The Law of 22 June 2022 on the management and recovery of seized or confiscated assets (the "Law of 2022"), which entered into force on 5 July 2022, aims at completing the transposition of Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union, which was initially transposed by a law of 1 August 2018 amending various provisions with a view to adapting the confiscation regime.
In a reasoned opinion dated 11 March 2019, the European Commission stated that an analysis of the transposition measures indicated that Luxembourg had only partially transposed Directive 2014/42/EU.
The Law of 2022 therefore aims to respond to the shortcomings raised by the European Commission, in particular by creating an office of management of assets (Bureau de gestion des avoirs ("BGA")) under the authority of the Minister of Justice and an office of recovery of assets (Bureau de recouvrement des avoirs ("BRA")) established at the economic and financial section of the Public Prosecutor's Office for the judicial district of Luxembourg (I.).
The Law of 2022 also provides for the obligation to transfer and deposit amounts subject to criminal seizure with the Consignment Office (Caisse de consignation ("CDC")) (II.) and imposes new obligations on professionals (III.)
The Law of 2022 raises the question of the status of seized assets when professionals, and more particularly credit institutions, have a pledge on these same assets pursuant to the Luxembourg law of 5 August 2005 on financial collateral arrangements, as amended (the "Law of 2005") (IV.)
The BGA and the BRA: two new actors responsible for the management and recovery of seized assets
The BGA is responsible for the management of all amounts, whether cash, credit balances, receivables or virtual assets seized during the course of domestic or foreign criminal proceedings. Seized assets will be held at the CDC until a final court decision ordering their confiscation, destruction or restitution.
The BRA is responsible, among other things, for the detection and tracing of assets likely to be seized or confiscated in the context of an international cooperation, a national investigation or inquiry, as well as assisting the Public Prosecutor's Office in the enforcement of sentences.
The deposit and transfer requirement to the CDC
The Law of 2022 requires the deposit with the CDC of amounts seized in Luxembourg or foreign criminal proceedings.
As a result, since 1 October 2022, all amounts subject to a seizure, whether cash, credit balances or receivables will need to be transferred and deposited, by order of the public prosecutor or the investigating judge, with the CDC.
What are the new obligations for professionals?
The Law of 2022 also introduces new obligations on professionals, including credit institutions.
Firstly, professionals are required to transfer all seized assets to the CDC.
In addition, the Law of 2022 provides that the BRA may request professionals to provide information about a convicted person's assets. The professionals are obliged to answer all questions asked without being allowed to inform their client of this request. Non-compliance is sanctioned by a fine of EUR 1,250 to 1,250,000.
Furthermore, if the information provided reveals the existence of assets belonging to the convicted person, the BRA may instruct the professionals to place these assets at its disposal or to transfer them to the CDC.
Finally, any attached third party who holds amounts, whether cash, credit balances, receivables or virtual assets seized before the entry into force of the Law of 2022 (i.e. 5 July 2022) is required to inform the BGA thereof before 1 April 2023 and to follow any instructions, including transfer instructions, received by the BGA with respect to such assets.
What are the impacts on assets pledged under the law of 2005?
Article 20(4) of the Law of 2005 provides that pledge agreements remain valid and enforceable against third parties notwithstanding any criminal attachment. As a result, according to such article, the rights of a pledgee supersede the rights of a seizing party. Luxembourg court precedents have held that the pledgee will continue to benefit from all the rights conferred by the pledge and will be able to enforce its pledge in the event of the occurrence of an enforcement event. It is only if the pledge is not enforced or is terminated that the criminal attachment will produce its effects.
However, the Law of 2022 seems to be in contradiction with Article 20(4) of the Law of 2005 to the extent that the latter now requires the transfer of assets subject to criminal attachment to the CDC, which would result in the creditor pledgee losing the benefit of its pledge, as deposits of money are irregular deposits (or consumption loans (prêts de consommation)) which only give rise to a receivable against the credit institution. A pledge on a deposit account therefore relates to a receivable against a credit institution which pledge would be terminated by the transfer.
The interaction between Article 20(4) of the Law of 2005 and the Law of 2022 has not been considered nor consequently regulated, at this stage, by the Luxembourg legislator or courts.