Anti Money Laundering Laws in Georgia

Criminal Law Defense Attorney: Anti Money Laundering Laws in Georgia

Author: Nikoloz Meskhishvili, LTA Associate Partner

The article series, "The Question to the Criminal Lawyer," addresses various legal matters, where Georgian criminal lawyer and LTA Associate Partner Nikoloz Meskhishvili explores different criminal law legal questions. In this article, the focus is specifically on the crime of money laundering. It includes a discussion on legal regulations, practical approaches, and the author's personal opinions regarding the legislation.

Georgian Legislation on "Money Laundering"

Georgian law criminalizes the legalization of illegally obtained income, commonly referred to as money laundering. This policy is based on international law and the requirements of the United Nations. Specifically, the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the 1990 Strasbourg Convention of the Council of Europe on laundering, tracing, and confiscating the proceeds of criminal activities form the legal basis for this approach.

It is worth noting that Georgia has implemented specific laws, including the "Law on the Prevention of Money Laundering and Terrorism Financing," which establishes accountability for both individuals and legal entities. This law also defines supervisory, preventive, and control measures for dealing with these offenses, along with the specifics of their implementation.

However, when cases of illegal income legalization are encountered in practice, the primary legal guide is Article 194 of the Georgian Criminal Code, which states:

"Legalization of illegal income, meaning the acquisition, ownership, conversion, transfer, or execution of any other action on property to hide its illegal or unsubstantiated origin, to assist another person in avoiding responsibility for such actions, or to conceal the nature, source, location, movement, ownership, or associated rights of the property."

The punishment for this crime includes fines or imprisonment ranging from three to six years.

The law also establishes aggravating circumstances that further reflect the severity of the crime, classifying it as a serious criminal offense and potentially increasing the punishment. These aggravating circumstances include:

Illegal income legalization committed:

• As part of a group;
• Repeatedly;
• With the involvement of a large amount of income;

The punishment in such cases is imprisonment for a term of six to nine years.

If the offense involves:

• An organized group;
• Abuse of official power;
• An especially large amount of income;

The punishment increases to imprisonment for a term of nine to twelve years.

Clarifying Key Concepts Related to Illegal Income Legalization

Several important concepts must be defined to understand the nature of money laundering, particularly in the context of Georgian law:

• Illegal Property refers to property, or income generated from property, obtained by a person or their close relatives in violation of legal requirements.
• Unsubstantiated Property is defined as property or income derived from property for which no legal documents confirming lawful acquisition exist or which was obtained as a result of selling illegal property.
• Large Amount refers to income between 30,000 GEL and 50,000 GEL, while Especially Large Amount refers to income exceeding 50,000 GEL.

In the case of a conviction, legal entities involved in money laundering may face liquidation, suspension of their activities, or significant fines.

General Schemes and the Universal Model of Money Laundering

Court practice in Georgia demonstrates that the legal system adheres to the internationally recognized three-stage model of money laundering, which is widely accepted across various jurisdictions. These three stages—placement, layering, and integration—are essential to understanding how illegal funds are laundered.

While numerous schemes for money laundering exist, and new ones continue to emerge, the basic model typically involves the transformation of cash into immovable property. For example, cash can be used to purchase real estate, which is then resold, creating the appearance of legitimate income. This basic scheme often seems risk-free, especially since no documentation is required when accumulating assets through purchases. Modern technology has further simplified money laundering, making it increasingly difficult to detect such schemes. For instance, a person who gains illegal wealth through criminal activity may convert it into cryptocurrency, which simplifies the process of concealing the origin of these resources and integrating them into the legal economic system.

Another widespread method of laundering money involves hiding or disguising the origin of illegal income, its location, ownership, or other associated rights. This can be achieved through a series of transactions or even through inaction. A prime example is when an individual fails to declare ownership of certain assets when filling out financial disclosure forms.

The sources of illegal income are also diverse. The most common sources include bribery, drug trafficking, illegal entrepreneurship, arms trafficking, and illicit trades such as sex work and pornography. Despite the variety of mechanisms, sources, and schemes, most can still be classified into the three-stage model as outlined below:

Stage I: Placement

The first stage involves converting illegal income into legal forms. The criminal’s objective at this point is to remove the cash from its original location and transfer it into other forms of property. Most of the evidence related to the crime tends to emerge at this stage, making it the phase with the highest likelihood of detection. This is because most of the documentary trail is left during the initial transaction. Success in this stage often depends on two main factors:

1. Anonymity – The ability to remain anonymous in the financial transactions;
2. Quick Transfer – The need to avoid keeping the original property or assets for too long in their initial state.

