21 Jan 2020
Drug trafficking, fraud, forgery, tax crimes, corruption and bribery are “very high threats” to the Luxembourg funds industry, according to a study by the country’s financial regulator.
The risk for abuse is high in the Grand Duchy, according to the CSSF’s first national risk assessment of money laundering and terrorist financing. These are linked to Luxembourg’s success in the fund industry: the size and diversity of sector, the abundance of service providers and third parties, the volume of transactions and the international nature of the business.
Funds may be abused or misused to launder illicit funds obtained elsewhere and to generate illicit funds within the industry itself through fraudulent activities, as observed by the international Financial Action Task Force (FATF). They can also be abused to raise, move and use funds related to terrorism in Luxembourg or abroad, the CSSF report said.
Luxembourg is the largest collective investment center in Europe, with more than €4 trillion in net assets according to the OECD. The funds operate as UCITS – Undertakings for Collective Investments in Transferable Securities – or as AIF – Alternative Investment Funds.
“The large sums involved, high competition and an incentive-driven environment may lead to a higher risk appetite and to a failure to adhere to internal controls,” the report said.
Fraudulent fund practices may include “Ponzi” schemes, confidence or “boiler room” scams and the use of fictitious or “shell” companies. A network of feeder funds – which invest the majority of their capital through a master fund – and umbrella fund structures can be used to distance a fraudulent master fund from end-investors, the report said.
By Julie Edde, Luxembourg Times, 20 January 2020
Read more at Luxembourg Times
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