Agefi Luxembourg - novembre 2024

AGEFI Luxembourg 16 Novembre 2024 Economie T he sheer volume and dynamism of professionals’ re- porting obligations can be confounding. When authorities’ main focus is international financial sanctions, it is essential to understand the when, how and to whom of re- porting. According to the Financial Intel- ligence Unit’s (FIU) most recent statistics, (1) professionals gener- ated 44,519 suspicious activity/ transaction reports (SAR/STR) in 2023. Despite this significant fig- ure, the Commission de Surveil- lance du Secteur Financier’s (CSSF) on-site inspections con- tinue to uncover failed or de- layed reporting cases, repre- senting a large share of the ad- ministrative sanctions related to anti-money laundering and counter-terrorism financing (AML/CTF) imposed since 2022. While the detection and imme- diate reporting of suspicious ac- tivity or transactions is essential, the quantity of reports is less sig- nificant if they fall short of regu- latory authorities’ standards. The Wolfsberg Group’s State- ment on Effective Monitoring for Suspicious Activity states, “The Group does not believe that the value being derived from the (constantly increasing) volume of SARs/STRs is contributing proportionately to effective out- comes in the fight against finan- cial crime”. (2) By understanding Luxem- bourg’smoney-laundering (ML), terrorism-financing (TF) and sanction reporting requirements and adhering to recognized guidelines, professionals can meet both the spirit and the let- ter of the law. In this context, professionals should also prepare for the up- coming obligations of the EU’s newAML/CTF package. Understanding Luxembourg’s fundamental reporting obligations ProfessionalssubjecttotheLawof 12 November 2004 on the fight againstmoneylaunderingandter- rorist financing must report any relevantML/TFsuspicions aswell as international sanctionbreaches. Commonpitfalls Practical advice for effective reporting Professionals face a multitude of challenges when identifying and reportingsuspiciousbehaviors,in- cluding: -Theinnovativetechniquescrimi- nals employ, which leverage changing technology and geopo- litical shifts; - The international or cross-border nature ofML/TF; - The rapid execution of instant payments; and -Theinvolvementofthirdpersons and intermediaries. Whilenoblueprint exists for craft- ing a perfect report, certain steps can help professionals elevate the quality of their reporting. Each employee should be able to detect and prevent illicit activities, especially those with client-facing roles,includingidentifyingpoten- tial warning signs andkey indica- tors of suspicious activities or transactions.Therefore,AML/CTF training plans must ensure that staff at all levels can recognize red flags, and are well-versed in the company’sinternalprocessestoef- ficiently and accurately escalate any concerns to the compliance function.Giventhecontinualevo- lution of financial crimemethods, thesetrainingplansshouldbereg- ularlyupdated. As most professionals have al- ready implemented the necessary processes and culture for logging suspicious behavior, they should focus on improving the quality of the reports submitted to the FIU. - While criminal offenses do not need to be qualified, reports should include a clear and ex- haustive outline of the issues at play, business relationships, and the basis for suspicion. Entities mustalsoselectaccurateindicators withingoAML. -Relevantsupportingdocuments should be appended to the re- ports , suchas the corroborationof transactions and source ofwealth, documents considered forged, negativemedia reports identified, emailexchangeswithcounterpar- ties, and taxmemorandums. - Data embedded in the reports must be exhaustive, accurate and structured . Consequently, it should include a structure chart and transactionswhich followthe FIU’s STR format guidelines. Merely identifying a negative media articleaboutacounterparty involved in a transaction does not automatically necessitate FIU reporting . Instead, it should initiate a comprehensive and well-documented relationship evaluation to reveal any ML/TF risk that may require an FIU re- port. In turn, the report should reflect this evaluation’s outcome, such as further details on the ori- gin of funds linked to the nega- tive media article. Should professionals report sanction breaches to the FIU? While the FIU is not responsible for enforcing sanction regimes, any attempt to circumvent sanc- tions is an ML predicate offense under the Luxembourg criminal code.Therefore,anysuspicionofa Luxembourgsanctionregimevio- lation should be reported to the FIU.Thesesuspicionscouldcorre- late with other offenses like cor- ruption, tax fraudor forgery, such as providing false documentation to conceal a sanctioned individual as the beneficial owner. Under the sanction