CSSF provides further guidance on money laundering indicators in the collective investment sector

On 3 July 2020, the Luxembourg supervisory authority for the financial sector, the Commission de Surveillance du Secteur Financier (the “CSSF”), published a new circular letter n°20/744 (“Circular Letter 20/744”), complementing CSSF circular letter n°17/650 of 17 February 2017 (the “Circular Letter 17/650”). As a reminder, the Circular Letter 17/650 provides guidance on the extension of the offence of money laundering to aggravated tax fraud (fraude fiscale aggravée) and tax evasion (escroquerie fiscale) and on applicable anti-money laundering and counter-terrorist financing (“AML/CFT”) professional obligations.

The Circular Letter 20/744 amends appendix 1 of the Circular Letter 17/650, in order to include a list of indicators to be specifically taken into account for collective investment activities. Therefore, in addition to common indicators likely to reveal a possible laundering of a predicate tax offence, sector specific indicators have been included.

These sector specific indicators enable relevant professionals to adapt their AML/CTF risk assessments and risk mitigation measures to the particular context of collective investment activities.

The additional list of indicators includes, inter alia, the following set-ups:

  • use of complex investment structures by undertakings for collective investments (“UCIs”);
  • use of business models by investment fund managers (“IFMs”) resulting in tax base erosion;
  • UCIs carrying out investment transactions on unregulated markets where the economic beneficiaries of the counterparties to the transactions and/or their intermediaries are located in high risk jurisdictions;
  • use of portfolio management techniques leading to tax arbitrage or tax refund that have been or could be considered as aggravated tax fraud/tax evasion;
  • illegal use of the SICAR (“Société d’Investissement en Capital à Risque”, an investment company in risk capital as defined under the law of 15 June 2004) status by UCIs which has a significant tax impact;
  • lack of information on investors leading to the inability for a UCI or an IFM to make adequate and compliant subscription tax declarations;
  • distribution by a UCI or an IFM of units in a country where the reporting requirements allow their investors to deduct or levy withholding taxes.

The Circular Letter 20/744 is accessible under the following link (only in English for now).

Aurélia Viémont, Counsel | Avocat à la Cour

Aurélien Hollard, Partner | Avocat à la Cour

Benjamin Bada, Partner | Avocat à la Cour