On 19 June 2015 the High Court handed down its judgment in Elaine Hmicho v Barclays Bank PLC  EWHC 1757 (QB). The application was made by Mrs Hmicho in relation to Barclays’ decision to freeze her accounts following her husband’s designation under the EU sanctions against Syria.
The claimant’s application was refused.
On 18 January 2012, Council Regulation (EU) 36/2012 (the 2012 Council Regulation) came into force, concerning restrictive measures in view of the situation in Syria. Among other restrictions, the 2012 Council Regulation requires “funds and economic resources belonging to, owned, held or controlled by” a person or entity designated for the purposes of the 2012 Council Regulation, to be frozen. In addition the 2012 Council Regulation states that “no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of” the individuals and entities that are subsequently designated. These requirements are also reflected in the Syria (European Union Financial Sanctions) Regulations 2012 (the UK Regulations).
On 6 March 2015, Council Implementing Regulation 2015/375 (the 2015 Council Regulation) came into effect. This added a number of individuals and entities to the designated list including a ‘Mr Samir Hamsho’ (aka Samer; Sameer; Hmisho; Hamchu; Hamcho; Hsmisho; Hmeisho; Hemasho). On 9 March 2015, Her Majesty’s Treasury (HMT) issued a Financial Sanctions Notice which confirmed Mr Samir Hamsho’s designation.
Barclays had operated bank accounts for a Mr Samir Hmicho and Mrs Elaine Hmicho since 2014. Following the publication of the 2015 Council Regulation, in accordance with its usual procedures, Barclays identified a potential match regarding the designation ‘Mr Hamsho’. However, the match was discounted for a number of reasons including the fact the customer name “Hmicho” was not an exact match to the listing of “Hamsho” or any of the aliases documented by the EU.
Additional information was subsequently provided by HMT to Barclays, which led to Barclays carrying out a review of Mr Hmicho’s accounts and subsequently taking the decision to freeze Mr Hmicho’s accounts on 6 May 2015.
On 19 May 2015, Council Implementing Regulation (EU) 2015/780 came into effect. This regulation amended the listing of Samir Hamsho to include the name “Hmicho”. HMT issued a Financial Sanctions Notice on 20 May 2015 to this effect.
Review of Mrs Hmicho’s accounts
Mr Hmicho had third party rights over his wife’s accounts as well as internet access. These rights were removed by Barclays. Following a review of the activity on Mr and Mrs Hmicho’s accounts, Barclays took the decision to restrict access and then subsequently freeze Mrs Hmicho’s accounts. Barclays had “reasonable cause to suspect” that the funds within Mrs Hmicho’s accounts were owned or controlled by Mr Hmicho. The basis for this was as follows:
- With the exception of a handful of relatively modest deposits all of the credits to Mrs Hmicho’s accounts appeared to have come directly from Mr Hmicho’s own bank accounts at Barclays.
- On 9 March 2015, Mrs Hmicho received a payment of £90,000 and three payments of £10,000 (totalling £120,000) into her Barclays savings account from Mr Hmicho’s savings account. These payments were made 3 days after the 2015 Council Regulation came into effect and on the same day HMT published its Financial Notice which confirmed Mr Hamsho’s designation. On 10 March 2015, Mrs Hmicho received a further payment (of £4,000) into her savings account from Mr Hmicho.
- There had been some recent, substantial and unexplained cash deposits into Mrs Hmicho’s accounts, which were out of the ordinary.
- There had been some recent, substantial and unexplained withdrawals from Mrs Hmicho’s accounts to an account in her name held at NatWest.
Mrs Hmicho served a claim form and application for interim injunctive relief on Barclays in which she sought an order which required Barclays to restore access to her accounts.
Barclay’s position was as follows:
- As detailed above, Barclays relied upon the transactional history of Mrs Hmicho’s accounts. It was submitted, on behalf of Barclays, that it could be reasonably inferred that the payments made to Mrs Hmicho on 9 and 10 March 2015 from Mr Hmicho were made to circumvent the financial sanctions against Mr Hmicho.
