Partial implementation of the 5th AML Directive in Luxembourg

The Luxembourg law of 25 March 2020 which entered into force on 30 March 2020 (the New Law) implements the EU Directive 2018/843 (the 5th AML Directive) and notably amends the law of 12 November 2004 on the fight against money laundering and terrorism financing, as amended (the AML Law).

What changes?

The New AML Law implements the 5th AML Directive and also precises the scope of the AML Law such as (i) the definition of beneficial owner, (ii) the new AML-CTF obligations for professionals, (iii) professionals' AML -CTF obligations provided by third parties, (iv) the extension of powers of competent authorities', and (v) strengthening cooperation between competent authorities.

(i) Amendment of the definition of beneficial owner

The now famous definition of beneficial owner in the case of corporate entities included in the AML Law mentions that "any natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means [...]".

The New Law is now shedding a light on what control via other means is and gives further guidelines in order to identify the beneficial owner, notably on the basis of Articles 1711-1 to 1711-3¹ of the law of 10 August 1915 on commercial companies, as amended, and in accordance various criteria.

(ii) New AML-CTF obligations toward professionals

Pursuant to the New Law, professionals see the scope of their obligations extended.

They now have to examine the context as well as the aim of any transaction which meets the following criteria:

• the transaction is complex;
• the transaction is of a highly unusual amount; or
• the transaction does not have any economic ground or lawful object.

Also, the New Law mentions that with regard to business relationships or transactions involving high-risk countries, professionals shall apply the enhanced customer due diligence measures. This includes:

• obtain additional information on the client and on the beneficial owner(s) and a more regular update on the identification data of the client and beneficial owner;

• obtain additional information on the envisaged nature of the business relationship;

• obtain information on the origin of funds and the origin of client's / beneficial owner's assets;

• obtain information on the grounds of the envisaged or carried out transactions;

• obtain authorisation from a senior member of their hierarchy to enter into or maintain the business relationship;

• implement enhanced monitoring of the business relationship by increasing the number and frequency of checks carried out and by identifying transaction patterns that require further scrutiny.

(iii) Professionals and AML -CTF obligations provided by third parties

In a nutshell, the New Law provides that professionals relying on a third party to satisfy AML-CTF obligations, must take appropriate measures to ensure that this third party provides without delay, upon request; the necessary documents concerning the client due diligence obligations provided for in the New Law. This includes, but is not limited to, data obtained by the use of electronic identification means, of the relevant trust services or any other secure, electronic or remote identification process, regulated, recognised, approved or accepted by the relevant national authorities.

(iv) Extension of powers of competent authorities' subject to AML-CTF obligations

The New Law grants a wide range of supervisory powers to self-regulation agencies with regards to the supervision of the compliance of the concerned professions of their respective AML-CTF obligations (such as access to confidential documentation, or to carry out physical inspections). It also expands the protection of whistle-blowers in AML-CTF cases. Common parameters are also established in the sanctioning regime of self-regulation agencies, including the types of sanctions and maximum fines.

(v) Strengthening cooperation between competent authorities

The New Law amends the AML Law to include a framework for more detailed cooperation parameters between the CSSF and self-regulatory bodies, and also outlines the use they may make of confidential information received in the course of their business. A cooperation structure is also developed between the competent supervisory authorities in Luxembourg and their foreign counterparts.

Conclusion

From a practical perspective this New Law should:

• enhance the powers of competent authorities' subject to AML-CTF obligations and provide them with access to broad information in order to carry out of their tasks;
• broaden the criteria for the assessment of high-risk third countries and improve the safeguards for financial transactions to and from such countries;
• improve the cooperation and enhance of information between anti-money laundering supervisors between them and between them and prudential supervisors and the European Central Bank; and

More generally, professionals and in particular regulated professionals will need to assess whether their internal AML and KYC policies need adapting in light of these changes.

¹Which relates to the preparation of consolidated accounts.