Financial Crime Surge in Luxembourg: Local Lessons and Preventive Measures Examples

In 2024, Luxembourg faced high-profile financial scandals, including embezzlement, money laundering, and corruption.

These incidents highlight a rise in financial crime. Companies lose about 5% of revenues to fraud causing severe damage. What can be done to prevent this, and what lessons can we draw for the future?

The Association of Certified Fraud Examiners (ACFE) reports that companies lose approximately 5% of their annual revenues to fraudulent activities, amounting to trillions of euros globally. The repercussions of fraud extend far beyond financial losses. Once trust is compromised, it becomes exceedingly difficult to rebuild. Betrayed customers may take their business elsewhere, and investors might lose confidence, leading to long-term reputational damage that can erode brand trust.

Luxembourg has witnessed several significant cases of both internal fraud (committed by employees or insiders within an organization) and external fraud (perpetrated by individuals or entities outside the organization). Many of these scandals result from inadequate oversight, lack of awareness, and weak internal controls, enabling financial crimes.

Among other things, finance and accounting teams should consistently review and monitor bank account access and payment methods, including bank wires, credit cards, and petty cash, to ensure comprehensive oversight measures are in place. Regular reviews of internal approval processes and related thresholds are essential to ensure their robustness. Establishing continuous monitoring should be a standard practice to detect and respond to suspicious activities in real-time.

Imagine a simple, fake phone call or email from the “CEO” to a newly appointed accounting team member, urging them to process payments immediately. Will the employee question the large amount of funds or be excited about working directly with the boss? One of the biggest challenges lies in the lack of fraud awareness among exposed personnel. Employees often unintentionally participate in fraud, becoming collateral victims in the process. According to the EY Global Integrity Report 2024, 54% of respondents believe that a lack of understanding of policies and requirements among employees, coupled with insufficient internal resources to manage compliance activities, creates opportunities for financial crimes. Operational fraud awareness training prepared by experts can help tackle this issue.

Fraud in procurement is one of the most classic and frequent ones. Common schemes include misappropriation of assets, employee-contractor collusion, conflicts of interest, bid rigging, and price fixing. Performing risk-based due diligence on vendors and suppliers, and implementing approval workflows that require a four-eyes approval for certain transactions, are key components of an effective procurement fraud prevention process. Forensic technology such as monitoring transactions, accounting schemes, and access rights, can be beneficial for organizations.

Fraud is a pervasive issue affecting both the private and public sectors. Your organization is not exempt from the risk of fraud. The biggest concerns are lack of awareness, inadequate compliance and weak internal control mechanisms to prevent financial crimes. Fraud is closer to home than many realize or accept.

Building a strong compliance framework is essential. Our Luxembourg Forensic team is equipped to support organizations in establishing and maintaining robust measures to protect against fraud. Assisting in setting up and maintaining critical oversight mechanisms, offering comprehensive fraud awareness training, and providing risk-based due diligence and advanced forensic technology solutions is crucial and helps safeguard processes.