The Court dismissed Mr. Shah and his wife’s claim against HSBC Private Bank (UK) Limited for over US$ 300m after a proceeding, which included 27 days of trial and six reported decisions on a period of four and a half years. In this primordial ruling, the court affirms the ability of a bank to delay the execution of a customer’s payment instructions whenever it suspects money laundering. The bank can do so without giving any information concerning the reasons for such delays provided the suspicion has been brought to the awareness of the Serious Organised Crime Agency (“SOCA”).
The claimants, Mr. and Mrs. Shah, held an account in the bank. The bank delayed the execution of four transactions between September 20th, 2006, and February 28th, 2007. The payment instructions given by the claimants during this time frame included a transaction of about US$28 million. The bank acted this way because it suspected the funds deposited or transferred on and from the accounts were criminal proceeds and therefore made a disclosure to SOCA, asking for an authorization to act according to the claimants’ instructions. While waiting for the authorizations, the bank informed the claimants that it had to comply with statutory obligations and proceeded to the payment after authorization was granted by SOCA, except for one transaction canceled by the claimants before the authorization was issued.
The claimant filed a complaint against the bank stating that the delay in execution of the payment orders and failure to provide valid reasons for this caused them damage in Zimbabwe, estimated at over US$300m. it was alleged that their accounts were blocked upon money laundering suspicions by the authorities of Zimbabwe.
The Court, therefore, had to assess the following point:
- Was money laundering committed by the bank?
- Was there a duty for the bank to provide more information on the delays?
Mr. Justice Supperstone of the Queen’s Bench Division quashed the applicants’ entire claim and ruled as follows.
Was the Bank right to consider the funds were criminal proceeds?
On the first point, the court held that the Bank’s suspicions that the funds were criminal proceeds were legitimate. The court resisted the claimant’s argument that such suspicion should be of settled nature and held that the cited authorities applied in limited cases only.
The Court further considered that the Proceeds of Crime Act (“POCA”) required the banker not to execute the payment instructions if there were any suspicions that the funds were criminal property. This should be implied by the contract existing between the banker and its customers. The bank thus acted in the strict application of its legal duties in this case. The Bank’s nominated officer, acting on behalf of the bank, exercising management and control over decisions, had the necessary discretion and made a reasonable an independent judgment regarding the reported circumstances.
Does the Bank have a duty to provide the customer with the reason for the delay?
About the second point, the judges underlined that the Bank had no legal duty to provide the claimants with further explanations to justify the delay in the application of their payment instructions. The provisions of POCA clearly categorize “tipping off” as a criminal offense. Providing information to the claimants would, therefore, constitute a criminal offense by the Bank, who is likely to be prosecuted on those grounds.
Considering the above observations, the judge held that the Bank’s delay in executing the claimants’ payment instructions didn’t cause their loss. They considered that the loss was caused by the suspicions that the authorities of Zimbabwe already had about their activities.
Furthermore, the court held that the actions of the claimants’ ex-employee who reported them to the police were unforeseeable and they did not take necessary steps to lower the losses incurred.
This ruling affirms several points. First, the nomination of an appointed officer should be adequately documented. Also, the bank will not be held liable if a claim is brought by its customers for delay in payment execution. The Bank can, therefore, comply with its reporting duties outlined by POCA without concern about the consequences. A claimant would not be allocated damages for losses incurred if the Bank was fulfilling its statutory obligations unless the Bank didn’t have genuine reasons to justify its suspicions or acted in bad faith. This ruling also enlightens companies on the fact that they should record and note all the events that corroborate their suspicions, in case they need to provide proof for their decision.
In any case, a firm will not be held accountable whenever it doesn’t notify the customer of the reasons underlying their decision to delay transactions or freeze the account if doing so would constitute “Tipping off” punishable by POCA.
This can be provided in the company’s terms and conditions. The customers should be aware that they will not have a claim if they suffer losses from delays of their payment instructions or freezing of their accounts by the Bank provided such actions are based on legitimate suspicions.
This decision helps Banks in finding a balance between their obligations under POCA and information requests from their customers.
Some previous court rulings have shown that the courts will not require companies to act against the statutory obligations they must respect under POCA. This is a piece of good news for Banks in particular which have a duty of care towards their customer and at the same time must stay alert and notify any suspicious activity the competent authorities. They are now safe to do so without fearing claims from the customers. They are required to use their expertise in finance, analyze the actions of the customers, their resources, expenditures, so as to detect any potential violation of the applicable law and/or identify criminal property when it comes across.
Read the full case at BAILII