Exploring a bank’s suspicions of money laundering

The Proceeds of Crime Act 2002 (“the Act”) provides obligations on a bank to notify the authorities if they suspect a customer of money laundering. 

As the Court of Appeal noted, a bank is in the unenviable position that if they entertain suspicions but do not report them or, if they report them, but carry out the instructions without authorisations they are at risk of criminal prosecution.  If, on the other hand, the bank acts on the authorisation the customer is likely to become incensed and may begin litigation. 

The claim

Mr Shah, who was a customer of the bank, issued proceedings against the bank primarily on the ground that the bank failed to promptly carry out his instructions.  As a result of the delay Mr Shah claimed he suffered losses in the sum of $300 million.  The bank’s response was that it suspected that the transactions constituted money laundering and that if it had carried out his instructions then the bank would be committing a criminal offence. 

At first instance, the bank successfully sought summary judgment in respect of the whole claim.  Mr Shah appealed. 

The Court of Appeal

•  Mr Shah made a number of assertions, which the Court of Appeal were not prepared to entertain.  However, on the question of whether the bank suspected Mr Shah of money laundering, the Court of Appeal held that a bank could be required to prove its case that it had the relevant suspicion.
• There was no reason why the bank should not be required to prove the facts of suspicion in the ordinary way at trial by first making relevant disclosure and then calling either primary or secondary evidence from relevant witnesses.
• If the bank at the time of the pre-trial review genuinely takes the view that it will be dangerous for a witness to give evidence then the court can take steps to protect the witness or otherwise ensure that the gist of the evidence is available while still ensuring a fair trial.
• The bank also submitted that no court would or should order disclosure of any relevant documents particularly the documents reporting the suspicions to Serious Organised Crime Agency, but the Court of Appeal stated that there may be good grounds for concealing part of any relevant documents.
• As the bank acted promptly in making disclosure within two days of receiving the relevant payment instruction, the bank was not in breach of a duty of care.
• The court also decided that 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.

 Impact

The question of whether the bank, in fact, suspected Mr Shah of money laundering and the entitlement to have more information will now have to go to trial. 

This decision means that potentially a bank’s internal records and its reports to the relevant authorities may be discloseable in any claim by a dissatisfied customer and the bank officials could be cross-examined on their belief that there may be money laundering although a court may be able to impose restrictions to protect the bank’s procedures and witnesses. 

Shah v HSBC [2010] EWCA Civ 31