Money laundering – primary offence – tax fraud – constituent elements
Money laundering consists in injecting money from illicit operations into the legitimate financial system by concealing the illicit origin of the income.
In practice, money laundering takes place in several stages, each of which is punishable.
I. The laundering mechanism
Once the illegal activity has been committed, the profits that have been made shall be processed.
This operation can be described by the following three phases.
The aim is to introduce illegitimate profits into the financial circuit (e.g. by depositing cash in a bank account, splitting large denominations into small ones).
This involves concealing the illicit origin of funds through a series of conversions or movements away from their source (e.g. making transfers to other bank accounts, purchase of financial instruments).
With the fraudulent origin of the incomes concealed, the funds are reintroduced into a legal activity (e.g. investment in real estate, purchase of luxury goods, vehicles, creation or acquisition of a company).
At the end of this process, the illegitimate origin of the goods or capital will be concealed and the laundered money can therefore be used to carry out legal operations.
In practice, money laundering allows the perpetrator and or his accomplices to carry out:
- the purchase of a property in order to live in it or to earn rental incomes from it;
- the acquisition of a company in order to obtain salaries and/or dividends;
- subscription to financial instruments in order to receive a remuneration;
- the acquisition of a vehicle, piece of art or jewellery;
- financing one’s lifestyle.
It worth mentioning that participation in any of the stages of laundering is likely to result in criminal prosecution.
The offence of money laundering is a standalone offence (infraction autonome), which means that it is punishable regardless of whether there is participation in the underlying illicit activity from which the proceeds originate.
II. The starting point : a primary offence
At the basis of each laundering operation is a so-called primary offence. In practice, this is the illicit activity that enables profits to be made whose origin shall be concealed by means of a laundering operation.
The list of primary offences is contained in Article 506-1 of the Criminal Code (Criminal Code is available here).
For ease of understanding, it is possible to focus on the last category of offences, which essentially encompasses the other offences. In other words, any offence punishable by a custodial sentence of at least 6 months is a primary offence.
As a result, the traditional conception that linked money laundering to organised crime and the most serious crimes such as drug trafficking, pimping or illegal weapons sales is now outdated. Indeed, most criminal activities (potentially) fall under the scope of the money laundering offence.
The law adopts a broad approach of the offence of money laundering.
Thus, the mere holding or using of any property that is known or should have been known to be the proceeds of an illicit activity can lead to criminal proceedings based on Article 506-1 of the Criminal Code.
It is also mentioned that since 2016, aggravated tax fraud (fraude fiscal aggravée) and tax swindling (escroquerie fiscale) have been included in the list of primary offences referred to in Article 506-1 of the Criminal Code.
These offences are to be distinguished from tax optimisation, which is legal, and simple tax fraud, which is punishable by an administrative fine.
Aggravated tax fraud consists of seeking an undue tax advantage (the amount of tax evaded or undue reimbursement shall be greater than (i) 25% but not less than EUR 10,000 or (ii) the sum of EUR 200,000).
Tax swindling is the systematic use of fraudulent manoeuvres to conceal relevant facts from the tax authorities or to persuade them of incorrect facts. The fraud shall involve a significant amount either in absolute terms or in relation to the annual tax due.
Moreover, the fact that the illicit activity at the ground of the laundering (i.e. the primary offence) took place abroad does not change anything, the offence of laundering remains punishable in Luxembourg (as long as the laundering acts took place on Luxembourg territory).
III. The components of the offence of money laundering
Money laundering is an offence of consequence : it presupposes the commission of a primary offence generating profits or any other economic advantage. The perpetrator of money laundering is then punished for concealing, participating or facilitating the concealment of the illicit origin of the funds.
A. The material element
1. An action (or abstention in certain cases)
The unlawful conducts covered by the law are broad and include a range of schemes all aimed at providing a false justification of the origin of the proceeds resulting from the primary offence(s).
- False justification (the launderer)
The Criminal Code refers to “those who knowingly facilitate, by any means, the false justification of the nature, origin, location, disposition, movement or ownership of the property referred to in Article 31(2)(1), forming the object or proceeds, directly or indirectly“.
What is targeted in this hypothesis is (i) the acts performed by the money launderer in order to conceal the fraudulent origin of the funds he intends to launder and (ii) the facilitation of false justification.
Example: providing false justification of income when opening a bank account or purchasing property. Submitting false invoices to justify the activity of a company.
