Summary

The High Court(1) recently considered an application by a claimant for an interim injunction requiring Barclays to unfreeze certain of her bank accounts which had been frozen following the designation of her husband under EU sanctions relating to Syria. In dismissing the application, the High Court ruled that it could not have "a high degree of assurance" that Barclays was not entitled to hold the reasonable suspicion that the funds in the relevant accounts belonged to – or were owned or controlled by – the designated person.

The fact that a person is related to a designated person is in itself insufficient to allow a financial institution to freeze funds in accounts held with it; instead, the financial institution must monitor accounts for suspicious activity which may indicate that the funds in question belong to or are being controlled by a designated person.

Conversely, the fact that the funds are held in accounts in the name of a non-designated person does not in itself provide a defence to a financial institution which had failed to comply with the relevant sanctions legislation.

The High Court acknowledged that the inconvenience to a person whose funds are frozen in compliance with sanctions legislation does not outweigh the risk that, if the injunction were granted, a bank would be required to commit a criminal offence under the sanctions legislation.

Background

Pursuant to EU Regulation 36/2012, the EU Council imposed asset freezing measures against certain designated persons identified as being responsible for violence in Syria. Subsequently, Her Majesty's Treasury implemented the Syria (European Union Financial Sanctions) Regulations 2012 (SI 2012/129). For the purpose of this case, the most relevant provisions in the UK regulations are as follows:

  • Regulation 3(1), which states that a person (P) must not deal with funds or economic resources belonging to or owned, held or controlled by a designated person if P knows or has reasonable cause to suspect that he or she is dealing with such funds or economic resources;
  • Regulation 4(1), which states that P must not make funds available, directly or indirectly, to a designated person if P knows or has reasonable cause to suspect that he or she is making the funds so available;
  • Regulation 5(1), which states that P must not make funds available to any person for the benefit of a designated person if P knows or has reasonable cause to suspect that he or she is making the funds so available; and
  • Regulation 16, which provides that P commits an offence if he or she contravenes any of the prohibitions in Regulations 3 to 5, or if he or she intentionally participates in activities knowing that the object or effect of them is (whether directly or indirectly):
    • to circumvent any of the prohibitions in Regulations 3 to 5; or
    • to enable or facilitate the contravention of any such prohibitions.

On March 7 2015 the scope of EU Regulation 36/2012 was widened by EU Council Implementing Regulation 2015/375 to apply to additional designated persons, including "Samir Hamsho (a.k.a. Samer; Sameer; Hmisho; Hamchu; Hamcho; Hamisho; Hmeisho; Hemasho)".

On May 20 2015 EU Council Implementing Regulation 2015/780 was published, which updated information in EU Council Implementing Regulation 2015/375 by adding the name "Hmicho" to the end of the list set out above.

Facts

Elaine Hmicho, a Brazilian businesswoman who is a UK resident, is married to Samir Hmicho. They hold a number of bank accounts with Barclays, together and individually.

Mr Hmicho, a Syrian national, was identified by the EU Council as a person who has been benefiting from or supporting the regime in Syria and consequently became the subject of financial sanctions.

On May 7 2015 Barclays froze the bank accounts held by him, as well as three bank accounts held by Ms Hmicho. Ms Hmicho sought an injunction in respect of these three accounts which would have required Barclays to unfreeze them.

Barclays' argument

The key arguments advanced by Barclays were as follows:

  • Based on the transaction history of the relevant accounts in the name of Ms Hmicho, Barclays had "reasonable cause to suspect" that the funds belonged to or were owned, held or controlled by Mr Hmicho (Regulation 3 of the UK regulations). Further, if Barclays were required to unfreeze the accounts, this would have the effect of making the funds available, directly or indirectly, to Mr Hmicho or for his benefit (Regulations 4 and 5 of the UK regulations).
  • Any potential inconvenience suffered by Ms Hmicho was outweighed by the potential prejudice to Barclays in finding itself committing a criminal offence.

Barclays pointed to the transaction history of the account to justify its suspicions, noting in particular the following transactions:

  • On March 9 2015 (two days after becoming a designated person), Mr Hmicho transferred £124,000 from his bank account into an account in his wife's name. An additional £4,000 was transferred the following day.
  • Substantial cash deposits of £48,000 and £52,000 were paid into Ms Hmicho's account over the counter on May 5 and 6 2015. These payments were out of the ordinary, given the limited payments previously made into the account in question.
  • Ms Hmicho had made two transfers of £50,000, each from a Barclays account in her name to a NatWest account in her name. Again, these transactions were inconsistent with the previous activity in Ms Hmicho's accounts.

