FATF Status

Luxembourg is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The latest follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Luxembourg was undertaken in 2023. According to that Evaluation, Luxembourg was deemed Compliant for 28 and Largely Compliant for 11 of the FATF 40 Recommendations. It was rated Highly Effective for 3 and Substantially Effective for 6 of the Effectiveness Compliance ratings.

US Department of State Money Laundering assessment (INCSR)

Luxembourg was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -

Despite its standing as the second-smallest member of the EU, Luxembourg is one of the largest financial centers in the world. It also operates as an offshore financial center. Although there are a handful of domestic banks operating in the country, the majority of banks registered in Luxembourg are foreign subsidiaries of banks in Germany, Belgium, France, Italy, and Switzerland. While Luxembourg is not a major hub for illicit narcotics distribution, the size and sophistication of its financial sector create opportunities for money laundering, tax evasion, and other financial crimes.

Hundreds of well-known multinationals have secured deals in Luxembourg that allow them to legally slash their taxes in their home countries. In some cases the Luxembourg subsidiaries of multinationals, that on paper handle hundreds of millions of dollars in business, maintain only a token presence or a simple front address. While corporate tax avoidance is technically legal, in many jurisdictions tax evasion is illegal and a predicate offense for money laundering. The international standards include tax crimes as designated predicate crimes for money laundering.

The Luxembourg Freeport is a highly secure warehouse adjacent to Luxembourg Findel Airport. It offers a variety of tax advantages because the goods warehoused are technically in transit. The Freeport is often used to store art and other valuable items without having to pay customs or sales tax. The services and confidentiality make the Freeport similar to an offshore financial center. With the Law of 24 July 2015, the licensed operators of the Luxembourg Freeport are now subject to the same know-your-customer obligations as apply to all other covered entities under the Law of 12 November 2004. The Law of 24 July 2015 also provides that the licensed operators of the Luxembourg Freeport are supervised by the Luxembourg Administration for Indirect Taxation regarding their AML/CFT obligations.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                          78

World Governance Indicator – Control of Corruption             96

Corruption does not constitute a problem for businesses in Luxembourg. The country has a strong legal framework to curb corruption, and anti-corruption laws are effectively enforced. Nonetheless, some corruption cases have revealed conflicts of interest between the private and public sectors, tainting transparency in the country. The legal framework criminalises bribery, facilitation payments, gifts and abuse of office, among other offences. Neither bribery nor facilitation payments are widespread in Luxembourg.  For further information - GAN Integrity Business Anti-Corruption Portal

Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (640,000), Luxembourg is the third-wealthiest country in the world based on Gross Domestic Product (GDP) per capita.

Luxembourg’s economy proved resilient during the stresses of the last few years including COVID disruptions and Russia’s ongoing war in Ukraine, with real GDP declining by only 1.3 percent during 2020 due to COVID shutdowns, but rebounding 6.9% in 2021, and 1.6% in 2022. This resilience was supported by a well-performing financial sector able to adjust quickly to remote work, and a financially stable government supported by a triple-A credit rating, and able to fund a large economic stimulus package equivalent to 18.5 percent of GDP.

Luxembourg is a major global financial center thanks to the growth of the investment fund sector through the launch and development of cross-border funds in the 1990s, and in more recent years through the growth of alternative asset classes such as private equity and alternative assets. Luxembourg is the world’s second largest investment fund asset domicile, after only the United States, with over $5 trillion of assets in custody at local financial institutions. The dependence on revenues relating to the financial sector for about one-third of GDP however, means that financial market volatility represents a major risk for the economy.

Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.

Over the past decade, Luxembourg has adopted major regulatory reforms to counter money-laundering, terrorist-financing, and tax evasion.

The Government of Luxembourg actively supports the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.

Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarters operations by virtue of its central European location and road, railway, and air connectivity.

It has also benefited from Brexit, with over 50 insurers, asset managers and banking institutions re-locating their EU headquarters to Luxembourg or transferring a significant part of their activity to the country.

Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline.

Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs.

Country Links

Financial Intelligence Unit (FIU-LUX)

Central Bank of Luxembourg

Commission de Surveillance du Secteur Financier

Commissariat aux Assurances