Luxembourg: Fight Against Money Laundering: Beware Of Excessive Zeal

Last Updated: 29 July 2014
Article by Nuala Doyle and Thierry Pouliquen

There has been an interesting development in the controversial Luxembourgish case of an Icelandic bank (Landsbanki Luxembourg S.A.) in liquidation (the "Bank").

On July 10th 2014, Luxembourg's Court of Appeal sitting in chambers (hereinafter the "Court") gave a landmark judgment (hereinafter the "Judgment"). The Court overturned an order of the investigating judge which had ruled that the time limit to prosecute had been reached in respect of facts alleged in a criminal complaint filed by a group of 108 plaintiffs against, among others, the Bank.

The Court's views on the incompetence of the judge to rule on the facts that occurred in other jurisdictions do not require comment here. The Court itself had dealt with the issue of the international competence and declared the investigating Luxembourg judge incompetent to rule on offences of fraud. However, the Court retained jurisdiction for the other alleged offenses of the former bank executives (accounting fraud and criminal conspiracy) and, the most shocking part of the judgment, for the alleged offence of money-laundering by the liquidator.

The liquidator, who is a lawyer by profession, was appointed by the Luxembourg District Court sitting in commercial matters. Lawyers are among the professionals who are subject to the anti-money laundering law of  November 12th 2004, as amended (the "AML Law"), but only in respect of part of their activities, excluding, inter alia, judicial activities. The obligation under the AML Law (which is the preventive aspect in the fight against money laundering) does not, therefore, apply to the judicial mandate of the liquidator. At the risk of stating the obvious, it must be remembered that the judicial activity of the lawyer, even if it falls outside the so-called preventative aspect of the fight against money-laundering, it is nevertheless subject to the provisions of the criminal law against money laundering.

Indeed, the absence of an obligation to report suspicions of money laundering (under the AML Law) shall in no way prejudice the application of the criminal law. Under the criminal law, a professional who receives funds whose illicit origin he cannot be unaware of, even in legitimate transactions, is guilty as (co)perpetrator or accomplice, of money-laundering.

According to the decision of the Court, the mandate of liquidator confers no immunity from prosecution. On that basis, the Court recalled some of the specific characteristics of the offence of money laundering:-

  • It concerns an independent offence, which is punishable despite there being no prosecution or conviction of the primary offense of which it is the consequence;
  • The money laundering offense can be committed in Luxembourg in respect of a primary offense committed abroad;
  • No time limit is prescribed by law between the commission of the predicate offense and the act of money laundering.

The decision demonstrates that the offense of money laundering may be akin to a "broom wagon" (where a case under the conventional offenses may fail, the offense of money laundering can still be established). The offense of money laundering makes it possible to bring illicit activities from the past to the forefront. Since money laundering is subsequent to the primary offence, it is sufficient to delay start of the limitation period for the underlying crime (such as the misuse of corporate assets) in setting the statute of limitations for the offense of money laundering.

The Decision does not precise the form of money-laundering of which the liquidator is accused (transfer/use/holding of the laundered money) but it is necessary to consider in this context what are the essential conditions for such a lawsuit. At this stage, it is not possible to predict what the prosecution will deem appropriate to conclude in this respect. The first obstacle that comes to mind is the professional secrecy of a lawyer by which it is inconceivable that a lawyer must report the facts to the prosecuting authority. It should be recalled in fact, that a lawyer, when not acting within the scope of the AML Law, is not under an obligation to report a suspicion. Rather, she remains fully bound by professional secrecy under Article 458 of the Penal Code.

On the other hand, the prosecuting authorities have the obligation to establish the moral and material elements of the offense.

The constituent acts of money laundering do not have an inherently reprehensible character and are in fact only punishable when they concern funds stemming from a prior offense.

Proof of the existence of a crime or an offence which has directly or indirectly benefited the perpetrator must be established. The laundered property:

  • must have been the object of an offence or the property which it was substituted for in which case it is indirectly related to the primary offence ; or
  • must be the product of the primary offence or the pecuniary benefit resulting from a primary offense or property which has been substituted for it.

For the material element of the offence to be established, the illicit origin of the property requires on the one hand to prove that the property stemmed from a primary offense and secondly, the existence of the primary offense or at least a consistent body of evidence establishing certainty that there was a primary offense. Consequently, it is primarily for the Public Prosecutor to prove the criminal origin of the funds.

The moral element of the offence finds its source in the intention of the perpetrator to launder the proceeds of property which he or she knows comes from the commission of a crime or misdemeanor. To criminalise the laundering, general fraud or the offender's willingness to commit the offense is required. The alleged launderer must have knowingly committed one of the acts constituting the money-laundering, that is to say, he must have been aware of the illicit origin of the property or funds upon receipt. If the accused has even a doubt that the funds were of a lawful origin, this will count in his favour. It is not necessary that the launderer benefits from the transaction.

Worst case scenario: the liquidator may even be the only person prosecuted. Let's imagine for a moment that the judicial liquidator has realised the assets and converted them into funds; as a result of this completely mundane act, she could become blameworthy if the authorities manage to trace the dubious origins of funds which were held / converted, and thus laundered. Imagine even further a scenario that the perpetrators of the primary offense are ultimately not prosecuted or convicted, due to, in particular, the statute of limitations on the offence being exceeded.

The liquidator would be prosecuted or convicted, while the former bank executives responsible for the fraud escape prosecution. The liquidator will however only have carried out his mandate for the benefit of creditors. And if the liquidator, having had doubts, had not proceeded with the liquidation, what would the same creditors have said?

Is this not touching on the absurd?

Will the bankruptcy judge overseeing the liquidation be held as an accomplice to the money-laundering? Will the civil parties who are eventually compensated not be deemed guilty of holding laundered money?

What about professionals subject to the AML Law who intervene in transactions relating to the assets of the liquidation of the bank? Should they report a suspicion of money-laundering when they read in the press that the liquidator is prosecuted for laundering?

We ask the question, will lawyers who can act as receivers or liquidators, still accept to be appointed as such by the courts? The fight against money laundering once again demonstrates its excessive and aberrant characters. The full extents of the consequences of this surprising Judgment remain to be seen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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