Legal Perspective: Anti-money laundering law in Luxembourg

Last week this column dealt with the Singapore experience in combating money laundering, taking into consideration the importance of Singapore as a financial centre in the Far East.

The experience of Luxembourg, an important financial centre in Europe, is also worth mentioning.

The Circular 94/112-25 November 1994 explains the position that Luxembourg's banking secrecy tradition has always been accompanied by a strong determination not to lend itself to money laundering activities.

Not surprisingly, Luxembourg was thus one of the first to implement specific legislation to fight such activities, (Law of 7 July 1989, IML and the Circular 89/57 of 15 November, 1998).

In the meantime, the Luxembourg legislator, while implementing the second banking directive, has substantially reshaped Luxembourg's banking and financial rules in a new law of April 5, 1993 on the financial Sector.

This new law, while continuing the banking secrecy tradition, also takes into account EC Directive 91/308 on money laundering as well as the UN Vienna convention of December 19, 1988, on illicit trafficking of drugs.

It is against this background that Luxembourg bank regulators have implemented IML circular 94/112 2 of November 1994 against money laundering through Luxembourg's bank and finance system.

The circular is very comprehensive and stipulates all necessary provisions and guidelines. The scope encompasses all banking and credit institutions, all other financial professionals, as will as all investment funds. Foreign operators also must ensure that their subsidiaries and branches comply with such rules.

A first set of rules deals with customer identification requirements. This applies not only to regular customers, but also to occasional customers, if the aggregate amount of one or several transactions exceeds LF50,000.

In addition to requiring a formal customs identification, the new circular reaffirms the rule that identification must disclose the beneficial customer. In addition, it outlines what sort of papers related to the customer must be kept on file, regarding the identification process, and what internal rules of procedure a professional financial institution and its employees should adopt in this respect.

The circular even contemplates internal education and training measures for the purpose.

While adequate customer identification will in general suffice to abide by the new rules, professionals are now also required to monitor account activities to identify any suspected transaction.

Appendix 1 of the circular (based on the recommendations of the Swiss banking authorities) furnishes a list of such transactions.

A second set deals with the cooperation between the professionals and the regulatory, as well as the criminal, authorities. In this respect, the circular implements a number of guidelines in compliance of Article 40 of the new Finance Law of April 5, 1994.

In this respect, the novel feature is that in addition to the disclosure requirements vis-a-vis regulatory authorities, there is now an obligation to disclose spontaneously to the criminal authorities all facts which may be an indication of money laundering activities.

Finally, the circular reaffirms the rule that outside, independent auditors must verify compliance with the rules.

The author is a legal consultant on banking and stock market laws.