MoF ¦ Guidelines "Implementation of financial sanctions against certain persons, entities, bodies and groups within the framework of CTF"

Ministère des Finances (MoF) ¦ Guidelines relating to the implementation of financial sanctions against certain persons, entities, bodies and groups within the framework of combating terrorism financing

The comprehensive guide provides detailed instructions and recommendations for the implementation of financial sanctions within Luxembourg’s legal framework to combat terrorism financing. This guide is intended as a practical resource for natural and legal persons, entities, and supervisory bodies involved in enforcing financial restrictive measures, also referred to as sanctions or restrictive measures.

Scope and Nature of Financial Sanctions

Financial sanctions are restrictive financial measures targeting certain persons, groups, entities, or bodies believed to be involved in terrorism financing. In Luxembourg, these sanctions operate under three distinct regimes:

• United Nations Security Council (UNSC) resolutions,
• European Union (EU) financial restrictive measures, and
• national-level restrictions through Grand-Ducal Regulations.

UNSC resolutions require member states to freeze funds and economic resources of designated individuals or entities, with automatic transposition into national law when EU competence applies. EU measures, adopted under the Common Foreign and Security Policy (CFSP), include Council or Commission Regulations that are directly applicable within Luxembourg without national transposition. National restrictive measures complement these international obligations, allowing Luxembourg to address threats to its national security or vital interests through specific legislation.

Key Competent Authorities and Self-Regulatory Bodies

Several authorities share competencies in financial sanctions implementation. The Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade coordinates international restrictive measures linked to UN and EU decisions. The Ministry of Finance is the central authority responsible for all operational aspects of financial sanctions enforcement, including addressing queries, granting exceptional authorizations for derogations, and managing disputes related to homonyms or unintended consequences of sanctions. Supervisory bodies such as the Commission de Surveillance du Secteur Financier (CSSF), Commissariat aux Assurances (CAA), Administration de l’enregistrement, des domaines et de la TVA (AED), Institut des réviseurs d’entreprises (IRE), Ordre des Experts-comptables (OEC), Ordres des avocats, Chambre des Notaires, and Chambre des huissiers de justice hold regulatory oversight over their respective sectors to ensure compliance with financial sanctions.

Role of the Financial Intelligence Unit (FIU)

The FIU functions as the national authority tasked with receiving and analyzing suspicious transaction reports possibly related to money laundering or terrorist financing. It holds autonomous powers to investigate, freeze assets, and instruct professionals not to proceed with transactions linked to suspicious activities. The obligation to report suspicious transactions applies regardless of the amount involved and even in cases where predicate offenses cannot be definitively identified.

Implementation Obligations and Cooperation

Natural and legal persons subject to financial sanctions have an obligation to cooperate fully with competent authorities by providing pertinent information such as details of frozen accounts, identity data of designated persons, incoming transfers, attempts to circumvent sanctions, and cases involving homonyms. Cooperation extends internationally with EU institutions, other member states, UN sanction committees, law enforcement agencies, customs and judicial authorities.

Legal Basis and Binding Nature

UNSC resolutions and CFSP decisions are binding on member states, with designations automatically transposed into national law. EU Regulations are directly applicable in Luxembourg without further national legislation and bind all natural or legal persons within or operating from the EU. National laws and Grand-Ducal Regulations complement these instruments but do not apply retroactively. The territorial scope of EU Regulations includes the entire EU territory and extends to vessels or aircraft under jurisdiction of member states as well as nationals of member states regardless of location.

Bastian Schwind-Wagner_Follow "This guide serves as an essential reference for all stakeholders in Luxembourg engaged in combating terrorism financing through effective implementation of financial sanctions. It highlights the legal framework, operational procedures, roles of supervisory bodies and authorities, compliance obligations, rights and remedies available to affected parties, and underscores the critical importance of cooperation and due diligence in preventing misuse of financial systems by terrorist actors."

Differences Between AML/CFT and Financial Sanctions

While anti-money laundering/counter-terrorism financing (AML/CFT) frameworks overlap with financial sanctions obligations, they are not identical. AML/CFT focuses on customer due diligence and risk assessments to prevent illicit finance flows. Financial sanctions specifically prohibit making funds or economic resources available directly or indirectly to designated persons or entities. Compliance systems for AML/CFT may not be sufficient on their own to detect breaches of financial sanctions; thus, additional monitoring measures are required.

Technical Issues

Technical or IT difficulties do not excuse breaches of sanctions obligations. Entities facing such issues are encouraged to inform the Ministry of Finance promptly for an assessment and potential procedural adjustments.

Remedies and Authorizations

Requests for removal from sanctions lists (de-listing) can be submitted through various channels depending on the origin of the listing—EU Council General Secretariat for EU Regulations, UN Ombudsperson or Focal Point for UNSC resolutions, and the Ministry of Finance for national listings. Contentious remedies include applications for annulment before Luxembourg administrative courts or the General Court of the EU. The Ministry of Finance processes applications for authorizations that allow exemptions from prohibitions under specific conditions. These applications require detailed supporting documentation and may take variable processing times depending on complexity. Authorizations can be modified or withdrawn if based on false information or if circumstances change.

Freezing of Funds and Economic Resources

The guide clarifies definitions:

• “funds” encompass financial assets like cash, deposits, securities, debts, and income;
• “economic resources” refer to tangible or intangible assets usable to obtain funds or goods.
• “freezing” means preventing any transaction or alteration that would allow use or transfer of these assets. This freeze applies without delay once a person or entity is designated.

Making funds or resources available indirectly — through ownership or control relationships — is also prohibited unless authorized.

• “Ownership” means holding 50% or more proprietary rights;
• “control” includes rights to appoint majority board members, dominant influence by agreement, use of assets, or unified business management.

Legal persons owned or controlled by designated individuals/entities are subject to asset freezes. Examples illustrate complexities such as

• subsidiaries owned by designated parents being restricted from making funds available upward through dividends;
• branches being extensions of parent companies subject to freezes;
• joint ventures requiring case-by-case assessment; and
• use of front companies or trusts necessitating enhanced due diligence.

Basic expenses necessary for survival—food, rent, medicines—may be authorized on a case-by-case basis, while luxury expenses require prior approval. Personal use assets like a designated person’s residence or car are generally not frozen unless used economically.

Limitation of Liability

Persons complying in good faith with financial sanctions are protected from liability unless negligence is proven. Conversely, failure to comply can lead to significant fines and imprisonment under Luxembourg law.

Lists and Homonyms

Sanctions lists are maintained by the EU and UN, accessible online for screening purposes. Situations where a person shares the same name as a designated individual require careful investigation using additional identifiers such as date of birth or location before action is taken. Transactions must be suspended pending clarification.

Penalties for Non-Compliance

Violations against restrictive measures may lead to imprisonment from eight days up to five years and fines ranging from €12,500 to €5 million. Facilitating false justification related to prohibited assets can result in penalties up to five years imprisonment and fines up to €1.25 million.

Useful Resources

The guide concludes with a list of key websites for consultation including those of Luxembourg ministries involved in sanctions enforcement, supervisory authorities such as CSSF and CAA, the FIU, consolidated sanction lists by the European Commission and United Nations, official gazettes, as well as international organizations like FATF for guidance on anti-money laundering standards.

Dive deeper

• MoF ¦ International financial sanctions ¦ Link