- That the motivation behind these payments was for Mr Hmicho to provide for his family was irrelevant as to whether regulations 3-5 of the UK Regulations apply.
- It could be reasonably inferred that the payments out of Mrs Hmicho’s Barclays accounts to her account at NatWest were made to circumvent the financial sanctions against Mr Hmicho and it could be inferred that the intention was that these monies would be made available to, or for the benefit of, Mr Hmicho.
- Granting the injunctive relief sought by Mrs Hmicho would put Barclays at risk of committing a criminal offence pursuant to the UK Regulations and it would be inappropriate for the Court to put Barclays at such a risk.
- Barclays was entitled, under its terms and conditions, to refuse to follow Mrs Hmicho’s instructions where those instructions might put Barclays at risk of committing a criminal offence and/or where following those instructions might but Barclays at risk of legal action from any regulator or law enforcement agency.
The claimant's position
The Claimant’s position was as follows:
- Barclays impermissibly had its focus on where the funds in Mrs Hmicho’s accounts came from (namely Mr Hmicho), and what has happened in the past, rather than concentrating on the present and, in particular, Mrs Hmicho’s explanations that the monies were to be used exclusively to maintain her family;
- There could be no question of the funds in Mrs Hmicho’s bank accounts “belonging to” Mr Hmicho, since not only are the bank accounts solely in Mrs Hmicho’s name, but additionally, the monies totalling £124,000 paid on 9 and 10 March 2015 constituted gifts by Mr Hmicho to his wife;
- Unlike regulation 3, regulations 4 and 5 of the UK Regulations are concerned not with the freezing of bank accounts but, instead, with specific transactions and instructions given by the customer to his or her bank in the context of those transactions;
- Aside from the fact that Mr and Mrs Hmicho are husband and wife, there is insufficient evidence on which Barclays can reasonably (and so legitimately) suspect or conclude that the funds in Mrs Hmicho’s Barclays accounts are funds to which regulations 3, 4 or 5 apply; and
- There was little risk to Barclays in granting the interim injunction and damages would be an inadequate remedy for Mrs Hmicho.
The High Court's decision
The Court refused Mrs Hmicho’s application, stating that it “cannot 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 Judge stressed that there are points to be determined at a full trial, in his judgment, it did not matter what the intention was behind any payments from Mr Hmicho to his wife for the purposes of determining whether regulation 3 of the UK Regulations applied. In addition, the Court did not accept the submission on behalf of Mrs Hmicho that regulations 4 and 5 of the UK Regulations do not permit a freeze to be put in place.
The Court determined that this was not a case where it was merely assumed that Mrs Hmicho could be regarded as making funds available to a designated person because she is the spouse of a designated person, but in this case, the evidence went further than their marital status.
In addition, the Court stated that the “balance of convenience …. rests very firmly on Barclays’ side rather than that of Mrs Hmicho” and it would not have been appropriate for the court to make an order requiring Barclays to take action which might render it criminally liable.
Importance of this judgment
This case provides useful guidance in respect of the application of concepts of ownership and control in the context of international sanctions, where a non-designated third party individual, in this case a spouse, is involved. Importantly, this judgment acknowledges that the risk of a financial institution committing a criminal offence pursuant to sanctions legislation outweighs the inconvenience to a person whose funds are frozen in compliance with such legislation.
Additionally, the judgment highlights the importance of carefully monitoring accounts of designated individuals and identifying where funds may be linked to them but which are not held in their name. Whilst there has been guidance on ownership and control provided at both an EU and domestic level with respect to legal entities, there has, unfortunately, been very little guidance on designated individuals exercising control over other individuals. Whilst the mere fact an individual is related to a designated person is insufficient to warrant a freeze of funds, it should not be assumed that an absence of designation provides a financial institution with any defence to a potential criminal breach.