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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Understanding Anti-Money Laundering Investigations: The Role of Cheques

Author: Nicola Sharp  2 December 2013
5 min read

A controversy over bank accounts being closed without clear explanation has put the issue of money laundering back in the news. Here, we look at the latest law as it applies to banks, customers and money laundering suspicions.

IT HAS emerged that more than 100 people from ethnic minorities have had their bank accounts closed without explanation. In response, the banks have raised the issue of money laundering.

The British Bankers Association (BBA) has made it clear that its members do not discriminate on grounds of ethnicity and the banks in question have stated that they are under an obligation to close anyone’s account if there is a suspicion of money laundering. Nevertheless, there seems to be a large number of people who are claiming that they have fallen victim to misguided or over-zealous banking controls simply because of their ethnicity.

In one case, a British Pakistani man, named as Sameer, was married in Pakistan and UK relatives paid thousands of pounds into his TSB account as a wedding gift. He told the BBC that when he tried to take money out using his card, the machine swallowed it and two days later he received a letter from the bank informing him that the bank would be closing his account in 60 days. Sameer told the BBC’s “Money Box’’ programme that he was never given a clear reason for why his account was closed. The programme received similar complaints from many other people whose surnames were not traditional British names and who say they were given no clear explanation for why their account was closed.

Of Sameer’s case, the TSB said: “We treat all our customers equally and never take the decision to close someone’s account lightly. On the rare occasions where we do close a customer’s account, it is only ever done when they are in breach of our terms and conditions.’’

 Yet the TSB did not explain what the reasons were for his account being closed. But perhaps we can glean a little insight into the banks’ motivation for closing accounts if we consider the comments from the BBA on this issue. In a statement, it said: “Banks operate in line with UK and international regulations for financial crime and financial services; they do not discriminate on the basis of ethnicity. There are certain communities that are being targeted by criminals to help facilitate money laundering. Banks are making considerable efforts to minimise any adverse actions on genuine customers and the BBA is seeking to engage the relevant authorities on the issues.’’

Having seen banks being ordered to pay out millions in penalties in recent years for allowing themselves to be used by money launderers on a massive scale, this high moral tone from the BBA leaves a nasty taste in the mouth. Have banks been found to be wanting when it comes to having proper money laundering procedures in place? Yes. Do they now want to be seen to be tightening up their act? Yes. Will this – in theory, at least - mean many more people finding that their accounts have been closed without any detailed explanation? Yes. But does this mean that the banks will get it right every time? Probably not. And what does this mean for innocent customers? Well, there isn’t really a yes or no answer to that question. At least not at the moment.

The fullest answer can probably be found in the Court of Appeal case of Shah V HSBC (2010). Shah was a businessman who claimed damages from HSBC for what he claimed was a failure to comply with his instructions and other breaches of duty. The case centred on the Proceeds of Crime Act 2002 (POCA) and the obligations it places on banks to notify the authorities if they suspect money laundering. Shah had HSBC accounts in London and Geneva, accounts with other banks and extensive business interests in Zimbabwe. In July 2006, he transferred $28 million from one account to an HSBC account. Two months later, HSBC refused Shah’s request to transfer the money back to the other account and argued that it was complying with its UK statutory obligations under POCA.

HSBC filed a Suspicious Activity Report (SAR) with the authorities and, in November 2006, asked Shah to close his account with them. A month later, the Metropolitan Police asked HSBC for information about him. In 2007, HSBC agreed to some, but not all, of Shah’s requests to move money from his account and then refused to tell his solicitors the details of the investigation being carried out into him.

Shah then sued HSBC, claiming its failure to act upon his instructions had seen him lose millions of dollars in interest and had led to his assets being seized in Zimbabwe. HSBC responded by stating that it believed four transactions that Shah had asked the bank to carry out had been for the purposes of money laundering. The bank argued that if it had complied with his instructions it would have been committing criminal offences. Shah argued that it was irrational for the bank to suspect him of money laundering. HSBC stated that various members of its staff had been suspicious of each of the transactions it refused to carry out for Shah.

In the original hearing at the High Court Queen’s Bench Division, the judge found in favour of HSBC. Shah was told that because he was not challenging the good faith of the bank and its employees there was no prospect of him being able to prove that the bank had acted in a breach of duty to him.

In the appeal hearing, however, Lord Justice Longmore stated: “One appreciates, of course, that the 2002 Act has put banks in a most unenviable position. They are at risk of criminal prosecution if they entertain suspicions but do not report them or, if they report them, and then nevertheless carry out their customer’s instructions without authorisation. If they do not act as instructed, their customers are likely to become incensed and some of those so incensed may begin litigation. But it cannot be right that proper litigation should be summarily dismissed without any appropriate inquiry of any kind. The normal procedures of the court are not to be side-stepped merely because Parliament has enacted stringent measures to inhibit the notorious evil of money laundering, unless there is express statutory provision to that effect.’’

In finding in favour of Shah in relation to an aspect of the litigation, Lord Justice Longmore added: “An agent is (arguably) obliged to keep the principal informed as to the state of his principal’s affairs especially if his principal requests information about them…there must (arguably) come a time when Mr Shah is entitled to have more information about the conduct of his affairs than he has yet been given. Whether he was so entitled on 2nd November 2006 must remain highly doubtful and whether any later disclosure could have avoided the losses he is claiming must also be doubtful. But I do not feel able at this stage to say that the bank is entitled to summary judgement in this respect and would, therefore, let this aspect of the case go to trial…’’

In short, not all of Shah’s arguments were accepted by the court hearing his appeal against the original court’s judgement. The appeal court made it clear that it believed banks were now “piggy in the middle’’ between their customers and the authorities because of the duty to report suspicions placed on them by POCA. But its judgement made it clear that this was no catch-all excuse allowing banks to fail to act on customers’ instructions or fail to tell customers why they are not acting upon them.

Money laundering is increasingly on the radar of the authorities. The European Union is looking for tougher sanctions and banks, like anyone else involved in finance, have to make sure they are fully legally compliant. POCA is already on the statute books, having created three offences of money laundering carrying sentences of up to 14 years in prison. Bank account holders like Sameer have the Financial Services Ombudsman they can complain to about their treatment at the hands of banks. The banks, however, do not really have anyone to complain to. For that reason, they have to be very, very careful how they handle their customers and any suspicions they may have about them.

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Nicola Sharp


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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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