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07/27/2006

AML law: inaccurate public communication on efficiency

When looking the website "Luxembourg For Finance" (http://en.luxembourgforfinance.lu/index.html) there is a quotation from the IMF in the page dedicated to the prevention of anti money laundering: "Luxembourg has in place a solid legal framework and supervisory system to adress the challenge of money laundering".

When having a look at the report that is linked, it appears that the report is not based on the current legislation, the assessment being based on the information available at the time it was completed on November 30, 2003 (Information and Methodology used for the Assessment, page 4 of the report). It is said about Criminalization of ML and FT page 5 that "a new draft law has been adopted in first reading by the Parliament which would substantially amend the legal framework, but it has not been taken into consideration in the AML/CFT assessment since it is not yet in force. If adopted in its present form, however, it would result in a legal framework likely to fall short in some important respects of the requirements of the revised FATF recommendations, particularly as regards predicate offences, customer due diligence, and the operation of the financial intelligence unit (FIU)."
Report: http://en.luxembourgforfinance.lu/imperia/md/content/luxembourgforfinance/financial-centre/liberal-legislation/cr04399_1_.pdf

The problem is that the law was not adopted in the form on which the IMF based the statement. There were a debate with on one side professionals that did not want strict rules, and on the other side the Prosecutor's office that was warning that it would be a shame to have a legislation that would not be effective, a "Potemkine village".
The debate is traced in French in parliamentary documents, especially what was said by the Prosecutors' Office.

Professionals won, but not AML : the text was amended to reduce the penal risk for professionals notably by introducing pragmatically the word "sciemment" (i.e. knowingly) : in order to obtain a conviction for money laundering, prosecutors must now prove criminal intent rather than negligence, which was a positive sign for all those who do not have a proper conduct in business operations. Negligence, however, is still scrutinized by the CSSF.

Some professionals regret the failure of the draft. For example, Victor Rod, who is Director of the Insurance Commission of the Grand-Duchy of Luxembourg. He was one of the author of the strict requirements Victor Rod is worrying about the next assessment by the IMF because of the changes to the draft all the more as the market supports requirements like those that were removed.

In the report of activity dated March 2006 page 119, the Prosecutor's office states that is most case it will be unable to prove the « sciemment » introduced by the law of 12 November 2004 and that they lack staff.

Figures of declarations of suspicion show a turn after the law of 12 November 2004 while business is still being developed :

1998 : 114
1999 : 108
2000 : 158
2001 : 413
2002 : 631
2003 : 828
2004 : 943
Law
2005 : 831


There is a gap between the official communication and what is stated by the Prosecutors' Office that is on the field.



To know more

Victor Rod's interview (in French)

11:25 Posted in Luxembourg | Permalink | Comments (0)

07/25/2006

Declarations of suspicion

In the report 2004, the CSSF wrote that "In 2004, the CSSF dealt with a total of 509 communications related to the fight against money laundering and terrorist financing.It is interesting to note that 91 of these reports were made following the request of potential clientsto enter into business relations, but to which the professional of the financial sector did not respond favourably due to a suspicion of money laundering or terrorist financing. In this context, it must be stressed that often, either the professional refused to establish business relations for lack of transparent and conclusive information, or even because the documents seemed to be fraudulent or forgeries, or the clients withdrew following the professional’s request for further documents and information. It is obvious that thorough screening measures right from the outset prevent the professional from having to deal with risk clients he had better refused from the beginning. Many reports (44) were also made within the context of combating terrorist financing. This category comprises the communications that have either been transmitted to the CSSF as copies following the circulars issued by the Luxembourg Financial Intelligence Unit (FIU), or following the CSSF circulars on financial restrictive measures (freeze of funds) decided at European level. It can be observed that 86 out of the 162 credit institutions registered on the official list as at 31 December 2004 made a communication in 2004. As far as the other professionals of the financial sector (PFS) are concerned, 18 out of the 166 PFS registered on the official list as at 31 December 2004 transmitted a communication to the CSSF. It is striking that the communications of the ten professionals of the financial sector that made more than ten communications each in 2004 – i.e. ten credit institutions – make up alone half of the communications received by the CSSF in 2004 (46%). The reason why some professionals of the financial sector make a large number of reports while
others only a few, even none, can be linked to the activity and the size of the professional, as well as to the number of clients. However, although reports should not be made rashly without the professional having observed a fact that might be an indication of money laundering or terrorist financing in accordance with article 5 paragraph (1) of the law, it is important that the professionals of the financial sector, including in particular PFS, that have not reported any suspicion, or very few, reflect on this situation."

