Luxembourg is a significant global financial center that houses over 144 international banks operating as “universal banks” with a wide range of activities. Luxembourg is known as a tax haven due to its banking secrecy, absence of exchange controls, lack of withholding tax on interest, and stable political environment. However, it’s important to note that banking secrecy doesn’t apply in criminal cases, including money laundering.

Government officials acknowledge the occurrence of narcotics-related money laundering, but they don’t consider Luxembourg to be more involved in such activities compared to other highly developed banking systems. Most money laundering cases in Luxembourg involve funds that were initially introduced into the global financial system elsewhere, often from within Europe, and then transferred to Luxembourg for further layering or integration. Luxembourg law holds bankers personally liable if they fail to verify the legitimacy of the beneficial owners of funds upon receipt. The Monetary Institute has intensified its efforts to monitor banks’ anti-money laundering performance.

There is no indication that the non-banking financial sector in Luxembourg has been implicated in money laundering. The government closely monitors non-bank institutions such as construction companies, real estate agencies, jewelry stores, art galleries, and antique dealers.

Under Luxembourg’s financial sector law, which dates back to April 10, 1993, bankers and other financial professionals are required to retain transaction documents or information for a minimum of five years. The same law mandates financial sector professionals, including exchange dealers, lawyers, notary publics, and bankers handling securities, to report suspicious transactions to the public prosecutor. The first annual report on banks’ compliance with reporting “suspicious transactions” was published in March 1995.

Bankers can face criminal charges if their institution knowingly engages in money laundering. For transactions exceeding 500,000 Luxembourg francs (approximately USD 16,000 at the current exchange rate), client identities must be verified. The 1993 law protects financial professionals who provide information on clients to the authorities in good faith from criminal or civil prosecution under Luxembourg’s bank secrecy law. There are no restrictions on the movement of funds into or out of the country.

Luxembourg law allows for asset forfeiture in criminal cases, and the first instances of funds being forfeited occurred in 1994. Forfeiture can be applied when assets are found to be involved in narcotics-related money laundering or following a criminal conviction. It remains unclear whether Luxembourg courts will enforce civil forfeiture orders from other jurisdictions, as civil forfeiture is not recognized under Luxembourg law. In criminal matters, seized funds cannot be forfeited directly based on pre-1992 Luxembourg law, which requires a criminal conviction for funds to be forfeited. There were no significant seizures in 1995.