The inference drawn by Barclays from these unusual transactions was that they were an attempt by Mr Hmicho to circumvent the financial sanctions imposed on him and to ensure that funds remained available to him or for his benefit.

Barclays also argued that it would inappropriate for an injunction to be awarded requiring it to unfreeze the accounts in question on the basis that complying with such an injunction would potentially require it to commit a criminal offence. In the circumstances, damages would be a more appropriate remedy were it to transpire that Barclays was not entitled to freeze Ms Hmicho's accounts.

Ms Hmicho's argument

Ms Hmicho argued that Barclays had no justification for freezing her accounts and that it was wrong to focus on where the funds in the accounts had come from. Instead, Ms Hmicho argued, Barclays should focus on the purpose for which the funds were to be used – in this case, exclusively to maintain her family.

Ms Hmicho also argued that Barclays had been very imprecise in its reliance on Regulation 3 of the UK regulations. The accounts were in the sole name of Ms Hmicho and there could be no question that the funds belonged to Mr Hmicho or were owned by him; there was no evidence to support Barclays' position that the accounts were held or controlled by Mr Hmicho.

Further, Ms Hmicho argued that damages would be an inadequate remedy, because of the immediate impact on Ms Hmicho and her children of being unable to access the moneys in the accounts – having to wait for the outcome of a trial would have a serious deleterious effect on them.

Decision

The court dismissed Ms Hmicho's application on the basis that it could not have:

"the necessary 'high degree of assurance' that Barclays is not entitled to hold the reasonable suspicion that the funds in the accounts which are the subject of Mrs Hmicho's application belong to, or are owned or controlled by Mr Hmicho."

Although the court recognised the difficulties that Ms Hmicho found herself in as a result of the freezing of the accounts, these difficulties were outweighed by the risk that if the injunction were granted, Barclays would be committing a criminal offence.

The court also noted that Barclays' actions were not taken solely on the basis that Mr and Ms Hmicho were married; instead, the unusual payments into and out of the accounts raised legitimate questions.

Further, the court pointed out that it was irrelevant whether the intention behind Mr Hmicho making the payments was understandable (providing for his family). What mattered was that Mr Hmicho knew that he was being targeted as a designated person and this had prompted the payments as a means to circumvent the sanctions.

Comment

Although this case dealt with an application for an injunction (and was not a trial of the actual case itself), it raises a number of important issues.

First, it highlights the importance of banks carefully monitoring the list of designated persons and identifying any accounts held in the names of such persons. In this case, this task was made more difficult by the various spellings of the name of the designated person and the fact that the name related to various accounts was not an identical match to those originally provided in the 2015 EU regulations.

Second, banks must be diligent in identifying where there may be other accounts in which such designated persons may have an interest (even if the account is not in his or her name). Although it remains to be determined at trial, it was accepted that there is at least a possibility that the accounts in Ms Hmicho's name are in fact controlled by Mr Hmicho. Consequently, had Barclays failed to freeze the accounts solely because Ms Hmicho was not also a designated person, it may have been committing an offence.

Third, the case is useful in illustrating that the mere fact of a relationship between a designated person and a non-designated person is insufficient to justify an inference that the designated person owns or controls accounts or will benefit from funds in such accounts. Instead, banks must provide additional evidence to justify their reasonable suspicion that this is the case.

Finally, the decision provides some comfort to banks in its holding that an injunction will be granted only where the court has a high degree of assurance that the bank's suspicions are unreasonable. The fact that a bank would itself be subject to the risk of criminal sanctions were it to be required to unfreeze an account means that courts will be slow to grant any such injunction.

For further information on this topic please contact Gary Bellingham or Emma Menzies at Greenberg Traurig Maher LLP by telephone (+44 203 349 8700) or email (bellinghamg@gtmlaw.com or menziese@gtmlaw.com). The Greenberg Traurig Maher LLP website can be accessed at www.gtlaw.com.

Endnotes

(1) Hmicho v Barclays Bank plc [2015] EWHC 1757 (QB) (June 19 2015).

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