1/5 – May 2006, a Luxembourg lawyer was fined EUR 1,250 – CDD failures

1.  In a District Court of Luxembourg decision of 8 May 2006, a Luxembourg lawyer was fined EUR 1,250, as well as his court costs, by the Law of 12 November 2004, as amended, for not having respected the due diligence obligations under that law. No actual money laundering transaction was detected in that case.
2. The lawyer’s office was searched and it was found that the while the lawyer domiciled companies in his office, no domiciliation contract had been signed.
3. The only contracts signed were those between the lawyer and one of two companies under which the lawyer received a yearly fee for providing his office as registered address for the two companies of the same group which in turn provided registered office services for a maximum of 12 companies.
4. The lawyer was unable to furnish the identity of the economic beneficiary/beneficiaries of one of the two companies.
5. The search also revealed a handwritten document in which a former employee of the group companies expressed doubt about the veracity of the information provided on one of the 12 companies domiciled at the lawyer’s office, stating that he thought they were “façades”.
6. The lawyer was charged with violation of the Law of 12 November 2004, as amended, and the Law of 31 May 1999 governing company domiciliation, as amended.
7. The court found the lawyer guilty of violating the domiciliation law from 5 October 2000 forward (the date of the first company transfer of domicile to his office), and guilty of violating the Law of 12 November 2004, as amended, from the date of its entry into force.
8. The court held that when lawyers assist their clients in the preparation or realization of company domiciliation transactions, they must:
   1. obtain the identification of their clients or the persons for whom their clients act;
   2. retain copies or references to documents regarding that identification; and
   3. continually monitor their clients during the business relationship in proportion to the degree of risk of their client being associated with money laundering or terrorist financing.
9. The court further held that the Law of 12 November 2004, as amended, does not require proof that a domiciled corporate entity was actually involved in a money-laundering transaction in order to be applicable because its purpose is to prevent such money laundering.
10. Taking into account that the aim of this law is to prevent such kind of transactions, one must only prove that the lawyer did not take effective “know your client” due diligence measures.
11. The obligation to take such measures applies not only to new clients but also to existing clients throughout the existence of a relationship with domiciled companies.
12. Luxembourg District Court (Tribunal d’Arrondissement de et à Luxembourg, 16ème chambre) decision of 08 May 2006, docket number 1507/2006.

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