Assessment of underlying tax offenses in an AML/CTF context: the asset management sector must prepare for CSSF inspections – Tax authorities

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The new provisions introduced by Circular 17/650, as amended by Circular 20/744, impact the AML/CFT compliance obligations of the asset management sector.

Asset managers (as well as other regulated investment professionals) should review their internal procedures and document the risk assessment of their business activities in order to prepare for CSSF inspections.

Background

In February 2017, the CSSF published Circular 17/650 following the Luxembourg tax reform of 2017 extending the money laundering offense to aggravated tax evasion and tax evasion. The publication of Circular 17/650 follows the revised FATF standard of 2012/2013 and the 4th AML Directive (Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of use of the financial system for the purposes of money laundering or terrorist financing under Luxembourg law). This initial circular provided general guidance to all entities under the supervision of the CSSF to raise suspicions of tax fraud and tax evasion by means of a (non-exhaustive) list of common indicators set out in Appendix 1. of the circular.

In July 2020, circular 17/650 was amended by a new circular, circular 20/744, which supplements the common indicators listed in appendix 1 with new indicators to be taken into account specifically in the context of collective investment activities. and professionals providing services in this particular sector.

Professionals concerned

The Circular, as amended, is applicable to all entities supervised by the CSSF, with a focus on investment fund managers.

Goal

The CSSF expects the professionals under its AML/CFT supervision to take these new indicators into account, where applicable, in their risk assessments and when designing risk mitigation measures proportionate to their exposure to the risk in the specific context of collective investment activities.

Consequences

The Circular, as amended, extends the due diligence obligations of professionals to all types of Luxembourg taxes as well as to tax offenses in countries other than Luxembourg. It should be noted that the simple attempt to commit a tax offense is punishable and falls within the scope of the Circular.

In practice, investment professionals will have to ensure that their internal processes are adapted to be able to identify the laundering of predicate offenses in the light of the (non-exhaustive) list of indicators.

Now is the time for asset managers to review their internal processes and documentation in order to prepare for CSSF inspections.

Broader Context

While the legal basis differs, with regard to DAC6, it should be noted that the Luxembourg tax authorities have launched surveys of tax intermediaries requesting information on their internal policies and the availability of an analysis monitoring tool. There is therefore increasing pressure on market participants to put in place appropriate internal policies, aligned with the regulations they must comply with.

To help our customers and other service providers navigate DAC6 regulations in all EU jurisdictions in which they operate, we have developed an IT solution, DAC6Connect©, which enables DAC6 analysis in a multi-jurisdictional environment. as well as connecting intermediaries and taxpayers through seamless coordination. and communicate.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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