In order to prevent and raise awareness among reserved alternative investment funds (“RAIFs”) which are subject to the law on the fight against money laundering and terrorist financing of 12 November 2004 (the “AML/CFT Law”), the Luxembourg Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA) (“AED”), as supervisory and control authority, issued a handbook on 25 May 2022 in order to assist RAIFs in the implementation of their professional AML/CFT obligations (the “Handbook”).
The AED reminds RAIFs of the three main pillars of AML/CFT professional obligations: the duty of care, the professionals' internal organisation, and the obligation for professionals to cooperate.
The duty of care
Identification of the client/agent
The identification of clients should be done before entering into any relationship and should continue over time.
The AED reminds that the identification and verification of the client's identity is based on documents, data or information from reliable and independent sources, such as identity card, passport or any other document from a reliable and independent source. These documents must be understandable, intelligible and decipherable for the RAIF and the control authorities, including the AED.
When the client is a legal entity or a trust, the RAIF must identify the beneficial owner(s) and take all reasonable steps to verify such beneficial owners’ identity by verifying the legal status or trust by collecting, as a matter of example, but not limited to, the proof of incorporation, corporate form, name of the directors of the board of directors, etc.
The obligation to verify the identity of the legal persons necessarily implies to understand the activity of the legal person, verify the name and legal set up, as well as to obtain a certain amount of information as listed in the AED guide. If the identification is not possible, no entry into a relationship is possible.
Identification of the beneficial owner
A RAIF must take reasonable steps to verify the identity of the beneficial owner using relevant information or data obtained from a reliable and independent source. The handbook specifies the type of documents that may be used to support the confirmation. RAIFs are required to maintain constant monitoring, updating and vigilance of client and beneficial owner identification information.
Procedure for entering into a business relationship
The Handbook states that the RAIF must avoid any business relationship with a client who does not wish to be transparent (desire for anonymity, failure to obtain the information requested, etc.).
Types of vigilance
The AED specifies that the type of vigilance exercised by a RAIF must be consistent with its internal procedure formalizing the risk analysis and determination of the client's risk profile allowing it to apply simplified or enhanced due diligence where necessary.
The professionals' internal organisation
The implementation of an internal procedure by the RAIF
The AED specifies that the RAIF is required to set up an internal organization that is adequate and proportionate to the size of its business and the services it provides in the course of its professional activity. This obligation implies the establishment of an internal procedure manual, regardless of the size of the company and its activity (instructions for use), which details the procedure implemented, in order to prevent the risks of money laundering and terrorist financing. The internal procedure manual must be accessible to all staff.
Appointment of a responsable du respect des obligations ("RR") and a responsable du contrôle du respect des obligations ("RC")
The AED reminds that the appointment of an RR and an RC is mandatory and provides clarifications and sets out expectations which are in line with those of the Luxembourg financial sector supervisory authority (the CSSF) for regulated funds (based on the CSSF’s FAQs on RR and RC).
The RR and the RC shall:
- be reachable by the AED and the Luxembourg financial intelligence unit (the “FIU”);
- have sufficient knowledge of the Luxembourg AML/CFT requirements; and
- have understanding of investment and distribution strategies of the RAIF.
- The implementation of a risk analysis by RAIFs
The AED specifies that the RAIFs are required to take appropriate measures to identify, assess and understand money laundering and terrorist financing risk, such as the identification of AML and CFT risk or qualifying, managing and mitigating the risk for each client and each client will be classified according to its risk profile (i.e. low, medium, or high risk).
The risk profile of the client may be classified on the basis of different criteria and it is important to point out that there is no "one-size-fits-all" methodology for assigning a specific level of AML/CFT risk to a client. Each RAIF will need to include in its internal organization the procedure
Obligation for professionals to cooperate
A RAIF is required to inform the FIU without delay and on its own initiative of any fact or transaction that could be indicative of money laundering and/or terrorist financing. All suspicious transactions, including attempted suspicious transactions, must be reported.
The RAIF itself, its RC and RR must be registered on the goAML portal in order to be able to transmit a suspicious transaction report to the FIU in the name and on behalf of the RAIF, if necessary.
In order to oversee the RAIFs, the AED requires the provision of the following documents:
- The RAIF RC RR identification form;
- AML/CFT risk questionnaire;
- Legal documentation related to the RAIF RC RR identification form; and
- The RC's AML/CFT report.
Article 8-4 of the AML/CFT Law sets forth the different sanctions that may be imposed on RAIFs for failure to comply with their professional obligations.
In order to respect the principle of proportionality of the sanctions, they are pronounced in a gradual manner.
The AED specifies that a RAIF has the right to appeal to the Administrative Court against the AED’s administrative decisions imposing an AML/CFT sanction.