Analysis
22 February 2024

New clarifications on the repression of tax fraud offences and tax fraud laundering by the Criminal Division of the Cour de Cassation

On 13 December 2023, the Cour de cassation first ruled on the concept of non bis in idem, rejecting the plaintiff's arguments for the application of the requirements imposed by the Court of Justice of the European Union on 5 May 2022 and ruling on the distinction between the actions relating to tax fraud and those relating to tax laundering. In this ruling, the Court also clarified the statute of limitations for prosecuting concealed and hidden offences. Lastly, in line with the UBS ruling of 15 November 2023, the judges once again ruled on compensation for losses suffered by the State in cases of tax fraud laundering.

 

In this case, a French taxpayer was charged with concealing sums subject to income tax and wealth tax for the tax years 2009 to 2012. These acts, which were classified as tax fraud under criminal law, also led to a tax reassessment.

This taxpayer was also accused of having placed assets in accounts held abroad that had not been declared to the tax authorities, of creating a trust in the Bahamas, and of setting up a real estate scheme in Colombia, all of which constituted tax fraud.

On 22 February 2022, the Paris Court of Appeal sentenced him to 18 months’ imprisonment, a €300,000 fine and €150,000 in damages to the State, for tax fraud and aggravated money laundering.

On appeal by the defendant, the Cour de cassation, in its 13 December 2023 ruling, once again framed and clarified the principle of ne bis in idem in the context of the combined criminal and tax penalties (I). It also clarified the statute of limitations for hidden or concealed offences (II). Finally, the Court reiterated the rules governing compensation for loss suffered by the State in cases of tax laundering (III).

  

I. Clarification regarding cumulative criminal and tax penalties

In his appeal, the defendant complained that the Court of Appeal had failed to apply the requirements laid down by the Court of Justice of the European Union (hereinafter “CJEU”) in its judgment of 5 May 2022 regarding the cumulation of criminal and tax penalties[1].

As a reminder, in this decision, the CJEU stated that, in the context of VAT fraud and in application of Article 50 of the Charter of Fundamental Rights of the European Union, the cumulation of criminal and tax penalties must be provided for by clear and precise rules and that the penalty must be considered in its entirety in order to assess its proportionality.

The Cour de Cassation, while emphasizing that the conditions set out in European case law had been incorporated into French decisions[2], specified that they were limited to taxes falling within the jurisdiction of the European Union. However, in this case, the requirements laid down by the CJEU did not have to be met as the defendant was being prosecuted for income tax and wealth tax fraud, taxes that do not fall within the jurisdiction of the European Union.

The defendant also argued breach of the non bis in idem doctrine on the grounds that the acts of tax fraud and money laundering constituted a single action that could not result in two convictions.

On this point, the Court held that the acts of tax fraud characterized by the non-declaration of assets held abroad and the income derived from such assets were distinct from the acts of money laundering characterized by “successive operations to conceal the proceeds of this fraud, in particular through the opening and operation of bank accounts abroad”.

 

II. Clarification of the statute of limitations for prosecuting concealed or hidden offences

Under a law passed on 27 February 2017[3], the limitation period for concealed or hidden offences begins to run on the day on which the offence became apparent and could be identified, within a maximum time limit of 12 years. However, this law, effective immediately for investigations in progress at the time of its entry into force, has two exceptions: the law does not apply (i) when the statute of limitations has already expired, and (ii) when the public prosecution has already been initiated.

In this ruling, the defendant criticized the Court of Appeal for rejecting the plea that the facts were time-barred on the grounds that the public prosecution had been initiated. The Court considered that the statute of limitations had not expired on 1 March 2017, the date on which the law came into force, and that the public prosecution had been initiated through acts of instruction or investigations in the context of the preliminary enquiry.

The Cour de Cassation, in a concise decision, first noted that the initiation of public proceedings was characterized by the referral of a case to a court and not by investigative acts.

However, the judges of the Criminal Division indicated that the lack of prosecution prior to the 2017 law for offences detected more than 12 years after they were committed did not necessarily mean that they were time-barred. In the case at hand, the existence of the offences had been established by the tax authorities’ complaint, on 19 December 2012, the starting date of the limitation period. They added, however, that the limitation period had been interrupted several times, prior to the 2017 law, by acts of investigation, such as the soit-transmis from the Nanterre public prosecutor’s office following the tax authorities’ complaint, or the search reports of 13 November 2014.

 

III. Compensation for non-material damage suffered by the State from tax fraud laundering

After clarifying the distinction between the damage resulting from tax fraud and the damage caused by tax fraud laundering in two decisions handed down on 15 November 2023[4], the Cour de Cassation, in its decision of 13 December 2023, clarified the scope of the moral prejudice suffered by the French State as a result of tax fraud laundering, by distinguishing between the damage caused directly to the State and the damage caused to the public interest.

The defendant, who was sentenced to a 150,000 euros compensation from the State, criticized the Court of Appeal for stating that the non-material damage suffered by the State was characterized by the discredit brought on the “national preventive system for combating money laundering, by encouraging non-compliance with the tax transparency expected of each taxpayer under the declaratory tax system”. He argued that this moral prejudice of discredit did not result from the money laundering offences for which he had been convicted.

In this case, the Cour de Cassation began by pointing out that “a civil action may only be brought by those who have personally suffered damage directly caused by the offence”. It specified that the damage resulting from the acts of tax fraud laundering, characterized by the discredit brought on anti-money laundering policies, could not be distinguished from the harm caused to the public interest, which was compensated by the public prosecution. The case was therefore liable to be overturned on this last point.

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