As anti-money laundering and counter-financing of terrorism (“AML/CFT”) regulations encompass a wider range of financial activities, their scope is discussed by Marie Grillot, Director of ALCO, Sophie Dupin, advisor to the ALCO board and Partner at Elvinger Hoss Prussen, société anonyme, and Hervé Ballone, Co-chairman of ALCO and Director, Head of AIFM & Conducting Officer, CCO at the Carlyle Group.
What is the AED?
The AED is the Administration de l'enregistrement, des domaines et de la TVA. It is one of the three tax authorities in the Grand Duchy of Luxembourg, alongside the Luxembourg Inland Revenue and the Customs and Excise Agency. Further to the amendment of the AML/CFT laws and regulations three years ago, the AED took on the role of the supervisory authority with regard to AML/CFT obligations for non-CSSF-regulated funds.
Further to the AED’s recent publications as regard to the AML/CFT supervision of non-CSSF-regulated alternative investment funds, the Association of Luxembourg Compliance Officers (the “ALCO”), found it necessary to clarify the AED’s expectations in terms of its AML/CFT supervision of non-CSSF-regulated funds. The AED confirmed that any non-CSSF-regulated funds (notably reserved alternative investment funds (“RAIFs”) and other non-CSSF-regulated investment funds) are subject to the AML/CFT laws and regulations and to the AED’s supervision.
“They concluded that all funds, whether regulated or unregulated should establish and implement an AML framework”
What was the scope of discussions between the AED and the ALCO?
The discussions have led to a reshaping of AML/CFT laws and regulations. All CSSF-regulated and non-CSSF-regulated investment funds shall have established and implemented an AML/CFT framework. Further to some discussions, the AED confirmed that RAIFs and other non-CSSF-regulated investment funds are indeed subject to AML/CFT laws and regulations and to the AED’s supervision. In addition, to the extent that these non-CSSF-regulated investment funds would be managed by a Luxembourg alternative investment fund managers, they should also indirectly comply with CSSF Regulation 12-02 and CSSF guidance.
Furthermore, the non-CSSF-regulated investment funds’ AML/CFT framework shall be compliant with the Grand Duchy of Luxembourg’s AML/CFT legislation, the Grand Ducal regulations, and the applicable and relevant AED’s guidelines.
With regard to the AED’s supervision extension to any non-CSSF-regulated investment funds (i.e. not only RAIFs) has led to discussions about the timeframe to establish and implement the AML/CFT framework of such investment funds. It resulted from these discussions that any non-CSSF-regulated investment funds shall implement an adequate AML/CFT framework immediately and definitely before the end of the year. In addition, one shall be aware that the proportionality principle would not apply.
What are the implications for alternative investment funds establishing and implementing an AML/CFT-compliant framework?
It notably implies that all CSSF-regulated and non-CSSF-regulated investment funds shall establish and implement an AML/CFT policy and procedure. These alternative investment funds will also have to define (i) a risk appetite, (ii) a risk categorization and performing AML/CFT due diligence on all investors, assets and counterparties. In addition, they will have to collaborate with all authorities for reporting including the provision of an AML/CFT annual report, an annual AML survey, the name of the RC and the RR.