Two recent Luxembourg judicial decisions have acquitted professionals of criminal liability pursuant to the fight against money laundering, providing some welcomed clarifications on the cooperation obligation of professionals under the Luxembourg law of 12 November 2004 on the fight against money laundering and terrorist financing (the “AML Law”).
Suspicious transaction report
The first decision was rendered by the Luxembourg District Court sitting in criminal matters on June 12th 2014, which had to consider the case of two managers of a professional of the financial sector (“PFS”), who did not file a suspicious transaction report (hereafter “STR”), in a situation where a bank did so in respect of the same common client (“Case 1”).
Non-compliance with any AML professional obligations, committed knowingly, may lead to criminal sanctions (a fine between EUR 1,250 to EUR 1,250,000) even in the absence of a money-laundering or terrorist financing offence, (art. 9 of the AML Law).
Article 5 of the AML Law requires professionals, their directors, officers and employees (without prejudice to the obligations vis-à-vis the competent regulatory or supervisory authorities) to cooperate, without delay, with the responsible Luxembourg authority, the Financial Intelligence Unit (Cellule de renseignement financier) (“FIU”).
The obligation to cooperate requires professionals who know, suspect or have reasonable grounds to suspect that money laundering or terrorist financing is being committed or has been committed or attempted, to file an STR on their own initiative, without delay. A suspicion may arise upon consideration of the person concerned, its development, the origin of the funds, the purpose, nature and procedure of the operation (Article 5(1)(a) of the AML Law).
There is no limit set on the applicability of this cooperation obligation insofar as what grounds may give rise to a suspicion; the word client is not even mentioned in the legal provision concerned. It must be stressed that no limitation in time is specified as to when the facts or circumstances which may give rise to the suspicion occurred or came to pass, and to the best of our knowledge, there is no Luxembourg legal definition of suspicion. (According to Merriam Webster dictionary, this is a feeling that someone is possibly guilty of a crime or of doing something wrong.)
The judgment in Case 1 clarifies the consequences of one professional filing an STR while another professional acting for the same client, does not. The District Court ruled that suspicion is necessarily subjective and that the level of knowledge varies between professionals, depending on the various elements of information they have gathered on a risk-based approach.
The managers of the PFS in Case 1 were up against a situation which could have given rise to a suspicion of money laundering. According to their professional obligations, they had to check whether the funds underlying one or more transactions were likely to stem from one of the predicate offences. They managed to prove that given the information they held about the transaction, they did not have grounds to suspect that money laundering or terrorist financing was being committed (or that there was an attempt to commit) such that would lead them to file an STR.
Professionals may face some difficult decisions when confronted with a suspicious situation or person. Indeed, in the event an STR is filed in a situation where it is not required, the professionals run the risk of being accused by the client of violating their professional secrecy obligation. Conversely, professionals run the risk of criminal proceedings should they refrain from filing a STR under the circumstances provided by article 5 of the AML Law. However, provided that a report is filed in good faith, the professionals incur no liability of any kind (this broad concept includes disciplinary liability).
The second case also concerned the cooperation obligation, but in this instance the obligation to provide the FIU, without delay upon its request, any information (Article 5.1(b) of the AML Law) (“Case 2”). Failure to comply with such a request from the FIU may give rise to criminal proceedings. Case 2 concerned a Luxembourg notary who did not respond to a request addressed by the FIU, within the framework of an investigation initiated by an STR filed by a Luxembourg PFS. The prosecuting authorities discovered that the notary in question did not identify properly a corporate client at the time he held an extraordinary general meeting of a Luxembourg company, for the client. The notary was convicted by the District court of Luxembourg on October 31st 2013. The notary lodged an appeal, and the Court of Appeal rendered its decision on June 18th 2014.
The Court of Appeal clarified the notion of passive inaction. The District Court judge had ruled that a fault by omission (such as lack of identification under the AML Law) is to be qualified as a hidden offence. Therefore, no statute of limitations could start to run for the prosecution of this offence, because it was hidden to the authorities until it was discovered; it was concluded in the District Court ruling that the three year-time limit started on the day when the offence was brought to the attention of the Public Prosecutor.
However, the Court of Appeal ruled that, generally speaking, fault by omission is an instantaneous offence, which means that the time limit for prosecution of such offence starts to run on the date when the action should have been performed. The notary was therefore acquitted.
These two recent decisions improve the situation for professions insofar as their risk of liability in AML matters is concerned.