- Assisting a money laundering operation
The Criminal Code refers to “those who knowingly assist in the placement, concealment, disguise, transfer or conversion of the property referred to in Article 31(2)(1), which is the object or proceeds, directly or indirectly, of the offences listed in point (1) of or which constitutes any pecuniary advantage derived from one or more of these offences”.
The use by the legislator of the term “knowingly” needs to be clarified. It does not mean that there was knowledge of the primary offence, the fact that there was a suspicion or there should have been a suspicion is sufficient (see the section on the intentional element below).
Thus, a professional who has not complied with its obligations of vigilance regarding certain suspicious transactions of a client may be prosecuted for money laundering if, in the course of his duties, he knowingly carried out an action in one of the stages of the laundering process.
Example: assistance in money laundering shall be understood in a broad sense and includes assistance in opening a bank account, the domiciliation of a company, setting up a legal arrangement, drawing up accounts, renting a building….
- Acquisition, holding or using property in connection with money laundering operations
The Criminal Code refers to “those who have acquired, held or used property referred to in Article 31(2)(1), which is the object or proceeds, directly or indirectly, of the offences listed in point 1) of this article or which constitutes any pecuniary advantage derived from one or more of these offences, knowing, at the time they received it, that it was derived from one or more of the offences referred to in point 1) or from participation in one or more of these offences”.
Legislator’s willingness is to punish in a broad manner any person who participates in or benefits from money laundering operations.
Example: using (on a regular or occasional basis) a vehicle acquired or held as a result of illicit activities when the fraudulent origin could not be ignored.
2. An object or property
Legislator’s intention is to extend the prosecution of money laundering as far as possible, so there is no list of property that can be the subject of money laundering.
Any property can be the object of money laundering. It can therefore be a material asset (jewellery, real estate) but also an immaterial asset (account entries, a brand, software)…
This includes the property and incomes resulting from the primary offence, but also those resulting from their use or reuse.
Example: an illicit activity generates profits, which, after money laundering operations, are reinvested in the legitimate financial system through the acquisition of a business. The incomes resulting from this business will be considered against the perpetrator of the laundering (and his accomplices, if any), as money laundering.
3. A profit or advantage
Any economic benefit from criminal activity can be laundered.
The first category that comes to mind is cash.
However, money laundering is not limited to cash, but includes, among others :
- the acquisition, possession or use of a motor vehicle;
- the acquisition, holding or use of real estate;
- the acquisition, possession or use of a piece of art or archaeological objects;
- razor blades (from theft) have been referred in case law as laundered property.
This last category may seem anecdotal, but it shows the nature of the property that falls into the scope of the fight against money laundering, ALL GOODS ARE LIKELY TO BE THE OBJECT OF MONEY LAUNDERING.
The element to be taken into consideration is the existence of a material benefit from funds (or good) derived from an illicit activity, the origin of which has been concealed.
B. The intentional element
For the offence of money laundering to be constituted, a criminal intent is required.
Indeed, the offender must have known that he was laundering property of fraudulent origin (which is quite easy to prove where the launderer takes measures to conceal the illicit origin of the funds).
However, in many cases, simply turning a blind eye or claiming not to have known or been aware of the laundering activities does not guarantee impunity.
According to case law, it is sufficient that the launderer had serious information or clue to understand that the funds had an illicit origin.
On this point, a decision rendered by the Court of Appeal of Luxembourg on 14 May 2019 provides useful clarifications:
“The proof of the moral element of the offence of money laundering results from all the factual circumstances which must necessarily arouse the suspicion of the person who takes possession of the object(s) and which constitute sufficiently serious, precise and concordant presumptions to conclude that the element of knowledge exists. The prosecuted person’s knowledge of the illicit origin of the funds is assessed at the time the offence is committed.
As for the degree of knowledge required of the launderer, it is sufficient to establish that the perpetrator was aware of the fraudulent origin of the funds and not of the exact nature of the initial offences […].
It is not necessary that the primary offence be precisely identifiable. It is sufficient to know or suspect, on the basis of the facts, that any legal origin of the funds can be excluded.”
For instance, where a professional provides services to a client who he knows or should have known is engaged in illegal activities, he is guilty of the offence of money laundering (in addition to breaching his anti-money laundering obligations).
Moreover, since 2018, Article 324 quater of the Criminal Code punishes the fact of “not being able to justify resources corresponding to one’s lifestyle or not being able to justify the origin of a property held“. This provision can under certain conditions lead to a conviction for failure to justify resources.
As this offence may also constitute a primary money laundering offence, it highlights the legislator’s intention to deprive the perpetrator(s) of the benefits of their illicit activities as much as possible.
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