Culpable money laundering, what is it?
Reading time: 7 min.
In short
Last week, ABN AMRO dominated the financial news because after the ING, they are also suspected by the Dutch Public Prosecution (in Dutch: Openbaar Ministerie/OM) of violating the Anti Money Laundering Directive (AMLD). The ABN AMRO is suspected of a special form of money laundering by the Public Prosecution but what is this form of money laundering? Note: this article is written based on Dutch law
Culpable money laundering: a legal consideration
In legal dogmatics it is often said that language is the most important instrument of a lawyer, but also for the legislator. We see this reflected in the legal texts of various offenses. Culpable money laundering, for example, is a more serious offense than the one for which ING reached a settlement with the Public Prosecution Service in 2018. ING has arranged due to serious negligence in preventing money laundering. The difference in the seriousness of the two different crimes is in the words “culpable” and “prevent”. Culpable money laundering means that a company helped with money laundering but that they were unaware that the money came from criminal activities even-though they should reasonably have known. ING, on the other hand, acted negligently in preventing money laundering, so they are not guilty of money laundering.
In addition, there is something else going on in criminal law with regard to guilt. Guilt has different meanings in criminal law; it can be an element or a component. If guilt is a component we call it culpa.
The build-up of a criminal offense (in Dutch criminal law)
A criminal offense is always made up of components and elements. Most offenses in Dutch criminal law assume some form of intent as a component. There are different forms of intent; dolus (intent) and culpa (guilt). If "guilt" or "intent" is mentioned in the description of the offense, this means that intentional or guilty action is a condition for punishment.
Culpa requires a degree of carelessness, negligence or lack of precaution. Characteristic in cases of culpa is that a suspect has not knowingly committed the prohibited act. He did not want it, but he was careless as a result of which the forbidden act came about.
Culpable money laundering is a form of money laundering for which culpa is required. In the Criminal Code, a distinction is made between three forms of money laundering:
- Culpable money laundering (section 420quater Sr.): the suspect carried out money laundering activities when he should reasonably suspect that the object originated from any crime.
- Deliberate money laundering (section 420bis Sr.): the suspect committed money laundering while knowing that the object originated from any crime. He may have known this from the start, or he may find out at a later date, if he then decides to proceed with the act, this constitutes intentional money laundering.
- Habitual money laundering (section 420ter Sr.): This is repeating intentional money laundering. The suspect carried out money laundering on several occasions, knowing that the object originated from any crime. The difference in the forms of money laundering is therefore in the structure.
Culpable money laundering
Culpable money laundering (Section 420quater Sr.) will generally be the case if it could reasonably be suspected that the object originated (directly or indirectly) from any crime. Objects include all items and all property rights. It is clear from case law that it does not matter from what type of crime the objects originate in respect of which laundering takes place. It is sufficient if it is established that it cannot be anything other than that the object originated from any crime.
Case law also shows that the threshold for establishing origin is not very high; the lack of an adequate and verifiable explanation for the origin of the money and a number of details mean that money laundering can be declared proven.
The criminal investigation and the Anti-money laundering directive
Before a suspicion of money laundering arises, there must be a suspect. This can be a person or a company (section 51 paragraph 1 Sr.), but how does such a suspicion arise from the AMLD?
The suspect concept according to the Code of Criminal Procedure
In the Code of Criminal Procedure, section 27 the suspect concept. Paragraph 1 describes who is regarded as a suspect during the investigation phase. This is the person against whom a reasonable suspicion of guilt for any criminal offense arises from facts and circumstances. The facts and circumstances must give rise to an objectively determinable suspicion that a person or company is guilty of a criminal offense. For example, in the case of money laundering, someone wants to buy a car with € 30,000 in cash.
The AMLD has two approaches: the risk oriented approach and the principle based approach.
The risk-oriented approach means that companies subject to AMLD make an assessment themselves of the risks that a client entails. This is called the risk assessment. Based on the risk assessment, a choice is made for a type of customer due diligence: simplified, standard or enhanced. More attention will be paid to customer due diligence (more stringent) for services or clients that pose greater risks and less attention for services to clients or products that entail a lower risk. The principle-based approach means that mandatory law does not prescribe how companies subject to the AMLD must achieve something, but what must be achieved.
For the remainder of the article, we use financial institutions as an example of institutions subject to AMLD. However, it is important to know that there are that more companies are subjected to the AMLD.
Much of the responsibility for preventing money laundering rests with financial institutions. With the AMLD, the legislator has assumed that financial institutions organize their CDD in such a way that money laundering is prevented. If there are nevertheless unusual transactions, they have a duty to report. This is also referred to as the gatekeeper function.
Not compliant, so suspect?
If an unusual transaction occurs, financial institutions have a duty to report to FIU-the Netherlands, which can lead to a suspicion of money laundering. It can be argued that a financial institution that reports an unusual transaction to the FIU that leads to a suspicion of money laundering, at that moment itself has the means available that come from a crime. However, because they report it to the FIU, they are not themselves punishable.
The story changes when a financial institution fails to report an unusual transaction when it should have. In that case, they will not only not comply with the obligations under the AMLD, but - with a view to the above reasoning - a suspicion of (culpable) money laundering may also arise. After all, there is a situation in which a report should have taken place that could lead to a suspicion of having in hand objects originating from a crime. If not reported, the financial institution will have items in hand that may have originated from a crime and the financial institution may thus be able to launder those items itself.
This reasoning seems far-fetched, but from previous case law (settlement Wachovia) and now the case of the Public Prosecution Service against ABN AMRO, it appears that this reasoning is more plausible than it initially seems.
How do you avoid criminal liability?
The obvious question is, of course, how this criminal liability can be prevented. The answer is simple: structuring your CDD policy in such a way that the risks are properly assessed, the correct customer due diligence is carried out and there is insight into irregularities so that they can be reported. Although the answer is simple, in practice it appears to be quite an operation to set this up properly.
SCOPE FinTech Solutions has developed the CDD On Demand solution for this. With CDD On Demand, you can easily perform an extensive background check before moving on to entering into a business agreement with the relevant client. The compliance check checks the person or legal entity you have entered on various points, including international and national sanction and investigation lists such as Interpol. It also looks at, among other things, receivership and administration registers and countries at risk. You can read more about our extensive compliance check.
Source: mr. de Swart A.J.M. & mr. Verloop P.C. ‘Banken en schuldwitwassen’, Jaarboek Compliance 2011, Nieuwerkerk aan den IJssel: Gelling Publishing 2010, p. 231-240.