On 7 April 2017, the Court of Appeal in the decision of The National Crime Agency v. N and Royal Bank of Scotland Plc provided further clarity for banks in relation to the money laundering suspicious activity regime contained in the Proceeds of Crime Act 2002 (POCA) and the ability of customers to challenge banks when bank accounts are temporarily frozen.
The facts of the case can be summarised as follows:
- The Bank suspected that the credit balance in certain accounts of its customer ('N') constituted criminal property. Accordingly, it froze the accounts and made a suspicious activity report to the National Crime Agency (NCA) seeking consent to return the funds to N.
- N issued proceedings for an interim mandatory injunction requiring the Bank to operate N's accounts and for declaratory relief.
- On hearing the application, Mr Justice Burton gave a series of orders requiring the Bank to make a number of specified payments. In order to protect the Bank the court gave an interim declaration that, in making payments, the Bank would not be required to make "an authorised disclosure" seeking consent from the NCA under POCA and would not commit a criminal offence by failing to make a disclosure or by complying with the injunction. In reaching this view the court relied upon the case of Bank of Scotland v. 'A' Limited which was a decision on the money laundering provisions contained in the Criminal Justice Act 1988 (which pre-dated POCA) and where the court had given a similar interim declaration.
The NCA appealed the orders as being wrong in law on the following grounds:
- The judge lacked the relevant jurisdiction to make the orders: POCA establishes a statutory regime1 which the NCA and the parties must abide by and the court cannot intervene. In the alternative, to the extent the court had any discretion, the statutory scheme was a highly relevant factor to the exercise of that discretion.
- The Judge erred in law in concluding that this was an appropriate case for an interim declaration in that: (i) he wrongly placed reliance on Bank of Scotland v. 'A' Limited which was no longer applicable; (ii) he erred in his finding that the mere fact of a consent from the NCA that the Bank could return funds to its customer meant that there was no evidence known to the NCA that the monies could constitute or be suspected of being criminal property; and (iii) this was not a sufficiently exceptional case to justify the grant of an interim declaration.
- Due to the lack of jurisdiction and the errors in law, the court should not have made the orders requiring the Bank to make the specified payments from N's accounts.
- The orders made by Mr Justice Burton were in breach of overriding principles of EU law in absolving the Bank from any duty of disclosure and from any criminal liability.
The Court of Appeal found that, in Part 7 of POCA, Parliament had set out a procedure for the reporting of money laundering suspicions – where a bank suspects that money in its customer's account is criminal property, freezes the account and seeks consent to deal with the money, the court should not intervene during the course of the seven working day notice period and 31 day Moratorium Period.
The court did not accept that the jurisdiction of the court to grant interim relief was completely ousted, but found that the statutory procedure is highly relevant to the exercise of the court's discretion and this could not be "displaced merely on a consideration of the balance of convenience as between the interest of the private parties involved". The public interest in the prevention of money laundering is, in most cases, likely to be decisive.
The court found that the decision in Bank of Scotland v.'A' Limited needed to be considered with caution and cannot be regarded as providing general guidance.
The Court of Appeal concluded that Mr Justice Burton's finding that there was no evidence that the monies were suspected to be or were criminal property was not borne out by the evidence or the Judge's reasons.
In relation to the discretion to grant an interim declaration, the Court of Appeal was in no doubt that no such declaration should have been granted.
Similarly, the Court of Appeal concluded that mandatory relief requiring the Bank to make payments from the customer's account should not have been granted. In considering the balance of convenience, Mr Justice Burton did not have regard to the important public interest in the prevention of money laundering as reflected in the statutory procedure. Had he done so, the Court of Appeal concluded that he would not have intervened and disapplied the statutory scheme.
This decision is important for banks and brings much needed clarity. Prior to the Court of Appeal decision it was open to customers to challenge a bank's decision to freeze an account (pending a response from the NCA to a consent request) on the basis that, on a balance of convenience, payments from a bank account should be permitted to be made. Potentially, this could have led to a number of legal challenges by customers which would have placed banks in an invidious position: complying with their legal obligations to report money laundering (and where appropriate seek consent) on the one hand, whilst seeking to defend claims from customers on the other.
The position is now clear. In the absence of very clear evidence that the bank has acted in bad faith, the customer will be unable to seek an order from the court to compel the bank to take any action when it has frozen an account and is waiting for a response to a consent request from the NCA.