In a landmark judgment with international resonance, a Luxembourg district court has, for the first time, convicted a domestic bank of money laundering, ordering the confiscation of 25 million euro from Edmond de Rothschild (Europe) S.A. for its role in the cross-border misappropriation of funds from Malaysia’s 1MDB sovereign wealth fund.
The judgment, handed down on Thursday, marks a watershed moment in the Grand Duchy’s legal and regulatory approach to financial crime, holding a prestigious private bank criminally liable for enabling the illicit movement of hundreds of millions of dollars through opaque offshore structures tied to one of the largest global corruption scandals of the past two decades.
The 7th correctional chamber of the Luxembourg district court on Thursday said it confiscated 25 million euro from Edmond de Rothschild for its role in the 2009-2013 embezzlement of “several billion US dollars” from the Malaysian sovereign wealth fund known as 1Malaysia Development Berhad, as agreed in a legal settlement between the parties.
“The Tribunal has thus considered that the culpability of the person pursued is established and that the penalties set out in the agreement are legal and adequate,” according to the text of the judgment.
The court noted that “this is the first time that a Luxembourg bank has been convicted of money laundering.”
Embezzlement scandal
The 1MDB scandal centres on the massive embezzlement of public funds from a sovereign wealth fund established in 2009 by then-Malaysian Prime Minister Najib Razak to promote national development. Between 2009 and 2013, an estimated 4.5 billion dollars was siphoned off by a network of corrupt officials and associates, most notably financier Jho Low, through a complex web of offshore entities and bank accounts.
The stolen funds were used to finance luxury real estate, jewellery, artwork, a superyacht, and even Hollywood films. The scandal triggered global investigations, toppled Najib’s government in 2018, and led to high-profile prosecutions across multiple jurisdictions, including the United States, Switzerland, Singapore, and now, for the first time, a criminal conviction in Luxembourg.
Clear evidence
The Luxembourg court said it found clear evidence of money laundering and concealment, both infractions under Luxembourg’s criminal code. The funds had already been seized from the bank’s assets and will now be transferred to the Luxembourg national treasury, it said.
Edmond de Rothschild became involved with the Malaysian crime when “a citizen of the United Arab Emirates” was allowed to open “dozens of bank accounts in the name of various European and offshore companies” at the bank.
Economic beneficiary
The court noted that the offshore companies were “established in the British Isles, the Cayman Islands and the Isle of Man”, of which the UAE citizen was the economic beneficiary.
The money trail was followed in a “thorough investigation” conducted by the investigating judge and the judicial police service’s anti-money-laundering section (SPJ-AB). This allowed the court to establish that, “through international and complex financial flows”, some of the money stolen from the Malaysian fund was ultimately “credited to the bank accounts of several of these companies”, after being moved through “numerous other jurisdictions.”
The investigation featured wiretapping and numerous searches. As many as 31 attempts by the bank and its lawyers to halt the proceedings were dismissed by Luxembourg courts, including the district court and court of appeal.
Closes public action
The Luxembourg court investigation comprised three parts. The ruling closes the public action against “the person who was prosecuted who concluded the legal agreement”. This part of the case concerned the bank’s criminal liability.
A second part, focused on the bank’s directors and staff, has also been closed. The prosecutor will now, explained the court, “finalize the requisition of return”, which marks the end of the investigative phase.
The third part of the judicial proceedings, “targeting the client of the bank as well as its companies”, remains ongoing.
Medernach declines comment
Investment Officer sought comment from the bank’s lawyer, Jean-Luc Putz of the Arendt & Medernach, but the law firm declined. “Following internal discussions and in agreement with our client, we are not in a position to comment on this matter at this time,” wrote Caroline Simpson, the law firm’s marketing and communications manager.
In a brief statement issued in Luxembourg, Edmond de Rothschild acknowledged the court’s decision, emphasizing that the case concerned events dating back fifteen years. The bank said it had implemented a “comprehensive remediation plan” between 2016 and 2019 and that the employees involved “are no longer part of the organisation.” It added that it had fully cooperated with the authorities and “welcomes the opportunity to definitively close this chapter.”