Money Laundering from illegal activities

Legal Considerations for Money Laundering – The Legalization of Proceeds from Criminal Activities

Money laundering, a crime defined and prosecuted under the legal framework, has seen significant amendments, particularly following the enactment of Law 4816/2021. This law revised Law 4557/2018, which itself was aligned with EU Directive 1673/2018, detailing the criminal offense of money laundering, commonly referred to as the “legalization of proceeds from criminal activities.” This offense requires a prior, separate illegal act, known as the predicate offense, from which the property subject to laundering is derived. Predicate offenses, which include but are not limited to, organized crime, bribery, human trafficking, fraud, and drug trafficking, are explicitly listed under Article 4 of Law 4557/2018.

Money laundering is a multifaceted crime, embodying the principle that “crime doesn’t pay,” meaning that perpetrators should not benefit from their illegal actions. The process of “laundering” refers to concealing or disguising the origins of illicit funds so they can be reintroduced into the legitimate economy under the guise of legal assets. Various mechanisms, including the use of shell companies, real estate investments, and offshore entities, are often employed to facilitate this concealment.

Methods of Committing the Offense Post Law 4816/2021

Article 2 of Law 4557/2018 outlines four main methods by which money laundering can be committed:

a) The conversion or transfer of property, knowing that it originates from criminal activity or from an act of participation in such activity, with the purpose of concealing or disguising its illegal origin, or assisting anyone involved in that activity to avoid the legal consequences of their actions (e.g., transferring a car to a third party, knowing that it was stolen or robbed by the seller or a third party, in any case, with the first party’s knowledge).

b) The concealment or disguise of the truth regarding the nature, origin, location, disposition, movement, or ownership of the property, or the rights associated with it, knowing that the property originates from criminal activity or from an act of participation in such activity (e.g., placing money derived from fraud in private security company vaults).

c) The acquisition, possession, or use of property, knowing, at the time of acquisition, possession, or use, that the property originates from criminal activity or from an act of participation in such activity (e.g., holding money derived from smuggling without transferring possession to a third party and without taking preventive measures to secure it. It is evident that the legislator, through this method of committing the offense, seeks to criminalize any other case not covered by the first two instances of criminal conduct).

d) The use of the financial sector by placing or transferring proceeds from criminal activities within or through it, with the aim of legitimizing those proceeds (e.g., depositing money derived from breach of trust against a legal entity into multiple accounts, further moving it by integrating it into bank checks and endorsing them to other natural or legal persons).

It is worth noting that, after Law 4816/2021, the so-called “forms of organizing money laundering” are no longer considered distinct methods of committing the offense (i.e., the establishment of an organization or a group of at least two persons for committing the aforementioned acts in cases a-d), nor is the attempt to commit money laundering, the incitement, facilitation, or provision of advice for its commission, as the requirement for criminal punishment is already covered by the provisions of the Penal Code.

As for the fourth method of committing the offense of money laundering from illegal activities, that is, through the use of the financial sector, a lively debate has emerged regarding whether this is feasible, given the increased obligation of banks to detect and report suspicious and unusual transactions. According to case law, “a particularly sensitive aspect of the entire operation is the financial system itself, which, through the accounting of capital flows and the substantive disappearance of the identity of natural persons through various companies, combined with the operation of banking secrecy, can very easily cover the tracks of the origin of illegal money and, ultimately, allow reinvestment in seemingly legal activities” (Athens Court of Appeal 2912/2004).

Thus, the simple deposit of illegal money into a bank account, without being accompanied by other special circumstances (such as opening the relevant account under a false or nonexistent name, conducting complex transactions, involving companies, fictitious remittances, etc.)—given that in these cases, there would indeed be an intention to conceal—probably has the opposite effects from those intended by the money launderer.

In essence, in this way, and due to the increased obligation of care and supervision of banks over suspicious transactions, traces of the illegal property are created. Since these actions cannot be subsumed under the other methods of committing the offense, they should be deemed unpunishable.

Furthermore, according to the judgment of the Athens Court of Appeal 4304/2015, the inability of the account holder to justify the origin of the funds does not establish the elements of the offense in question through this method of commission unless other circumstances also support it. Similarly, the deposit of money by the money-laundering perpetrator into a joint bank account does not, without further evidence, imply the commission of money laundering by the co-owner, because a joint account can be opened by only one person and in the name of another, while it can be used by all co-owners without the involvement of the others (Athens Court of Appeal 349/2015).

3. The Criminal Handling of the Offense of Money Laundering after Law 4816/2021:

Article 39 of Law 4557/2018 outlines the criminal penalties threatened against perpetrators of money laundering offenses. Specifically, Article 39(1)(a) establishes a general clause under which a person who commits money laundering is initially punishable by felony penalties (imprisonment of up to 8 years and a financial penalty). Imprisonment of up to 10 years and a financial penalty applies if:

a) the illegal financial gain exceeds €120,000;

b) the offense is committed by persons obliged to report suspicious transactions during the course of their professional activities (e.g., representatives of financial institutions, certified auditors, accountants, notaries, etc.); or

c) the illegal property originates from felonies explicitly mentioned in the law (e.g., criminal organization, terrorist organization, drug trafficking, robbery, etc.).

