12 November 2024
MoF ¦ Guidelines "Implementation of financial restrictive measures (sanctions) against third countries, entities or individuals"
Ministère des Finances (MoF) ¦ Guidelines relating to the implementation of financial restrictive measures (sanctions) against third countries, entities or individuals
The guide provides a detailed framework on how to implement financial restrictive measures, also known as sanctions, in Luxembourg. It serves as a practical guide for natural and legal persons, entities, and authorities involved in applying these sanctions, which are imposed to comply with international and European Union (EU) obligations. Financial sanctions in Luxembourg operate under three main regimes:
- those stemming from United Nations Security Council Resolutions (UNSC Resolutions),
- EU decisions and regulations, and
- national measures.
UNSC Resolutions require mandatory compliance by member states under Chapter VII of the UN Charter. However, when the EU holds competence over the policy area concerned, it transposes these resolutions into EU law, thereby removing the need for separate national implementation. EU restrictive measures are tools of the EU’s Common Foreign and Security Policy (CFSP) and are adopted through CFSP Decisions and implemented directly through EU Regulations, which are binding and applicable without national transposition. At the national level, Luxembourg may adopt Grand-Ducal Regulations imposing additional sanctions to protect national security interests.
The guide identifies the main authorities overseeing financial sanctions in Luxembourg. The Ministry of Foreign and European Affairs coordinates international restrictive measures, while the Ministry of Finance is responsible for all matters relating to the implementation of financial sanctions, including handling applications for exemptions and resolving disputes such as cases involving homonyms. Other supervisory bodies include the Commission de Surveillance du Secteur Financier (CSSF), which oversees financial institutions’ compliance; the Commissariat aux Assurances (CAA) for insurance sectors; and several self-regulatory bodies such as the Institut des réviseurs d’entreprises (IRE), Ordre des Experts-comptables (OEC), Ordres des avocats (lawyers’ bodies), Chambre des Notaires (notaries), and Chambre des huissiers de justice (bailiffs). These bodies have supervisory roles and obligations to ensure their members comply with restrictive measures and promptly report any relevant information or suspicious activities.
The guide emphasizes the obligation of natural and legal persons to cooperate fully with competent authorities. This includes providing detailed information about frozen accounts, designated persons, suspicious transactions, attempts to circumvent sanctions, and homonym cases. Cooperation extends to international authorities such as the European Commission, the EEAS (European External Action Service), United Nations sanctions committees, and authorities from other EU member states.
Regarding the legal basis of financial sanctions, UNSC Resolutions and CFSP Decisions are binding international obligations on member states. EU Regulations implementing these sanctions are directly applicable in Luxembourg and have immediate legal effect once published in the Official Journal of the EU. National laws and Grand-Ducal Regulations complement these measures but do not apply retroactively. The territorial scope of EU Regulations covers activities within EU territory, including airspace and vessels registered in member states, as well as persons and entities inside or outside the EU with links to member states or conducting business within the EU.
The guide clarifies that while there are intersections between anti-money laundering/combating terrorism financing (AML/CFT) obligations and financial sanctions obligations, they are distinct regimes with different objectives. AML/CFT focuses on preventing illicit funds’ movement and financing of terrorism through customer due diligence and risk assessments. Sanctions implementation requires preventing funds or economic resources from being made available to designated persons or entities, regardless of the legality of the original source of funds.
In terms of technical challenges, the guide underscores that technical or IT problems do not justify breaches of sanctions obligations. Entities must notify the Ministry of Finance promptly if such problems arise to allow assessment and possible adjustments to procedures.
For individuals or entities seeking relief from sanctions, the guide outlines both non-contentious remedies such as requests for de-listing from sanction lists through appropriate bodies (EU Council, UN Security Council), and contentious remedies involving judicial review before courts such as the General Court of the European Union or national administrative courts. The procedures include application requirements, potential legal aid provisions for applicants facing financial hardship, processing times, and conditions for authorizations allowing certain transactions otherwise prohibited by sanctions.
The document provides examples of potentially problematic business relationships and transactions where parties may have connections to sanctioned countries or listed entities. It highlights indicators such as unclear transaction structures, splitting transactions to avoid thresholds (smurfing), involvement of parties listed by third countries, or use of intermediaries that may conceal beneficial ownership. In such cases, heightened due diligence is necessary, and transactions should be suspended pending consultation with competent authorities.
A detailed section explains the concepts of funds and economic resources subject to freezing under sanctions:
- “Funds” include cash, securities, deposits, debts, income from assets, guarantees, and documents evidencing financial interests.
- “Economic resources” cover tangible or intangible assets that can be used to obtain funds or services.
- “Freezing” means preventing any movement, transfer, or use that would alter ownership or availability of these assets. The guide stresses that freezing does not equate to confiscation or seizure but restricts usage without changing ownership.
- “Ownership” is defined as having full rights over property;
- “possession” refers to actual control regardless of ownership;
- “control” includes legal rights or factual power over assets or entities.
- “Joint ownership” requires freezing the entire asset; non-designated co-owners must seek authorization to use their share. Legal persons are considered owned if one holds 50% or more shares and controlled through various mechanisms including majority management appointments or dominant influence.
The guide discusses scenarios involving designated legal persons owning subsidiaries or having branches. Subsidiaries must exercise caution not to indirectly benefit listed parents, while branches are extensions of designated entities and subject to asset freezing. Joint ventures require case-by-case assessment depending on agreements.
Once a person or entity is listed, all their funds and economic resources must be frozen immediately without delay. Notifications must be sent to the Ministry of Finance along with relevant information about frozen assets. It is prohibited to make funds or economic resources available directly or indirectly to designated persons unless authorized by competent authorities under specific conditions.
Designated persons should be informed about their listing status and rights to request authorizations for specific transactions if allowed by law. However, any attempts to circumvent sanctions are strictly prohibited.
The guide addresses “no claims” clauses often included in EU Regulations that prevent claims arising from suspension of contractual obligations due to sanctions but do not allow refusal to execute guarantees unrelated to suspensions.
Regarding liability limitations, persons complying in good faith with freezing measures are generally protected from liability unless gross negligence is proven. Conversely, those who knowingly breach sanctions face penalties including imprisonment from eight days up to five years and fines ranging from €12,500 to €5 million or even higher if significant financial gains are involved. Facilitation of false justification of restricted goods or benefits derived from breaches can lead to imprisonment from one to five years and fines up to €1.25 million.
The guide highlights consolidated lists of designated persons maintained by the European Commission and United Nations as essential tools for checking compliance against sanctioned individuals or entities. In cases where names match but identity is uncertain due to homonyms or transliteration differences, thorough verification is required before taking action. Suspicious accounts involving homonyms should be suspended and reported for assessment.
Finally, the document provides a comprehensive list of websites for official sources on financial sanctions legislation, consolidated lists, judicial bodies handling appeals, supervisory authorities in Luxembourg, and international organizations involved in sanctions enforcement.
Dive deeper
- MoF ¦ International financial sanctions ¦ Link