regimes of other jurisdictions, detecting a breach could also be regarded as an indicator of elevated ML/TF risk . Thesedetections should trig- ger an extensive review of the business relationship, potentially resulting in a SAR being submit- ted to the FIU. The FIU has repeatedly clarified that they do not seek reports that only concern sanctions without any related suspicious activity. Anticipating the impacts of the upcomingAML/CTF Regulation and sixth AML/CTF Directive Financialinstitutionsthatcarryout transactions can struggle to man- age their decision-making processes post-reporting or post- freezing orders. Thankfully, the EU’s recently enacted AML/CTF package ,which includes the sixth AML/CTF Directive (“AMLD6”) and the AML/CTF Regulation (“AMLR”), is set to alleviate these challenges. Published in the Offi- cialJournaloftheEuropeanUnion on 19 June 2024, this legislative package clarifies the obligations regardingsuspicionreportingand the FIU’s investigatory authority. The AMLR will be applicable in July 2027 and AMLD6 must be implemented into national laws by July 2027, with some require- ments to be implemented by July 2025 and 2026. The AML/CTF package sheds light on the timelines regarding temporarily suspended transac- tions due to ML/TF suspicions. Professionals will be able to exe- cute the transaction inquestion if they: - Have assessed its associated risks; and -Havenotreceivedanycontradic- torydirectivesfromtheFIUwithin three working days of the report submissiondate. (10) The AMLR requires Member States to set amaximumperiodof nomore than10workingdays for whichtheFIUisauthorizedtosus- pend a transaction. (11) RegardingFIUrequests, theLux- embourgFIU’s guidelines clarify that standard requests require a response within a fortnight, re- questsmarked“urgent”within a week, and “very urgent” within 24 hours. In comparison, the AMLR re- quiresprofessionalstoreplytoFIU information requests within five working days and allows FIUs to shorten this deadline, possibly to less than 24 hours, which would amplifyprofessionals’alreadysig- nificant compliance burdens. (12) Conclusion Navigating the ever-changing landscape of AML/CTF legisla- tion, regulations and guidelines demands a deep understanding and seamless execution of re- porting obligations along with a commitment to the quality of the reports submitted to the FIUand the Ministry of Finance. To fullycomplywith their report- ing obligations, professionals must be able to detect persons subject to restrictive financial measures or ML/TF suspicions. The guidance of the Wolfsberg GroupandtheCSSFcanhelppro- fessionalsimplementadequatein- ternal controls to detect sanctions and otherML/TF indicators. The upcoming AML/CTF pack- age changes will require profes- sionals to proactively improve their analysis methods and reac- tion speeds to FIU orMinistry of Finance requests. Indoing so, the industry fortifies its defenses against illicit activities, reinforces the integrity of its financial insti- tutions, and contributes to a se- cure global community. NicolasMARINIER,Partner Marie-AstridDUPUY,Director AndreasSCHMITT,SeniorManager JeanneBARREAU,Manager DeloitteLuxembourg 1)FinancialIntelligenceUnit, Rapportd’ac- tivité de la Cellule de renseignement financier 2023 ,July2024. 2) The Wolfsberg Group, The Wolfsberg Group Statement on EffectiveMonitoring for SuspiciousActivity ,July2024. 3)Article48(2)ofRCSSF12-02. 4)Article33(2)ofRCSSF12-02. 5)Article 6(1) of the Lawof 19 December 2020 on the implementation of restrictive measuresinfinancialmatters. 6)Articles1and2oftheGrand-ducalReg- ulation 14November 2022 providing de- tails on the Law of 19 December 2020 on the implementation of restrictive meas- uresinfinancialmatters. 7)Article48(2)ofRCSSF12-02. 8) Article 73(3) of the upcoming Regula- tionoftheEuropeanParliamentandofthe Councilonthepreventionoftheuseofthe financial system for the purposes of money laundering or terrorist financing, andArticle38(5)ofRCSSF12-02. 9) The Wolfsberg Group, The Wolfsberg Group Statement on EffectiveMonitoring for SuspiciousActivity . 10) Article 71(1) of the Regulation of the European Parliament and of the Council on the prevention of the use of the finan- cial system for the purposes of money launderingorterroristfinancing. 11)Article 24 of theDirective of the Euro- peanParliamentandoftheCouncilonthe mechanismstobeputinplacebyMember States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Directive (EU) 2019/1937, and amending and repealing Directive (EU) 2015/849. 