A more severe penalty—imprisonment ranging from 5 to 15 years, along with a financial penalty—is imposed on anyone who commits money laundering as a professional or as a member of a criminal organization. However, if the preceding criminal activity is a misdemeanor, the penalty is imprisonment of up to three years and a financial penalty. Moreover, Article 39(4) of the law stipulates that the acquittal of the perpetrator for the underlying offense also results in acquittal for the offense of money laundering.

4. Cases of Release from the “Dirty” Stigma – Who Does Not Commit Money Laundering:

Assets that directly originate from criminal activity are susceptible to money laundering, even if they end up in the hands of a third party who is not the perpetrator (either the principal or an accomplice) of the preceding criminal act, as these assets are considered “tainted.” However, as inferred from Article 40(1)(c) of Law 4557/2018, the assets cease to be “dirty” when acquired by someone who does not know they come from previous criminal activity (i.e., when acquired by a so-called “bona fide third party”).

This leads to two practical consequences:

a) The bona fide third party who acquires the illegal asset does not commit the crime of money laundering (knowledge is assessed at the time of acquisition and not later), and

b) Anyone who acquires the asset from a bona fide third party does not commit money laundering either, even if they know the criminal origin of the asset, due to the prior “cleansing” of it.

However, once “cleaned,” the asset can, of course, become a potential candidate for laundering again in the context of a new, subsequent criminal activity.

Examples of money laundering or not:

If A donates a painting to B without B knowing that it is the product of embezzlement, A does not commit money laundering. If B subsequently donates the painting to her friend F, there is still no money laundering, even if F knows it originated from a criminal activity. Finally, if A or F donate the painting to a public official to achieve favorable treatment in their case, the asset again acquires the status of originating from criminal activity—this time bribery—and is, therefore, a money laundering product linked to the most recent criminal activity.

5. Commission of the Offense of Money Laundering When the Underlying Offense is Tax Evasion:**

The primary concern arising from the inclusion of tax violations in the list of predicate offenses under money laundering laws is whether the savings made by the perpetrator through tax evasion can be considered as property derived from the underlying offense, and whether the amount of tax that the perpetrator avoided paying to the tax authorities constitutes “dirty” money.

These concerns are based on two main points:

1. The legal definition of property includes the increase in assets, not the avoidance of their reduction.

2. The assets saved by the perpetrator, equivalent to the amount of tax evaded, do not stem from the act of tax evasion but pre-exist as lawful property. This property cannot be retroactively rendered “dirty” due to the failure to fulfill tax obligations and the commission of tax evasion.

Example:

A tax accountant, while practicing legally, fails to submit income tax returns for his revenues or periodic VAT returns for transactions with clients of his accounting business. At the time of receiving the income and the corresponding VAT, before the deadlines for filing the relevant returns (after which tax evasion would be considered), he has already channeled the received capital into the market. At the time of receipt, this capital was “clean” and therefore cannot retroactively become “dirty,” leading to no issue of its legalization as it was originally legal.

Exceptions:

– Cases involving VAT refunds or other tax returns obtained by deceiving the tax authorities, as well as the issuance of fictitious or forged tax documents for a fee, do constitute an increase in the perpetrator’s assets rather than merely avoiding their reduction. In such cases, there is indeed an increase in assets derived directly from the commission of tax evasion, making these funds subject to money laundering.

The Athens Court of Appeals decision no. 112/2016 accepted the impossibility of committing money laundering based on tax evasion as the underlying offense, stating that in most cases of tax evasion, there is no possibility of committing money laundering due to the absence of property derived from criminal activity. The reasoning is that the benefit or enrichment of the tax evader does not constitute property derived from tax evasion. Consequently, there is no material object or asset subject to legalization.

In other words, for the offense of money laundering to be established, there must be property derived from criminal activity, and merely avoiding the reduction of the perpetrator’s assets through some criminal act is not sufficient. Therefore, the savings resulting from tax evasion, equivalent to the amount of tax avoided, cannot be considered subject to money laundering.

In contrast, property derived from the underlying offense of tax evasion can exist only when there is an increase in the perpetrator’s assets (e.g., acquiring ownership of an object or a claim). This occurs, for example, when a perpetrator obtains VAT refunds or other withheld and transferred taxes, fees, or contributions through deception of the tax authority. In such cases, the perpetrator directly and immediately acquires property derived from tax evasion, making it subject to money laundering. Similarly, money laundering is conceivable in cases of issuing fictitious and forged invoices when the perpetrator receives a fee for issuing them, as the object of money laundering is not some tax amount but the perpetrator’s fee itself.