Stage II: Layering

In the second stage, a chain of financial transactions is created to obscure the money’s illegal origin. The goal here is to detach the illegal income from its original source. This stage is crucial because it allows the traces of the crime left during the placement phase to be concealed. To achieve this, the illegal assets must be broken down and merged with legitimate assets. Typically, the fragmented parts do not follow the same financial path, making it harder to detect the crime. Whether or not the crime is successfully uncovered depends largely on whether the layering process is completed.

Stage III: Integration

The third and final stage is integration, where the “cleaned” income is reintegrated into the legal financial system. At this point, the previously fragmented assets are consolidated, often deposited in the banking system as legitimately accumulated wealth. A common method in this stage is to convert illegal cash into valuable assets, such as real estate, which is later sold for monetary gains.

The Legal Nature of Money Laundering and its Connection with Predicate Crimes

It is essential to emphasize that money laundering is an intentional crime, meaning that during any of the three stages mentioned above, the individual must be aware that the property involved was obtained through criminal means. Furthermore, the individual must aim to give the property a legal appearance.

A legal analysis of Article 194 of the Georgian Criminal Code leads to the conclusion that when someone engages in money laundering, their primary objective cannot be to acquire illegal or unsubstantiated property. In reality, the property must already have been obtained before the laundering process begins, and the individual must have actual control over the property. If the crime involves assisting another person in laundering their money, the actual possession of the property may belong to the individual who benefits from the laundering process.

In practice, money laundering is impossible without prior criminal activity or a chain of actions leading up to it. The act of laundering money becomes, in essence, a way to conceal previous crimes, turning one crime into the precursor for another.

This means that if an individual has not committed any prior offense or has not assisted someone else in breaking the law, they cannot physically engage in money laundering. Earlier versions of the Georgian Criminal Code restricted money laundering to cases involving a violation of criminal law. However, under current legislation, money laundering can occur even if the original violation is a civil offense, an administrative violation, or any legal breach that results in financial gain. If an individual continues to act with the intent of giving their illegally obtained gains a legal appearance, then money laundering charges may apply under Article 194.

It is also important to note that a conviction for money laundering does not require a conviction for the original crime that generated the illegal income. Moreover, the illegal nature of the property will follow it to its new owners, buyers, or users. This may create significant legal problems for third parties, although a lack of knowledge about the property’s illegal origins can serve as a defense. However, even in such cases, the burden of proof lies with the defense. If the prosecution cannot prove guilt beyond a reasonable doubt, the court may acquit the defendant.

Confiscation of Property Gained Through Money Laundering

In addition to the question of the responsibility of a specific person, it is important to determine directly the fate of the property resource, which was the goal of the potential lawbreaker. The legislation of Georgia allows confiscation of such property in favor of the state, both under the criminal and civil laws:

The following are subject to confiscation under criminal law: object of crime, weapon, item intended for committing crime, property obtained through criminal means and its equivalent.

Such property is confiscated regardless of whether it is the property of the accused or the convicted person, or it has already been transferred to the property of a third person.

In addition, state forfeiture does not necessarily require a person's current or future conviction. For example, if the accused is incapacitated and/or deceased, a judge's decision based on the petition of the prosecutor may seize the property for possible confiscation. In cases of urgent necessity or reasonable suspicion, when the prosecution concludes that the property may be hidden or destroyed, the prosecutor, using discretionary powers, can issue a decree on confiscation of the property, the legality of which will be later reviewed by a judge.

Court Practice in Money Laundering Cases

In the Georgian court system, money laundering cases are generally handled uniformly, even though not all judgments result in convictions. One clear conclusion is that when evidence shows the defendant’s intention to launder money, it automatically proves that actions or a chain of actions were carried out to achieve that purpose. This evidence serves as confirmation of the criminal intent. At this point, the specific stage at which the defendant was caught becomes less relevant, as the crime itself—the goal of laundering money—was already underway.

The severity with which courts address money laundering cases is driven by the fact that this is considered a transnational crime. It directly threatens the stability of the state and its economic system. This explains why courts often apply a lower standard of justification in guilty verdicts compared to acquittals. Acquittals are only granted when there is clear evidence that the defendant had no intention or goal of laundering money.

However, in cases where it is not clear that Article 194 of the Georgian Criminal Code was violated, the courts are less likely to conclude that money laundering occurred, even if the prosecution maintains that it did. For example, the Georgian Supreme Court case No. 2K-370 App.-12 (2012) examined a cassation complaint involving the founder and sole owner of a legal entity. The lower courts had sentenced the defendant to 10 years in prison for money laundering involving especially large sums of income.

