Auto-laundering: Luxleaks impact on suspicious transaction reporting
On 29 June 2016, the Luxembourg criminal court rendered its decision in the famous case known as the “Luxleaks case”. While most of the attention focused on whether the former PwC employees should be considered as whistle-blowers (yes) and whether, as such, they could be cleared from any sanction (no), the decision of the Luxembourg criminal court is also interesting in that it found the former PwC employees guilty of money-laundering. This finding has implications for financial institutions’ suspicious transaction reporting obligations. (Decision of 12th Chamber of the District Court of Luxembourg, No 1981/2016, 29 June 2016)
“Auto-laundering”
Auto-laundering refers to a particular type of self-laundering (blanchiment pour soi-même1) whereby the author of a criminal offence also commits the offence of money laundering by the mere detention or use of property deriving directly from his crime, whatever that property might be (in the Luxleaks case, it consisted of documents which were considered stolen).
Employees steal confidential documents
Two ex-employees of PwC Luxembourg and a journalist were prosecuted following the revelation, in the media, of material relating to clients of PwC in Luxembourg and covered by professional secrecy. The prosecution revealed that the former employees had accessed, without proper authorisation, documents regarding the corporate structures of many international companies and also “Advance Tax Agreements” (or ATAs) negotiated by PwC on behalf of their clients. These documents had been provided to the journalist by the ex-employees by a download on an email account.
While the journalist was acquitted of all charges, the ex-employees were convicted of domestic theft (vol domestique), unauthorised access to an IT data system, breach of professional secrecy and money-laundering.
Why money laundering?
By possessing the relevant documents fraudulently obtained (and thereby holding the proceeds of those offences), the Luxembourg criminal court held that the former employees committed an act of money-laundering (blanchiment détention). The rationale of the court derives from the broad legal definition of money-laundering – the former employees had committed offences which qualify as predicate offences, held and used the proceeds of those offences and hence also committed the money-laundering offence.
Comment
The two main issues at stake in this case were the degree of protection offered by article 10 of the European Convention on Human Rights (more specifically, the right to receive information) to whistle-blowers and whether the theft offence could be committed in the absence of appropriation of any tangible property (only data was “stolen”).
Although the issue of money laundering was ancillary in this case, the court’s decision is nonetheless a good illustration of auto-laundering.
Under Luxembourg law and more generally, under the 4th EU AML Directive,2 the term “money laundering” covers a wide range of different activities such as the concealment, disguise, conversion, transfer, acquisition, possession or use of property derived from criminal activity.
While some money-laundering activities require acts which are usually distinct from the material acts of the predicate offence itself (such as the activities of concealment, disguise or transfer), others such as the possession or use of property derived from criminal activity are the natural consequence of the predicate offence.
The incrimination of auto-laundering may affect the obligations of those in the financial sector and other entities subject to anti-money laundering regulations. Pursuant to article 5(1) (a) of the Luxembourg act of 12 November 2004 on the fight against money laundering and terrorist financing (the AML Act 2004), these entities are required to inform without delay, on their own initiative, the State Prosecutor3 when they know, suspect or have reasonable grounds to suspect that money laundering or terrorist financing is being committed or has been committed or attempted (a suspicious transaction report (STR)).When money laundering is suspected, two different scenarios are possible:
The institution has suspicions/knowledge that money laundering activities have been committed without having any specific knowledge or suspicions as to which predicate offence may have been committed. In this case, article 5(1) (a) of the AML Act 2004 makes clear that the obligation to file an STR applies regardless of whether the institution can determine the predicate offence.
The institution has suspicions/knowledge that a client has committed a predicate offence. In this case, professionals should carefully assess whether these suspicions could amount to suspicions of a parallel money-laundering offence being committed, including a potential auto-laundering offence. This may occur even in the absence of any acts of concealment or disguise of property and even if no money or other valuable assets are at stake.
Footnotes
1. Self-laundering covers not only auto-laundering but also cases where the author of the predicate offence instigates the money laundering and is therefore found guilty of this money-laundering offence as an accomplice.
2. Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. This directive has not yet been implemented in Luxembourg at the date of this article.
3. More precisely, the financial intelligence unit of the office of the State Prosecutor at the Luxembourg District Court.
Further information
This article is part of the European Finance Litigation Review, a quarterly publication on recent developments in the finance litigation and regulatory sector in key European jurisdictions. For more information please contact Amy Edwards amy.edwards@allenovery.com.
