Luxembourg, a key player in European finance, stands out for the solidity of its banking system. However, behind this apparent solidity, a growing risk threatens: documentary fraud. A phenomenon that is still discreet, but whose consequences could permanently weaken Luxembourg's financial center. We take stock in this article.
With over 120 banks registered according to the CSSF, Luxembourg is a key player in asset management, private banking and international financial services.
The Luxembourg financial center weighs heavily: more than 5 trillion euros in assets under management in 2023, and close to 25% of GDP rely on the financial sector. An economic burden that naturally attracts the most seasoned profiles... including fraudsters.
Although few cases of documentary fraud are officially recorded, the real volume is undoubtedly greatly underestimated, due to the lack of sufficiently effective detection tools.
Document fraud refers to any manipulation or creation of documents in order to deceive a financial institution.
In Luxembourg, these fraudulent documents are regularly used to open accounts, Set up loan files or hide the true origin of incoming funds.
According to a study byAssociation of Banks and Bankers, Luxembourg (ABBL) published in 2022, More than 80% of banks of the country said they had suffered at least one attempt at document fraud during the year. This figure highlights the extent of a phenomenon that is still largely undervalued.
In the banking sector, document fraud takes multiple and often very sophisticated forms:
These forged documents are not simple administrative irregularities. They are the starting point for larger fraud. We'll tell you more.
By using false identities or forged documents, some fraudsters create fictional businesses to simulate economic activity. For what purposes? This then allows them to file VAT refund requests with the tax authorities, without the services or commercial exchanges actually existing..
This type of fraud, which is particularly structured, is based on the manufacture of company statutes, Activity certificates Or of Fully invented invoices.
The fraudsters impersonate a known supplier or customer and transmit falsified documents (false invoices, falsified mission letters), for Encourage a company or bank to make a transfer to a fraudulent account.
The Luxembourg authorities, including the Financial intelligence unit (CRF), have already alerted to this type of fraud, which is based on very convincing but entirely fabricated documents.
Fraudsters can use false identities or forged documents to open bank accounts.
Once these activated accounts, they can receiving and transferring funds derived from illegal activities (trafficking, corruption, tax evasion), bypassing traditional anti-money laundering mechanisms.
These networks manage to gradually integrate these funds into the legal economy, for example via Investments, of real estate purchases Or shell companies.
Some individuals set up files of Loan application by providing fake pay slips, of invented employment contracts Or amended bank statements. The objective? Pretend to be in a stable financial situation in order to obtain a loan that they will never repay.
This fraud can concern both personal loans and real estate loans, and is based on documents that are sufficiently falsified to deceive internal controls.
Because of the international diversity of their customers, Luxembourg banks are confronted with a multitude of documents from various jurisdictions.
This diversity creates several challenges:
In the absence of advanced technological tools, the analysis of these documents often relies on manual processes, increasing the risk of errors or falsifications that cannot be detected by the naked eye.
With The entry into force of the GDPR in 2018 as well as the disruptions caused by the COVID-19 pandemic, many banks in Luxembourg have begun a process of withdrawing “at risk” customers, whom they consider unprofitable or poorly documented.
Did you know that? 💡
According to A Sanction Scanner analysis, the pandemic has accelerated the digital transformation of KYC compliance processes, thus increasing the challenges for financial institutions in managing the risks of fraud and money laundering.
Several direct consequences have resulted from this wave of customer withdrawals. Let's take a quick look at it.
First, there was increased pressure on the KYC and compliance teams, responsible for verifying the identity and legitimacy of new profiles. Overwhelmed by the influx of cases to be processed, these teams saw their workload intensifying without saving time or equivalent resources.
Under the pressure of volume, the documentary checks were often carried out within a short time, at the expense of depth of analysis. Some documents could be validated without complete verification, simply due to lack of time or appropriate tools.
In this context, the risks of error or fraud are mechanically amplified. A case containing forged documents is more likely to slip through the cracks, especially if the processes are fragmented or partially automated.
Faced with increasingly sophisticated fraud, banks must go beyond traditional controls.
Employees remain the first line of defence against document fraud.
Les Train to identify anomalies (visual inconsistencies, false logos, format errors, contextual discrepancies) is essential to secure documents as soon as they arrive in the systems.
Strengthen the cooperation with the CRF (Financial Intelligence Unit) and the CSSF (Financial Sector Supervisory Commission) makes it possible to quickly report suspicious cases and to monitor the evolution of fraud techniques.
The flow of information is a strategic lever to effectively fight against the various types of fraud!
Manual verification is no longer sufficient in the face of the complexity of current falsifications.
Technological solutions such as Finovox, based on artificial intelligence, provide a concrete and effective response, in particular by making it possible to:
These technologies become strategic allies in securing banking transactions as soon as they enter into a customer relationship.
Want to know more? Talk to one of our experts!
