European Union law, tax offences and subsequent money laundering

Nicola Sharp of Rahman Ravelli details a case that confirms EU law cannot stop those guilty of tax offences being prosecuted for laundering the proceeds.

In a ruling, the European Court of Justice (ECJ) has stated that European Union law does not prevent authorities from charging tax offenders with the subsequent laundering of their illegal gains.

Publication of the ECJ decision resulted from a case brought by Romanian prosecutors against a person who was found guilty in 2018 of money laundering that resulted from tax evasion. A Romanian court had referred the case to the ECJ to seek its opinion on whether anti-double jeopardy provisions meant that a tax evader could not be convicted of laundering the proceeds of their tax evasion.

This request for a preliminary ruling concerned the interpretation of Article 1(3)(a) of 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, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC.

Any interpretation had to be considered along with Article 4 of Protocol No 7 to the Convention for the Protection of Human Rights and Fundamental Freedoms, which states:

“No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.’’

Case Background

On 15 November 2018, a regional court in Romania sentenced an individual, referred to as LG, to 21 months’ imprisonment for money laundering between 2009 and 2013. The laundered money had derived from tax evasion that LG had committed. Criminal proceedings relating to the tax evasion were closed after LG repaid the amounts due.

The regional court had found that LG had failed to record tax documents proving the receipt of income in the accounts of a company that he managed – an activity classed as tax evasion under Romanian law. The money that derived from the tax evasion was transferred to the bank account of another company, which was managed by a person referred to as MH. It was then withdrawn by LG and MH. 

The regional court found that MH had helped LG launder the money. But it ordered that MH should be acquitted because it had not been proved that he was aware that LG had laundered money derived from tax evasion. 

In referring the matter to the ECJ, a higher Romanian court explained it was seeking an interpretation of Directive 2015/849 - even though that directive had not been transposed into Romanian law within the prescribed period - because that directive defines the offence of money laundering in the same way as Directive 2005/60, which was in force at the time of the events that led to the initial court case. 

The referring court took the view that Article 1(3)(a) of Directive 2015/849 should be interpreted as meaning that the perpetrator of the offence of money laundering cannot also be the perpetrator of the predicate offence (in this case, tax evasion). It cited the phrases “knowing that such property is derived from criminal activity’’ and “or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action’’ from Article 1(3) of, Directive 2015/849, stating that they only made sense if the perpetrator of the predicate offence is a different person from the one who carried out the money laundering offence.

The ECJ Decision

In considering the referring court’s arguments, the ECJ said that it is apparent from the wording of Article 1(2)(a) of Directive 2005/60 that, for a person to be regarded as having committed money laundering, within the meaning of that provision, that person must be aware that the property is derived from criminal activity or from an act of participation in such activity. But it added that such a condition only requires that the perpetrator of the offence of money laundering is aware of the criminal origin of the property in question – it does not rule out that that person may also be the perpetrator of the offence that generated the criminal proceeds to be laundered.

In its findings, the Court (Second Chamber)ruled that Article 1(2)(a) of Directive 2005/60/EC must be interpreted as not precluding national legislation which provides that the offence of money laundering may be committed by the perpetrator of the criminal activity from which the money concerned was derived.