FATF

The FATF stands for Financial Action Task Force, an intergovernmental organisation established in 1989 in Paris. Its objective is to combat money laundering (ML), terrorist financing (TF), and, more recently, proliferation financing (PF). To achieve this, the FATF has developed international standards applicable to all its member countries.

Source: The FATF

Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their AML/CFT/PF regimes. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolving the identified deficiencies within agreed timeframes and is subject to enhanced scrutiny. This list is commonly referred to as the "grey list".

Source: Jurisdictions under Increased Monitoring

High-risk jurisdictions exhibit serious strategic deficiencies in their AML/CFT/PF regimes. For all countries identified as high-risk, the FATF calls on its members and urges all jurisdictions to apply enhanced due diligence measures. In the most severe cases, countries are called upon to implement countermeasures to protect the international financial system from ongoing ML/TF/PF risks emanating from the listed jurisdiction. This list is commonly known as the "black list".

Source: High-Risk Jurisdictions subject to a Call for Action

First, the country in question must assess its own ML/TF/PF risks. It must measure not only technical compliance with FATF standards but also the effectiveness of its strategy. This process is typically complex, as it involves multiple sectors and stakeholders.

In the second phase, the mutual evaluation begins. A group of independent FATF assessors—unaffiliated with the country under review—examines the risk assessment prepared by that country. They focus on the most significant risks and primarily analyse the effectiveness of implemented measures. Their mission is to formulate recommendations to improve the existing system.

The final phase takes place before the FATF Plenary, where assessors from both sides engage in discussions. The goal is to ensure the evaluated country understands the gaps in its system and the necessary modifications to be implemented.

Technical compliance relates to the specific obligations outlined in the FATF Recommendations. These primarily concern national institutions and the powers and procedures of competent authorities. A country with a high level of technical compliance generally has a strong foundation for an AML/CFT system.

Effectiveness focuses on the immediate outcomes necessary to reduce ML/TF risks, which the country has achieved through its judicial and institutional system. Effectiveness is prioritised over technical compliance and has a greater impact on the evaluated country’s overall rating.

Source: Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT/CPF Systems

According to the 4th Mutual Evaluation Report, Luxembourg has a strong AML/CFT system. Thanks to political will and significant investment by authorities, the risk mitigation system has seen considerable improvements.

Source: Publication du 4e rapport d'évaluation mutuelle du Luxembourg par le GAFI