Overview

Luxembourg’s Ministry of Finance recently released an updated version of its "Guidelines Relating to the Implementation of Financial Restrictive Measures (Sanctions) Against Third Countries, Entities, or Individuals." This extensive document aims to provide clear guidance on sanction compliance. To streamline the information for our readers, we’ve distilled the key points from the 35-page document.

1. Source Lists

Luxembourg mandates compliance with EU and UN sanctions lists only. However, internal lists may occasionally be issued by local authorities. Although major sanctions lists—such as the U.S. Office of Foreign Assets Control (OFAC) list—are widely respected and adopted by many entities in Luxembourg, there is no formal obligation or specific mention of the OFAC lists within Luxembourg’s guidelines.

2. Flexibility in Data Vendor Selection

Contrary to common misconceptions, Luxembourg authorities, and indeed other European regulators, do not endorse or require the use of any particular data vendor. We confirmed with Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) that regulated entities are free to select any vendor of their choosing, as long as companies in question are satisfied with the quality of service or data provided. 
 

3. Technical and IT Compliance

Technical or IT issues do not excuse non-compliance with financial sanctions. The Ministry of Finance advises entities to promptly report any technical challenges that could impact sanction enforcement. This allows authorities to assess and address the situation, potentially through procedural adjustments or legislative amendments.
 

4. Removal from Sanctions Lists

While infrequent, entities or individuals can occasionally be removed from financial sanctions lists. If an entity or person for whom prior authorization was required is removed from the list, it is no longer necessary to seek authorization for transactions involving them.
 

5. High-Risk Jurisdictions and Transaction Compliance

The guidelines provide examples of potential compliance challenges, including transactions involving countries with heightened risk. The Ministry of Finance clarifies:

“If a person is connected, by way of their nationality or residence, to a sanctioned country, it does not necessarily follow that the transaction in question will not be in compliance with the legal provisions (EU Regulations and other provisions). Consequently, the natural and legal persons who are required to implement the restrictive measures must check whether the restrictive regime in force requires the submission of an application for authorisation to the Ministry of Finance prior to execution of the transaction in question.”

In short, transactions must be scrutinized not only for compliance with regulations but also for potential indirect benefits to listed individuals. When in doubt, the Ministry of Finance encourages consultation to verify compliance.
 

6. Ownership and Control: The 50% Rule

Luxembourg authorities reaffirm the EU’s position on the "50% rule" for ownership and control, as emphasized in updated Best Practices from 2022 to 2024. This rule asserts that if an individual or entity owns 50% or more of a sanctioned entity, it may also be restricted under sanctions. Of note, the rule was recently challenged in Australia’s Federal Court, a decision we have analyzed in detail.
 

This guidance update while overall repeats many of previous EU Guidelines on the matter, however, on some specific cases and situations do provide local context, as well as useful contacts, including emails, to contact in case of doubt or question. For further insights or clarification, consult the full Ministry of Finance guidelines here or reach out to Polixis for tailored advice.