6. Particularly the freezing of assets by the President of the Anti-Money Laundering Authority before the accused obtains the status of a defendant and the defendant’s means of defense:**

Article 42(7) of Law 4557/2018 allows for the freezing of bank accounts, securities, safes, and financial instruments, as well as the prohibition of the transfer of any asset, upon issuance of a directive by the President of the Anti-Money Laundering Authority. The conditions for applying this measure are: (a) the conduct of an investigation by the authority to detect money laundering or underlying offenses, (b) the presence of reasonable suspicions that an underlying offense or money laundering act has occurred, and (c) the existence of an urgent situation (e.g., risk of immediate asset disappearance through successive transfers and concealment of criminal evidence).

This measure is taken by the authority against a suspect in order to: (a) gather information and evidence on the commission of underlying offenses and money laundering acts, and (b) immobilize the suspect’s assets, keeping them intact and preventing their use, particularly within the financial (banking) system.

It is worth noting that this measure can be imposed before any judicial proceedings and even before the perpetrator acquires the status of a defendant following a criminal prosecution for money laundering. The person against whom the measure has been imposed has an absolute legal inability to dispose of or use the frozen assets. However, they can: (a) file an appeal with the competent judicial council under Article 42(4) of Law 4557/2018 within 20 days of the issuance of the directive, requesting the lifting or limitation of the freezing (e.g., if the frozen property has a legitimate origin, such as being acquired before the commission of the underlying offense, or if it does not relate to the alleged benefit obtained, as in the case of frozen wages and pensions, or if it is absolutely necessary for the suspect’s subsistence), and (b) request from the issuing authority the revocation of the issued directive due to new circumstances concerning the suspect or their family members.

Indeed, courts lift the imposed freeze when the legal conditions for its imposition are not met. Specifically, in the case of Decision 3216/2019, it was ruled that bank deposits with guaranteed legitimate origins, as evidenced by their documentation, cannot be considered proceeds of money laundering. The excerpt of the decision states: “Specifically, the transaction record of the frozen account shows that the Ministry of Infrastructure and Transport deposits the salary of its employee, clearly indicating that the funds are from legitimate public sector wages and thus cannot be related to illegal money laundering activities.”

Further, in Decision 3721/2017, it was accepted that frozen assets could not originate from criminal activities if acquired before the alleged commission of the underlying offense. The decision noted: “It was determined that the person did not possess any assets during the period 2008-2016 (the period during which money laundering from the underlying offense could have occurred), which could have been either misappropriated, hidden, mixed with other assets, or transferred to third-party accounts, resulting in insufficient evidence of the crime at this stage, as the frozen assets were obtained long before the commission of the underlying offense.”

Additionally, it is common to release assets to satisfy the living needs of the suspected perpetrators. In Decision 1374/2020, the court held that “The freezing, without detailing the assets and their purpose, does not fulfill the legal objective, as it cannot be determined whether these assets can be used for financing terrorism, nor whether they cover the applicant’s living expenses, legal support costs, or basic expenses for maintaining the frozen assets.” Therefore, the appeal was accepted, and the decision of the Anti-Money Laundering Authority was modified to lift the freeze on the applicant’s accounts.

7. Recent Methods of Money Laundering:

Companies increasingly turn to cryptocurrencies to launder money from illegal activities. According to recent trends and methods of money laundering, cryptocurrencies are used for crimes outside the blockchain ecosystem, such as drug trafficking and fraud, due to their “cross-border, nearly instantaneous, and generally low-cost transactions.”

“The growing ubiquity of cryptocurrency has made it a tool for laundering money from various crimes outside the blockchain ecosystem, such as drug trafficking and fraud. In 2024, money laundering in cryptocurrency encompasses all crimes, not just those inherently linked to the cryptocurrency ecosystem,” stated a blockchain analysis firm in a July 2024 report.

This shift is occurring as the value of Bitcoin, the world’s largest cryptocurrency, has surged nearly 55% in the first half of 2024. Companies laundering money use various methods, such as crypto mixers, cross-chain bridges, and wallet “hops” to obscure the flow of funds. Crypto mixers, or tumblers, involve mixing cryptocurrencies from various sources to make it difficult to trace their origin and ownership. Criminals also use cryptocurrency bridges to conceal the origin of funds by moving them between different blockchain networks.

Since 2019, nearly $100 billion in funds have been transferred from known illegal wallets to conversion services, where cryptocurrencies are exchanged for fiat currency. The highest amount identified was $30 billion in 2022.

Conclusion

The complexity and diversity of offenses under Law 4557/2018 make it challenging to define these crimes due to their intricate and varied manifestations in practice. Many underlying offenses listed in Article 4 raise concerns about whether they can generate “dirty” assets, including tax offenses. Through its comprehensive legislation, the lawmaker aims to identify all forms of money laundering, including cases that may not align with other legislative evaluations and definitions, and anticipate every criminal maneuver by perpetrators.

Additionally, law enforcement agencies frequently impose burdensome procedural measures against suspects, often freezing legally acquired assets. However, through appropriate legal remedies and support, defendants can demonstrate the legality of their transactions and ensure proper interpretation and application of the relevant criminal provisions.

If you are facing charges for money laundering from illegal activities, contact the top criminal lawyers in Greece at the Law office of Economou & Economou in Athens via email at econlaw@live.com, by phone at (+30) 2103603824, or fill the contact form here.