such ‘control by other means’, including amongst others:
- the power to exercise a dominant influence by way of an article of a contract or the articles of association;
- the power to appoint or remove a majority of the management body.
In addition, the Transposition Law refers to new publications of the European Union for the definitions of high risk countries and politically exposed persons, whereby a list of national offices and functions qualifying as politically exposed has been established by the Transposition Law.
The Transposition Law also clarifies the scope of the entities and natural persons, which are captured under the Amended AML Law, which now also includes:
- agents as defined by the law of 5 April 1993 on the financial sector, as amended, and agents as defined by the law of 10 November 2009 on payment services;
- real estate agents when acting as intermediaries for the sale or purchase of real estate or for rents if the monthly rent is above EUR 10,000;
- any person providing tax advice or assistance as their principal business activity;
- virtual asset service providers; and
- persons acting in the trade of art works for transactions of a value equal to or above EUR 10,000.
II. The reinforcement of anti-money laundering obligations
Some anti-money laundering obligations were also reinforced by the Transposition Law.
In the matter of KYC, professionals should, for instance, pay attention to the new factors of higher risk in the Annex 4 of the Amended AML Law and to the purpose as well as the intended nature of the business relationship. Moreover professionals should be able to demonstrate their ability to keep track of the accuracy of the information regarding the beneficial owner, and should be able to prove registration of the beneficial owner with the register of beneficial owners.
Furthermore, due diligence obligations have been strengthened by the Transposition Law, and professionals have the obligation to understand the purpose and the nature of the business relationships, which is in line with the FATF recommendations.
Transactions including the involvement of high risk countries, as well as complex or unusual transactions require enhanced due diligence.
The newly concerned virtual asset service providers are required to fulfil the registration requirements provided for by the Amended AML Law with a register established by the CSSF.
The Transposition Law also sets an obligation to consult the relevant companies or trust beneficial owner register when entering into a business relationship. This is somewhat surprising in the case of trusts, as the trust register is not yet in place (a separate bill creating a specific register for trusts and fiduciaries is still ongoing parliamentary procedure, whereby the bill in that respect was amended by the legislative commission on 30 March 20203).
In order to enforce the new obligations of the Amended AML Law, the powers of the relevant authorities and self-regulatory bodies were also increased by the Transposition Law. It should be noted that violations of the Amended AML Law may lead to fines to up to EUR 250,000 and for credit institutions to fines to up to EUR 5,000,000.
1. Interview of Valdis Dombrovkis, AGEFI Quotidien, 7 February 2020.
2. Please see on that matter our article in French, Actualité de la lutte contre le blanchiment d’argent et le financement du terrorisme (https://www.wildgen.lu/our-insights/article/actualite-de-la-lutte-contre-le-blanchiment-dargent-et-le-financement-du)