Declarations_of_suspicion_LU.pdf

There is no improvement in 2005. It is said in the report that "in 2005, the CSSF dealt with a total of 487 communications relating to the fight against money laundering and terrorist financing, which is a slight decrease as compared to 2004 (514 communications) (...) It should be stressed that the professionals that have filed more that ten reports – i.e. twelve banks and one PFS – have become even more diligent as in 2004, as the communications of these professionals represent more than half of the total number of communications received by the CSSF (about 61% in 2005 against 46% in 2004)".

Declarations_of_suspicion_2_LU.pdf



These figures mean actually that only a few professionals are active in AML. Most of them do not care about it, which is probably due to the pragmatic approach to the existing clear law and regulation.

10:05 Posted in Luxembourg | Permalink | Comments (0)

The average employee in a bank is a sheep either white or black

The ABBL commissioned a stydy by the TNS ILRES Institute. Findings were presented July 4th.

TNS ILRES identified four categories of employees :
- "Critics"are rather critical, therefore difficult to lead. They have a strong belief in the competitive ability of the company. They are individualistic, interested in their own professional advancement. They give impetus for change. They are ready to change jobs when the opportunity arises.
- "Drivers" have a strong identification with corporate objectives. They are highly loyal to the company. They believe in the future vision and the competitive ability of the company. They show strong initiative and willingness to cooperate inspires and motivates colleagues.
- "Residents" are very satisfied. They fulfil their work without experiencing a motivating environment. They have a stabilising effect on the company. They are security driven. They need to be directed.
- "Detached" are dissatisfied. They are disconnected from the company. They are more frustrated than dedicated and a source of contagion for negative climate. They are underutilised resources of the company.

Compared to the European benchmark, the financial centre of Luxembourg is intensely missing ‘drivers – locomotives’ (only 8% have a reference value of 21%) as well as ‘critics’ (only 4% have a reference value of 13%); instead of having 1 employee out of 3 who are motivated and convinced of the performance of the centre, the survey reveals that there is only 1 in 8.

The analysed population characterises itself with a very high proportion of ‘residents’, 56% which means 22 points more than the European average of the employees, this is not only surprising but also worrying for a sector which is of first importance to the national economy. The proportion of ‘detached’ (one third) matches the European average.

Newsletter_ABBL_Social_Matters_1_ENG.pdf



As far as business ethics is concerned, Jean-Nicolas Schaus, who is General Manager of the CSSF, (body responsible for the supervision of the Financial centre) stated in the report 2004 that "in too many cases, the persons responsible for reprehensible acts do not suffer the consequences with regard to the continuation of their occupation. The person responsible for such an act is often simply removed from management while being granted compensations, which largely exceed normal expectations. Sometimes, the impression could arise that crime pays, whichsoils the reputation of a fi nancial centre. Moreover, it can be observed on too many occasions that when such professionals seek new employment, the new employers tend to somewhat close their eyes to the problem, while knowingly taking the risk that the persons concerned could again perform reprehensible acts".
It is interesting to underline that for the General Manager of the body responsible for the the supervision of Luxembourg Financial centre there may be an acceptance of employees that are not honest in a certain limit ("in too many cases"). Otherwise the wording whould have been "in some cases" or "in many cases". This is probably a sign of the pragmatism in Luxembourg.

CSSF_abstract_annual_report_2004.pdf




This means that the average employee in Luxembourg is either a sheep or a dubious guy.

08:05 Posted in Luxembourg | Permalink | Comments (0)