12) Article 69(1) of the Regulation of the European Parliament and of the Council on the prevention of the use of the finan- cial system for the purposes of money launderingorterroristfinancing. Sanctions and suspicious activity reporting: Acomprehensive guide to avoiding common pitfalls Re p ort i ng re q u i rement s FI U Mi n is tr y o f F i nance Re p ort i ng obl i gat i on s an d s co p e In line with CSSF Regulation No 12 - 02 of 14 December 2012 on the fight against money laundering and ȱ ȱ ǻȃ ȱ ŗŘ - ŖŘȄǼǰȱ ȱ ȱ ȱ ȱ internal procedures to detect and report s u spi c i ou s act i v i t y or tran s act i on s to the compliance function . The function must retain the decision in writing regardless of whether a SAR/STR is sent to the FIU . (3) W hen the suspicion is confirmed, the reporting must be done without delay by using the appropriate reporting ¢ȱȱȱ ǰȱȱ Ȃȱȱǯ A transaction is suspicious when a professional knows, suspects, or has reasonable grounds to suspect that ML, an associated predicate offense or TF is being committed or has been committed or attempted, particularly regarding the person concerned, its development, the origin of the funds, and the Ȃȱǰȱȱȱǯȱ This means no evidence of ML, an associated predicate offense or TF is re q uired when reporting a suspicion . Instead, all that is needed are the circumstances that make this hypothesis likely . Please keep in mind that professionals should send this information to both the FIU and the CSSF (parallel reporting) onl y ȱȱ Ȧ Ȃȱȱȱȱȱȱȱ Ȃȱȱȱȱ member of its management, or if the information reported is likely to have a more material impact on the financial sector . (4) Professionals must implement ade q uate internal procedures to immediately detect persons sub j ect to re s tr i ct i ve mea s ure s i n fi nanc i al matter s . Screening must be performed every time sanction lists are updated . In practice, the market performs daily screenings . Even when professionals rely on service providers for the provision of sanction lists and their integration into the screening tool, they are still responsible for these lists exhaustiveness and update, as well as the accurate integration into the tool . The Law of 19 December 2020 on the implementation of restrictive measures in financial matters, together with the Grand - ducal Regulation of 14 November 2022, detail the implementation of restrictive measures in financial matters for Luxembourg . Any professional discovering a UN or EU sanction violation must report the enforcement of these sanctions to the Ministry of Finance . (5) Notably, this reporting re q uirement is not about conveying suspicion but confirming an actual infringement and implementing the freezing order . In these scenarios, the report is made by emailing the Ministry and including the relevant authority in copy (cc) . This is either the CSSF for CSSF - supervised entities or the Commissariat aux Assurances (CAA) for insurance sector matters . The restrictive measures list and guid ȱȱȱȱȱȱ ¢ȱȱ Ȃȱ (https://mfin . gouvernement . lu/) . Re p ort i ng t i me f rame to aut h or i t y ȱȱȱȱȱȃ wi t h out d ela y Ȅȱȱȱ ȱŗŘ - 02 means the filing process should occur as soon as the suspicious activity/transaction is brought to attention . The authority expects the professional to identify any restrictive measures wi t hi n one bu si ne ss d a y . However, the re q uirement to implement and report restrictive measures must be done ȃ ȱ¢ȄǯǻŜǼ Po s t-re p ort i ng obl i gat i on s Although professionals tend to exclude any counterparty sub j ected to a SAR/STR from their risk appetite, it is not mandatory to terminate existing business relationships once a suspicious activity or transaction has been identified and filed . However, if a professional concludes that a SAR/STR must be submitted for an existing business relationship, this relationship must be sub j ect to specific enhanced due diligence measures, w ȱ ȱ ȱ ȱ ȱ ȱ Ȃȱ ȱ ȱ ȱ procedures . (7) Unless expressly authorized by the FIU, professionals are prohibited from revealing a suspicious report submission . The restriction applies to both the reported individual and any third parties . ȱȃ - ȱȄȱȱȱȱȱȱȂȱ¢ǯȱ ȱȱȱȱȱȱȱȱ actual filing of reports, as well as FIU investigations and information re q uests . However, communications to authorized entities like law enforcement or within the same group(8) are exceptions to this rule . ȱ ȱ ȱ ǰȱ ȱ ȱ Ȃȱ ȱ ȱ ȱ ȱ ȱ ȱ transaction monitoring programs, which are currently focused on q uantity rather than q uality . (9) Ma j or focal points include: - Developing a risk - ȱ ȃȱ ȱ ȱ ¢Ȅȱ ȱ ȱ ȱ ¢ȱ useful information ; - Improving the analytics used for detection ; and - Optimizing case management systems and leveraging external data sources . The W olfsberg Group reiterates that the best indicator of SAR/STR q uality and usefulness is feedback from authorities, which provides information to professionals about their decision on a filed SAR/STR . Professionals should not only use this feedback to determine whether to continue or close the business ǰȱȱȱȱȱȱȱȱȱȱȂȱǯ ȱȱ ȱȱ ¢ȱȱ Ȃȱȱȱ¢ȱȱ e diligence measures on the concerned counterparty .