Money laundering – the requirement for a causal connection between the proceeds and the criminal act

For many obliged entities, it is the risk of sanctions under the Money Laundering Act that causes the greatest concern. Many obliged entities, on the other hand, overlook the risk that their own handling of the dividends may be affected by the Criminal Code's provisions on money laundering. Prosecution of the company or individuals in the company for breach of the Criminal Code's provisions on money laundering can have serious personal consequences and risk to reputation.

In this article, we explain one of the central conditions for being convicted of money laundering under the Criminal Code; the requirement of a causal link between the dividend and the underlying criminal offense (primary offence).

The provisions of the Criminal Code on money laundering, self-washing og healing (collectively referred to as money laundering) affects all persons and companies that are in various ways involved in the "proceeds of a criminal offence". This includes a requirement that the "yield" must be a result of "the criminal act". In other words, there must be a causal connection between the dividend and what is often called the primary offence.

How close of a connection must there be between the proceeds and the underlying criminal offense (primary offence) for the Criminal Code's provisions on money laundering to be applied?

initially

The criminal's purpose in money laundering is usually to introduce and use illegal means in the legal economy. As time passes, and the illegal funds have circulated in the legal economy, illegal funds and legal funds will be mixed in such a way that it is no longer possible to separate them from each other. The International Monetary Fund (IMF) estimates that between 2 and 5 percent of the world's GDP is subject to money laundering annually. There is thus a great risk that we all, from time to time, come into contact with funds originating from crime. At some point, it therefore becomes unreasonable to punish everyone who is in possession of funds derived from a criminal offence. This is also the background for the provisions of the Criminal Code establishing a requirement for a causal connection between the proceeds and the criminal act, so that the person who is in possession of such funds can be punished for money laundering.

It is difficult to say anything completely general about when the causal link between the dividend and the primary offense is broken. Actual causation is a prerequisite, but in itself not always sufficient. As we shall see below, however, much needs to be done before the causal link is broken. Before we take a closer look at aspects that may be decisive in such an assessment, some typical cases where the causal relationship for is broken.

Specification of the primary offence

There is no requirement that the criminal offense from which the dividend originates must be specified. A penalty can be imposed for money laundering even if the person who has committed the act was unaware of the illegal acts from which the profits originated. Put another way, there is a causal connection between the proceeds and the primary offence, even if one cannot identify the specific criminal act from which the proceeds originate.

Lack of jurisdiction over the primary offense

Money laundering is an international phenomenon that extends across national borders. It would therefore be unreasonable if the proceeds from a criminal offense committed in another country could be laundered in Norway with impunity. As a result, there is a causal link between the dividend and the primary offence, even if the underlying criminal offense was not committed in Norway. This also applies even if Norway lacks jurisdiction over the primary offense and thus cannot prosecute anyone for the crime in question in the country in which the proceeds are generated.

Time-barred primary offense

The underlying criminal offense (primary offence) will sooner or later become statute-barred. A person who deals with the proceeds can still be punished for money laundering even if it is no longer possible to prosecute someone for the primary offence. There is a causal link between the proceeds and the underlying criminal act, even if the primary offense is time-barred. Whoever is in possession of the proceeds of a robbery can therefore be punished for money laundering, even if the robbery itself has expired.

Insane primary offender

Basically, it is assumed that actions are only punishable if they are committed by a perpetrator who is sane. Technically, therefore, the benefit does not derive from a "criminal act" if the person who committed the primary offense is insane. A person who is in possession of such funds can nevertheless be punished for money laundering, although no one can be punished for the act from which the proceeds originate due to insanity. The same must probably apply if the primary offense is committed by a person under the criminal minimum age.

Surrogate dividends

Items, claims or services that take the place of the proceeds of a criminal offense are equated with proceeds. This is often referred to as "surrogate dividend".

An example of such a surrogate dividend could be money the criminal has received after selling a stolen car, or money a person has received after selling data they have stolen following a hacking attack. Another example is insurance payment for damage to a boat that was originally stolen from its rightful owner. In other words, there is still a causal connection between the proceeds and the underlying criminal act, even if the illegal funds have been exchanged or converted from one asset to another.

Chain laundering

Money laundering normally takes place in several stages - also called "chain money laundering". Funds derived from the sale of drugs can be deposited into a bank account. The funds can then be used to buy and renovate a house. When the house is sold at a profit, part of the funds derived from the criminal offense (primary offence) are part of the sale settlement. The benefit does not have to derive directly from the primary offense for the causal link to be intact. There is still a causal connection between the proceeds and the criminal act, even if the illegal funds have been laundered in several stages, as the example shows.

When is the causal relationship broken?

As the typical cases above show, it normally takes a lot for the causal link between the dividend and the underlying criminal act (the primary offense) to be broken. Factors that are important in this assessment include the degree of familiarity the person concerned has with the primary offence, proximity in time between dealing with the proceeds and the primary offence, and proximity in context between dealing with the proceeds and the primary offence. The more punishable the subsequent conduct is, the more likely it is to consider it money laundering.

The relationship with the duty to investigate in the Money Laundering Act

Businesses subject to reporting obligations under the Money Laundering Act are obliged to carry out further investigations if "circumstances which may indicate" that funds are linked to money laundering are discovered. If, after such investigations, there are "circumstances that give rise to suspicion" of money laundering, this must be reported to ØKOKRIM.

The threshold for when obliged entities must carry out investigations and report the conditions to ØKOKRIM is a different question than the condition of a causal link between the dividend and the primary offence. However, it is worth noting that those obliged to report cannot refrain from reporting suspicious transactions or activities, as a result of a lack of knowledge about the origin of the funds. The person obliged to report cannot also refrain from reporting circumstances because it is not known which specific offenses the proceeds originate from, that the offense was committed abroad, is outdated or committed by an unreasonable perpetrator, that the funds are no longer the same as originally generated of the criminal offence, or that others have dealt with the dividend before the person liable to report.