The Luxembourg bar association appears to be applying a form of shock therapy to lawyers taking a laissez-faire view of anti-money laundering and terrorist financing laws, but its disciplinary body has nevertheless found a loophole allowing it to continue this country’s tradition of not publicly identifying the guilty.
A recently posted decision by the organisation’s disciplinary council dismissed counter-allegations of procedural irregularities and lack of personal responsibility from an unidentified former lawyer and law firm owner. “Mister X” was unable to persuade the council to dismiss findings from the organisation’s investigative body and was fined some 4,000 euros.
The July 2023 decision wound up on the bar association’s website in late October. The organisation represents some 3,500 lawyer-members registered on one of seven numbered lists by type of lawyer.
On-site inspections
The case follows on-site inspections of law firm X in November 2017 and of the renamed law firm XY in September 2020. The anti-laundering commission of the Luxembourg bar association, known by the French acronym CCBL, made the visits.
The CCBL investigations have led to several rulings from the bar’s disciplinary and administrative disciplinary body, In June the bar posted an April decision in the case of a lawyer failing to respond to a bar association information request, which led to a 1,000 fine against another unnamed lawyer. Also that month, it posted a March decision concerning another unidentified lawyer who had disregarded his AML law obligations and was hit with a 10,000 euro fine.
In its 2022-23 annual report, the Luxembourg Bar reported checking 45% of registered lawyers for AML compliance, the highest since 2016. The bar carried out 34 disciplinary procedures, including 2 with an on-site inspection. Of the 34, seven were for failure to respond to an AML questionnaire sent out in December 2022. Two were taken before the disciplinary body. Five were closed after late compliance by those concerned.
Another 23 cases stemmed from non-response to an AML questionnaire of May 2023. 21 of those were later closed, but 2 were still being considered by the disciplinary body.
Intense scrutiny
Luxembourg is facing intense international scrutiny of its money laundering and terrorism financing efforts (AML/CFT). Recently, the Financial Action Task Force gave an “overall good result” grade for Luxembourg’s firm AML/CFT framework but highlighted several areas for improvement. The body emphasised the need to amplify its focus on AML investigations and better scrutinise real estate firms, trust companies, notaries and services firms.
The bar association’s inspections revealed a pattern of “significant shortcomings” in the AML policy operated by law firm XY and half-owned by “Mister X”, according to a September 2020 CCBL report. Mister X had previously been registered as a lawyer on the bar association’s list 2.
The CCBL report pointed to a litany of failures; no updated internal procedure, lack of AML knowledge, failure to carry out AML-KYC (know your customer) risk assessments, incomplete and disorganised KYC folders, failure to train staff on AML-KYC risks, as well as a need to overhaul its cooperation with the “goAML tool” used by anti-money laundering and counter-terrorist financing authorities in Europe, including Luxembourg’s financial intelligence unit.
Mister X first had to face allegations of his idiosyncratic approach to AML/CFT obligations in January 2022 but decided not to show up in court on 7 March 2022. The affair was referred to the disciplinary and administrative council for a hearing on 17 March 2023, at which he also didn’t turn up. However, Mister X was in the audience when the law society’s council called for a 5,000 euro fine.
Counter-accusations fail
In his appearance before the disciplinary and administrative council, Mister X tried to argue that the bar’s investigators had erred in designating the target for the AML check and that he had personally never been the object of such a check. But the bar’s order council argued that Mister X had been in charge and held 50% of the law firm’s shares.
“It’s a professional obligation of which failure to respect can be sanctioned, not an instrument which seeks to limit responsibility for the issue to the single designated person,” said the disciplinary council’s ruling.
Mister X’s business partner and lawyer Mister Y gave answers in an AML questionnaire that the disciplinary body considered “revelatory of breaches of professional obligations”. Repeatedly, Mister Y claimed that various AML provisions were “non-applicable” or made claims without supplying evidence.
Unable to prove
The AML law requires those covered by the law to know its rules. However at the firm, it turned out that only Mister Y, one of Mister X’s former partners (the lawyer representing him at the hearing), had been trained, but he wasn’t able to provide proof of this.
While determining the fine, the disciplinary and administrative council found that the 5,000 euros asked for by the bar association’s order council should be reduced to 4,000 euros, given the law firm’s efforts to improve its conformity with the AML rules. The council also considered the fact that Mister X was not designated to oversee AML compliance and there had been no “unfavourable antecedents” committed by Mister X since he joined the law society.
At the end of the judgement, the disciplinary and administrative council considered these facts when dealing with the presumptive requirement under the AML law to name the person found guilty. Under a subsection of the law, there are exceptions to that principle, which were in this case applied.