Ruling [LU] ¦ Luxembourg Court Highlights Bank’s Due Diligence Duties in Money Laundering Case

Luxembourg Court Highlights Bank’s Due Diligence Duties in Money Laundering Case

Introduction

A recent ruling by the Luxembourg Court of Cassation on March 27, 2025, has clarified the responsibilities of banks concerning customer identification and transaction monitoring under anti-money laundering laws. The case involved allegations against SOCIETE1, a bank accused by heirs of failing to prevent the misappropriation of funds transferred through its accounts. The judgment underscores the importance of thorough due diligence while balancing the practical limits of banking operations.

Background of the Case

The dispute originated from a transfer of approximately €1.94 million from a Swiss bank account belonging to a deceased individual to an account held by SOCIETE2., a company linked to SOCIETE1. The funds were intended for tax regularization but were subsequently diverted by an individual associated with SOCIETE2. The heirs claimed SOCIETE1. failed in its legal obligations under Luxembourg’s anti-money laundering legislation by not adequately verifying the identity and legitimacy of the involved parties, thereby facilitating the diversion.

Court’s Analysis and Ruling

The Court of Cassation found that SOCIETE1. had fulfilled key identification duties, including collecting documentation and conducting personal interviews before the contested transactions. The bank was not found liable for the fund diversion because no clear evidence showed it neglected its vigilance obligations or should have suspected wrongdoing based on available information.

However, the Court criticized the earlier appellate court for failing to address whether SOCIETE1. adequately verified the professional status of the economic beneficiary, thus remanding the case for further review. Furthermore, the Court highlighted that banks must suspend suspicious transfers and seek confirmation if an “intellectual anomaly” — an unusual or suspicious transaction inconsistent with the client’s profile — is detected. The appellate court had not thoroughly examined whether such anomalies existed in this case.

Bastian Schwind-Wagner_Follow "The Luxembourg Court of Cassation’s ruling reinforces banks’ due diligence duties under anti-money laundering laws while recognizing practical limitations. It mandates thorough verification and vigilance but also requires courts to fully assess all aspects of compliance before assigning liability."

Implications for Banks and Financial Institutions

This ruling sends a clear message to banks operating in Luxembourg and beyond: compliance with anti-money laundering rules requires a balance between reasonable diligence and practical limitations. Banks must carefully document client information and monitor transactions for irregularities but are not expected to guarantee absolute prevention of fraud. The decision also illustrates judicial insistence on detailed reasoning when evaluating banks’ compliance efforts, reinforcing that omissions or incomplete assessments can lead to case remands.

Financial institutions should review their client onboarding and transaction monitoring practices to ensure they meet both regulatory standards and judicial expectations, particularly regarding verification of beneficial ownership and prompt response to suspicious activities.

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