In this case, the court paid special attention to the understanding of the source of the money. The central question was whether the funds involved were obtained through criminal means. Interestingly, the funds in question were transferred to the legal entity’s account by the state based on tender obligations. The court concluded that for money laundering to occur, the "laundered" property must first be illegal or unsubstantiated, and only after that could the defendant’s actions to give the funds a legal appearance be considered money laundering.

The prosecution and lower courts had made a critical mistake by considering the funds, which had been legally transferred by the state, as illegal simply because they were involved in a money-laundering accusation. The Supreme Court overturned the conviction, released the defendant from prison, and noted that the defendant had the right to seek compensation for damages under Article 92 of the Georgian Criminal Procedure Code.

Money Laundering and Extradition of Foreign Nationals

The Georgian Supreme Court has established a clear approach regarding extradition requests for foreign nationals accused of money laundering abroad. In such cases, the court first checks whether the "Law on International Cooperation in Criminal Matters" provides any grounds to deny extradition. These include:

1. The Principle of Dual Criminality – The crime for which extradition is requested must also be considered a crime under Georgian law;
2. The Prohibition of Double Jeopardy (ne bis in idem) – The individual cannot be tried or punished twice for the same crime;
3. The Statute of Limitations – The legal time limit for prosecuting the crime must not have expired.

In addition, the court must ensure that the requirements concerning citizenship and asylum are not violated, as stipulated under Georgian law.

The Georgian court does not assess the individual’s guilt or innocence, as this is considered the responsibility of the requesting state. When deciding on extradition, the court evaluates the basic elements of the alleged crime (its disposition), without considering any qualifying circumstances. This was reaffirmed in Supreme Court Case No. 2K-17-I-18.

The principle of dual criminality is upheld even if the qualification or categorization of the crime differs between Georgia and the requesting state. As long as the basic elements of the crime described in the extradition request align with Georgian law, the principle is considered satisfied, as confirmed in Supreme Court Case No. 2K-32-I-17.

However, there are exceptional cases where the court may review the defendant’s guilt, specifically when there is clear evidence of unfounded accusations or improper motives for the extradition request. The Supreme Court of Georgia’s Criminal Division addressed this issue in Case No. 2K-354-I-21, concluding that extradition may be denied if the charges are clearly baseless or if the accusations extend beyond the scope of the law and its intended purpose. If the accusations rely on an implausible or unjust interpretation of the law, or if the motivation behind the charges is clearly inappropriate, the extradition can be blocked to ensure the defendant’s right to a fair trial.

Additionally, the court clarified that when reviewing the admissibility and credibility of evidence, as well as the justification of the charges, it would only interfere if it identified obvious unreasonableness or illegality. If the court reaches this threshold, the case falls within the protection of Article 6 of the European Convention on Human Rights, which guarantees a fair trial.

Protection from Extradition Due to Risk of Inhumane Treatment

A consistent approach has developed against claims by the defense that the extradition would expose the individual to threats to their life or health. According to the court’s guidelines, the risk of persecution, torture, or inhumane treatment must be proven with specific evidence that directly relates to the individual facing extradition. General information about poor human rights conditions in the requesting country is insufficient unless supported by concrete evidence that creates a strong presumption that the person will face mistreatment if extradited.

For those accused or convicted of money laundering, two primary legal avenues exist to avoid extradition:

1. Granting of political asylum in Georgia;
2. Obtaining international protection status.

However, these options do not guarantee long-term protection, as international and local legislation governing these matters does not apply when a third (non-originating) country requests extradition.

Legal Process and Duration of Extradition Cases

In extradition cases, preventive measures such as extradition detention are typically applied, lasting for a period of three months. The defense’s tactics largely influence whether this period will be extended by an additional three months, which courts often grant with relative ease. However, the total duration of extradition detention cannot exceed nine months.

It is important to note that the court’s decision does not determine the individual’s transfer to the requesting state or set deadlines for the transfer. The court only issues a ruling on the admissibility of extradition. Ultimately, it is the Minister of Justice who has the authority to decide whether to approve or deny the extradition based on the court’s decision and existing legislation. In practice, there has been no instance where the Minister of Justice’s decision conflicted with the court’s ruling.

Money Laundering Acquittal Does Not Guarantee Long-Term Peace of Mind

Even if a person is acquitted of money laundering, it rarely leads to a peaceful life thereafter. Those acquitted may still be punished for the predicate crimes that generated the illegal income they attempted to launder. Given the diverse range of sanctions for financial crimes, even in the worst-case scenario, a well-planned legal defense and strategy remain crucial for securing the best possible outcome.

Disclaimer: This is not legal advice. Our opinion is not binding for courts or other authorities. For proper legal advice from our law firm, please book a consultation.