On 25 April 2008, the Jersey Royal Court handed down an important judgment (Re: Representation Gichuru) detailing the options for the customer of a financial institution whose funds have been subject to an informal freeze following the filing of a Suspicious Activity Report ("SAR"), and where the police have refused to consent to payments on the account being made.
In brief, the facts of the case were that the customer opened a bank account in 1981 and, in 2002, the institution filed an SAR. The police declined to give the institution consent to make any payments, and that lack of consent has been maintained throughout. In August 2007, the customer issued a Representation seeking an order that the institution must pay over the assets.
The first question before the Court was whether the customer had any legal remedies and, if so, what those remedies were. The Court held that the customer had two options.
The customer can either submit the police's refusal of consent to judicial review, or bring a private law action against the financial institution for the return of the funds. In a private law action, the issues for the Court are likely to be whether the funds belong to the customer and, if so, whether they are the proceeds of criminal conduct.
The second question before the Court was the extent to which the police should be involved if the customer chose to bring a private law action against the financial institution.
The financial institution argued that it was not the party best placed to test whether or not the funds were the proceeds of criminal conduct, because the financial institution is unlikely to have anything more than a suspicion (although, with the introduction of an objective test for suspicion, it may not even have that). In contrast, the police will have taken the decision not to consent to the financial institution making the payment, and the police will be the body taking the investigation forward. The institution's argument was therefore that the real dispute lay between the police and the customer (because the police are the party blocking the transaction) and that the police are normally best placed to explain to the Court why the funds should not be released. For both those reasons, it was contended that the police should routinely be convened to such private law actions.
The Attorney General's response was that the police refusal to consent would have been based on the grounds of suspicion, and they should not be forced to defend that decision on a different basis, namely, that the funds are in fact the proceeds of criminal conduct. The Attorney General also contended that there was a real risk of prejudicing investigations and prosecutions if the police could be forced by the customer to explain their actions in Court before they were ready to initiate criminal proceedings.
The Court held that for the reasons given by the Attorney General, the police should not ordinarily be convened in private law actions. The Court held that the financial institution is "under a duty to contest the customer's claim in such circumstances and must lay before the Court all available evidence which justifies their suspicion". The Court held that, in order to protect itself, and once the customer has established that it did deposit the money and has demanded payment, the financial institution must "prove on the balance of probabilities that it has the requisite suspicion, which then entitles it to refuse to pay unless the police consent or the Court so orders". The Court continued that the burden then reverts to the customer to prove on the balance of probabilities that the funds are not the proceeds of criminal conduct.
The Court remarked that the current state of affairs is capable of causing great hardship and unfairness and repeated the recommendation of the Royal Court in Minwalla that consideration be given to amending the current legislation so as to avoid the difficulties and potential injustice that it can give rise to.
The Implications For Financial Institutions
Financial institutions will find themselves being put in a very difficult position. On the one hand, the threshold for suspicion is very low (the Shorter OED refers to an "imagination of something . . . as possible or likely" and "a notion, an inkling"). The adoption of the objective test for suspicion means that the employee within the financial institution may not even have a suspicion. Yet, based on such slender foundations, if the lack of consent is challenged, the institution is not only bound to report to the Court the facts as it sees them and face cross-examination on the issue, but is also put under a specific duty to contest the customer's claim.
Institutions should, however, take some comfort from this decision since it makes it clear that, if an SAR has been filed with the police, it is for the customer to explain why monies provided to the institution are not the proceeds of crime. An institution will be able to review such information against its previous understanding of the purpose for which the customer sought to use the institution's services. The court also emphasised that it did not regard applications of this kind as appropriate for summary ruling and that a trial would be almost inevitable.
What is of concern is that, contrary to the views expressed by the English Courts, the decision will mean that the reasons why the institutions formed the view it was suspicious will inevitably be explored before the Courts.
Institutions will also be required to have an ongoing dialogue with the police to keep them informed of developments in any litigation brought by a customer, presumably so that the police can decide whether to intervene or whether to apply for a saisie judiciaire under Article 16 of the Proceeds of Crime (Jersey) Law 1999. The decision does regrettably continue to leave institutions in an uncertain position pending a decision by the police.
Furthermore, the judgment does not address the potential conflict between the duty to lay before the Court all available evidence, and the criminal liability resulting from a breach of the tipping-off provisions. Although it is likely that, once a private law action has been brought by the customer, the police will in most instances accept that there is no longer any danger of tipping off, it is feasible that the institution will have evidence (perhaps linking the customer to other accounts or otherwise feeding into a larger picture) which the police will not want to be disclosed. In that case, the institution may find itself in a Catch 22 situation, where it is simultaneously obliged to act as the first line of defence against money laundering whilst not being permitted to disclose the information with which to fulfil that obligation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.