On October 29, the Luxembourg Times reported that Claude Marx, the Director General of the Luxembourg Commission de Surveillance du Secteur Financier (CSSF), warned in a recent interview “that the risk of money laundering in Luxembourg’s private banks is increasing.” Marx attributed the increased risk to two factors.
The first is the continuing increase in ultra-high net worth clients in Luxembourg private banks. The Luxembourg Times stated that such clients “bring in more than half of the money managed in Luxembourg, and those clients’ deposits increased by 4 percent (€32 billion) last year, according to Association des Banques et Banquiers, Luxembourg (ABBL) (Luxembourg Bankers’ Association). The second is the increasing number of non-European clients at private banks. Although the year-on-year percentage of non-European clients has remained steady at 11 percent, that percentage translates to “real-term growth of €3.4 billion to €40 billion, given that the overall market expanded by 9%.”
One Luxembourg-based private bank, the Russian East-West United Bank, confirmed that Luxembourg is increasingly popular with its clients from Russia, Ukraine, Kazakhstan, and Belarus. The Luxembourg Times article also speculated that “[t]he numbers for third-country clients could be even higher,” as ABBL data “include legal structures that are domiciled in Luxembourg, but whose beneficial owners are outside the [European Union].”
While the CSSF declined to name specific countries that prompt its concern, the Luxembourg Times reported that “industry participants speculated that China and Russia are in its crosshairs,” in part because “Luxembourg has especially close business ties to China,” with seven Chinese banks headquartered there.
N.B.: Bank regulators have long recognized that private banks are susceptible to money laundering. As the European banking sector continues to reel from the effects of the Danske Bank scandal, financial institutions doing business in Europe need to recognize that criminal enterprises have an active interest in identifying and exploiting new channels for laundering. Certainly those responsible for directing the $234 billion in potentially suspect transactions that flowed through Danske Bank’s Estonian branch did not wait to seek out those new channels, and the information in the Luxembourg Times provides sufficient cause for concern by European financial institutions and financial regulators like the CSSF.
Accordingly, anti-money laundering compliance officers at financial firms doing business in Europe should incorporate this information into their money laundering risk assessment processes. They also need to be thinking now about how to refine their AML compliance programs to address private banking-related risks, and how best to respond when regulators over time expand their oversight of AML compliance to include private-banking concerns.