Lack of good faith is required to impugn a bank's decision to make an authorised disclosure under the Proceeds of Crime Act 2002 (POCA)
In Shah & another v HSBC Private Bank (UK) Ltd, the claimants instructed the defendant to transfer several large sums of money. Suspecting that the funds were criminal property, the defendant disclosed its suspicions to the appropriate authorities under POCA and then had to await approval before being able to fulfill the claimants' instructions. The claimants brought a claim for breach of duty against the bank in failing to take reasonable care in maintaining the account and in failing to provide information about the disclosures made to the authorities. They also alleged that the bank had failed to take reasonable care by not making the disclosure as soon as reasonably practicable and because there were no rational grounds to suspect the claimants of money laundering.
The bank submitted that the claim for breach of duty had to fail as "suspicion" was a matter of subjective fact and there was no allegation of bad faith against the bank. The claimants argued that the "suspicion" had to be rational and if it was induced by negligence or automatically by, for instance, a mechanical error, then it would not be a relevant suspicion.
The court held that "suspicion" for the purposes of POCA is a purely subjective matter and there did not have to be reasonable grounds for the suspicion so long as it was genuinely held. A suspicion has to be based on possible facts, rather than a mere feeling of unease, but the sufficiency of those facts as the basis for the suspicion is irrelevant so long as good faith is not in issue. If a suspicion existed, the obligation under POCA was engaged, regardless of its reasonableness. For a customer to impugn the decision to make an authorised disclosure, it had to challenge the good faith of the bank's suspicions. The claimants had raised no such issue here and the claim for breach of duty therefore had to be struck out.
The court held that the bank's duty to comply with its obligations under POCA might restrict and qualify its duty to its customer to take reasonable care but, arguably, that duty was not completely excluded by it. Unreasonable delay in notification of the suspicion or in carrying out transfers after consent has been received could amount to a breach. There was no evidence of delay here however.
Finally, the bank could not be in breach of duty in failing to disclose to its customer that it had made an authorised disclosure as that would have opened the bank up to the risk of criminal liability.
Things to consider
Banks have neither the responsibility nor, possibly, the expertise to investigate criminal activity to satisfy themselves that the grounds for their suspicions are well founded, reasonable or rational. They are not required by Parliament to do so. A genuinely-held suspicion will suffice to avoid a breach of contract when complying with the requirements of POCA.