ENR 2020 concluded that the threats from terrorism and terrorist financing (TF) are generally moderate. While the national risk assessment addresses both money laundering (ML) and TF risks, this vertical assessment focuses specifically on TF.
The methodology of this vertical risk assessment is closely related to that of ENR 2020 (assessment of inherent risk and effects of mitigation factors to determine residual risk) with some specificities. Thus, the starting point for assessing TF risk is terrorism: its different actors, their funding needs and the geographical scope of their actions.
First, the report analyses the different types of terrorist actors and classifies them according to their financial needs. Specifically, while small units, isolated actors and foreign terrorist fighters have low financial needs, international terrorist organisations are characterised by their high financial needs.
The report then looks at terrorist attacks in regions to which Luxembourg is linked by its geographical proximity or its financial centre. This allowed the identification of (sub)sectors vulnerable to TF and the subsequent assessment of specific mitigation factors to reduce the extent of these vulnerabilities.
In relation to the (sub)sectors vulnerable to the risk of TF, the main findings of this vertical risk assessment are as follows:
Non-profit organisations (NPOs) conducting development and humanitarian projects abroad present the highest level of risk, followed by retail and merchant banks, and money or securities transfer services. Private banking and the investment sector are less vulnerable to TF.
– Overall, NPOs carrying out development and humanitarian projects abroad are at risk on two fronts: by the donations they receive and by the destination of their funds. Although the typologies observed at the global level have not been detected in relation to Luxembourg NPOs carrying out development and humanitarian projects abroad, they remain vulnerable due to the location of their activities.
– The traditional products and services offered by retail and merchant banks (e.g. debit/credit cards, wire transfers, ATM withdrawals) make them vulnerable to lone actors, small terrorist cells or foreign terrorist fighters who might misuse them to channel funds to terrorist acts, individuals or groups.
– As with retail and merchant banking activities, money or value transfer services provide easy, fast and convenient access to cross-border transactions. This makes the sector vulnerable to abuse by lone actors and small units operating in the EU and by foreign terrorist fighters.
– The nature of the products and services offered by the private banking and investment sectors does not lend itself to the TF of isolated actors, small terrorist groups operating in the EU or foreign terrorist fighters. However, although there is little evidence that these sectors are being used for TF purposes, wealthy international terrorist financiers may be abusing them to shelter all or part of their wealth.
As described in ENR 2020, the BC/TF framework is built on five pillars, namely: i) national strategy and coordination, ii) prevention and supervision, iii) detection, iv) prosecution, investigation and recovery, and v) international cooperation. These pillars are underpinned by a comprehensive legal framework for combating BC/TF in line with the FATF Recommendations and the EU’s Fourth and Fifth Money Laundering Directives. The specific mitigating factors for the TF are explained in more detail in the vertical risk assessment.