Originally published on 10 May 2010
In a recent judgment the Court of Appeal indicated that a
bank's suspicions of money laundering can be put to proof
at trial.
Mr and Mrs Shah, Zimbabwean-based customers of HSBC, gave
instructions to the bank on four occasions to transfer funds out of
their account. The bank suspected that funds in the account were
criminal property and so, on each occasion, sought Serious
Organised Crime Agency (SOCA) consent to transfer the funds.
Consent was forthcoming, but the transfers were delayed pending
SOCA's decision. The Shahs argued that HSBC's
failure to carry out their instructions, coupled with its
explanation that delays were due to the bank's duty to
comply with UK statutory obligations, led to rumours circulating
within Zimbabwe. This, they claimed, resulted in the Zimbabwean
authorities seizing the Shahs' assets and the couple
suffering losses of US$300 million.
The Shahs' claim that HSBC had breached its duty in failing
to carry out their instructions had been initially struck out as
having no realistic chance of success. However, the Court of Appeal
decided that the case could be allowed to proceed and that it was
for the bank to establish the primary fact of its suspicion by
producing evidence and calling witnesses in the ordinary way.
So, are banks now caught between a rock and a hard place, facing a
choice between criminal sanctions for failing to report suspicions
of money-laundering, on the one hand, and damages claims for
breaching their duty to their clients, on the other?
In fact, whilst the judge recognised that banks are in the
"unenviable position" of having to balance competing
duties and that the duty of care which they owe to their customers
cannot be completely excluded by legislation, the judgment also
offers reassurance. The bank would have a good defence if it could
show that it had a suspicion. This means that the bank "must
think that there is a possibility, which is more than
fanciful" that the facts exist. There is no additional
requirement for the suspicion to be reasonable.
Nonetheless, a bank could be liable if it unreasonably delayed in
disclosing its suspicions to SOCA (in this case a delay of two days
was considered not unreasonable) or if , once consent was granted,
it unreasonably delayed in carrying out the transaction. There is
also a possibility that a bank may have a duty to provide customers
with information about the conduct of their affairs, once there is
no longer any risk of prejudice to an investigation.
It would be prudent for banks to review their systems to ensure
that suspicions which lead to disclosures to SOCA are evidenced,
and that their standard terms adequately protect them against
claims for loss caused by dealing appropriately with money
laundering suspicions.
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.