The Financial Sector Supervisory Commission (CSSF) of Luxembourg announced in a press release that it had imposed an administrative penalty of €785,000 on the investment firm Fuchs & Associés Finance S.A.The firm is facing liquidation proceedings. This penalty was imposed for non-compliance with professional obligations related to anti-money laundering guidelines.
It followed an on-site inspection of Fuchs & Associés Finance, which was “authorised at the time of the on-site inspection to provide activities and services in accordance with the provisions of Articles 24-1, 24-2, 24-4 et 24-5 of the amended Law of 5 April 1993.”
The CSSF disclosed detailed information regarding the breaches and ongoing violations in the AML/CFT framework of the entity, some of which had already been identified during previous inspections.
Details of AML/CFT Non-Compliance
During the process of the review the regulators identified multiple causes of imposing penalty on the financial institution and here are the most prominent ones.
Onboarding Process
The CSSF highlighted deficiencies in the onboarding process for new business relationships. According to the CSSF, For some new clients, the entity had neither formally accepted the clients nor had applied any customer due diligence measures, even though large-scale operations had been carried out for these clients for several years, constituting a failure to comply with the obligations to apply customer due diligence measures.
The entity failed to determine whether some clients were acting on their own behalf or for another person, and it even had doubts about the true identity of the beneficial owners. Fuchs & Associés Finance did not attempt to clear its doubts, terminate the business relationship, or refrain from carrying out transactions.
Additionally, it did not consider whether a suspicious transaction report had to be filed with the Luxembourg Financial Intelligence Unit.
Lack of Information on Source of Funds
The CSSF identified a lack of information and a non-corroboration of information on the source of funds of some clients of the trading desk, despite the important amounts of the operations and/or the level of risk of those clients.
Failure to Assess Luxembourg Tax Risk
Fuchs & Associés Finance did not gather adequate and sufficient information and documentation to reasonably exclude the risk of a primary tax offense in Luxembourg for some of its trading desk clients, despite the files containing several elements indicative of a tax risk.
Absence of Client Categorization
There was the absence of categorization of some trading desk clients, according to their respective money laundering and terrorist financing risk.
Deficient Ongoing Monitoring
Ongoing monitoring of business relationships was deficient at several levels. Name screening controls aiming at detecting persons subject to prohibitions and restrictive measures in financial matters had not been carried out for all clients of the trading desk. Furthermore, the name screening tools were updated only once a week, and no additional controls were in place, particularly when new European and United Nations lists were issued.
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Inadequate Transaction Monitoring
Transaction monitoring was found to be insufficient and even non-existent for trading desk clients. The entity had only carried out transactional controls on part of its customer base, disregarding clients not classified as high risk based on their money laundering and terrorist financing risk, and clients whose assets were deposited with banks for which the data were not accessible via the entity’s internal software. Additionally, the entity had not had any access to this software for some time.
Critical Breaches in Luxembourg
The breaches of the AML/CFT framework were considered critical, “as the entity’s internal auditor had already pointed out prior to the on-site inspection that no transaction monitoring was carried out for business relationships classified as medium and low risk, which represented the vast majority of the entity’s customer base.” AML/CFT procedures were considered “inadequate” because they had not been updated for several years.
In the July 2023 decision made by the Luxembourg District Court regarding judicial liquidation, Alain Rukavina, avocat à la cour (attorney-at-law), was appointed as liquidator. Delano has contacted him for comment.
Fuchs & Associés Finance has yet to respond to the CSSF’s findings.
This penalty underscores the CSSF’s commitment to ensuring compliance with AML/CFT regulations within the financial sector and the seriousness with which it addresses breaches of these regulations.
