UK: An Unenviable Position: Shah v HSBC Private Bank

Last Updated: 26 February 2010
Article by Andrew Howell and Vanessa Tattersall

Can a bank, in complying with its money-laundering obligations, open itself up to civil claims by disgruntled clients for failing to comply with instructions? The answer, it seems from the Court of Appeal's judgment in Shah v HSBC Private Bank, is potentially yes. As Longmore LJ said, this can all put banks in "an unenviable position".

Mr and Mrs Shah, two Zimbabwean-based HSBC account holders, brought a claim to recover losses of over $300 million arising out of HSBC's failure to comply with their payment instructions and to provide them with information as to why it had not honoured its mandate. HSBC's delays were a result of its disclosures to the Serious Organised Crime Agency ("SOCA") that it suspected Mr Shah of money-laundering.

Mr Shah transferred a large sum of money to an account with HSBC, and instructed HSBC to make four payments out of the account. HSBC suspected that the money was criminal property and notified SOCA, seeking permission to make the transfers requested, pursuant to sections 327 to 329 and 338 of the Proceeds of Crime Act 2002 ("POCA"). Although SOCA eventually granted permission, each payment was subject to a number of days' delay as a result of HSBC's disclosures. The shortest period between the date of the payment instruction and the payment being made was five days, and the longest was 13 days. HSBC explained the delays to Mr Shah by saying that it was complying with its UK statutory obligations. Mr Shah relayed this explanation to one of the intended payees, which led to rumours spreading in Zimbabwe that the Shahs were suspected of money laundering. The Zimbabwean authorities froze and seized many of their investments as a result, causing the huge loss.

Mr Shah asked HSBC to explain its investigations once permission to effect each of the transfers requested had been obtained from SOCA. HSBC refused, relying on the offence of tipping off in sections 333A-E POCA.

At first instance, the Shahs' claim was struck out as having no prospect of success. The Court of Appeal agreed with Hamblen J and also rejected the Shahs' arguments that:

  • HSBC had failed to carry out their instructions;
  • HSBC had acted irrationally and harboured a negligently self-induced and mistaken suspicion that the money was criminal property; and
  • any suspicion by HSBC had been computer generated and could not have been held by any human being.

So far so good for HSBC. Longmore LJ confirmed the low subjective threshold of suspicion under POCA, agreeing with the Criminal Division of the Court of Appeal's decision in R v Da Silva: "the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But [POCA] does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts' or based on 'reasonable grounds'."

The Court parted company with Hamblen J, however, on whether the claim should be allowed to proceed to trial. It held that arguing that HSBC had acted in bad faith was not the only way to challenge its conduct.

Longmore LJ emphasised that banks' decisions to report suspicions of moneylaundering under POCA can be tested and investigated by the court. The Court made it clear that banks may consequently be ordered to disclose confidential communications and/or documents.

Further, it was possible for banks to be liable to customers even if they had disclosed their suspicions in good faith:

  • a bank's duty of care to its customer is not completely excluded by POCA and, in principle, an unreasonable delay in making a relevant disclosure to the authorities might be a breach of that duty; and
  • there is arguably an implied term in banking contracts to provide information to the customer, even where a report has been made to a relevant authority under POCA. The offence of tipping-off in sections 333A-E POCA only justifies a bank's refusal to inform a customer about an investigation throughout the seven day notice period, during which the authorities can refuse permission to continue with the requested transaction, and the 31 day moratorium period, which applies where permission is refused, and during which the authorities can obtain an order freezing the account. After the expiry of those periods, the offence of tipping off does not automatically justify such refusals.

The Court agreed that a delay of two days between receiving the payment instruction and making a disclosure did not constitute negligence (although it did not provide guidance as to how many days would constitute an unreasonable delay). It considered, however, that an action for breach of agency duty was sufficiently arguable to proceed to trial as there must be a time when Shah was entitled to more information about the conduct of his affairs.

Summary judgment granted in favour of HSBC was therefore set aside, despite Longmore LJ implying that the claim is ultimately likely to fail. The Court held that summary judgment is unsuitable in a claim by a customer that his bank has not carried out his instructions, where there is evidence supporting the claim. A defence only arises in such cases where the bank states that it suspected money-laundering, and Longmore LJ noted that it would be "unusual to grant summary judgment in favour of the party who bore the burden of proving a primary fact".

Longmore LJ went on to say that granting summary judgment would "be giving carte blanche to every bank to decline to execute their customer's instructions without any court investigation".

The case emphasises that claimants attempting to challenge banks' suspicions of money-laundering will face an uphill struggle, in that it makes clear the low threshold for suspicion.

That said, the Court was equally clear that banks cannot be given carte blanche to rely on POCA disclosures as a means of avoiding any judicial scrutiny. It is possible, in limited circumstances, for banks to be liable to customers even if they disclosed their suspicions in good faith. Further, the courts can test and investigate banks' suspicions under POCA, giving rise to potentially awkward disclosure applications.

Whether the Shahs' claim will ultimately succeed, however, is a very different matter: Longmore LJ did not appear to have any great enthusiasm for the prospects of the claimants' arguments at trial.

As the Court noted, this is a tricky area. The very nature of the POCA regime is that banks do not do what customers ask. The obvious risk is that if banks act in accordance with POCA "customers are likely to become incensed and some of those so incensed may begin litigation". It is a point which we can expect to be litigated again.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.