At the risk of arm-chairing this too much: did you contact the CSSF, who seems to be the supervisory authority responsible for AML enforcement in Luxembourg?

To highlight how insane this sounds: let's assume, for the sake of argument, that your 50K is suspected to be cocaine money. There exist exactly two outcomes: either you are exonerated and you get your money back, or you're eventually found guilty of something, and the government takes the money.

But Paypal? They have zero claim to the money, and they could be in hot water even for merely holding on to it.

But to seize it? There is just no way that any bank involved in AML enforcement can keep funds for themselves, and any supervisory authority who's handed evidence to such a practice would tear them apart.