Mr Shah sued HSBC for breaches of its duty by failing to act on Mr Shah’s instructions to process transactions whilst requests for consent under the Proceeds of Crime Act 2002 (“POCA”) were pending with the Serious Organised Crime Agency (“SOCA”).
In January 2009 HSBC were successful in obtaining summary judgment. The Court of Appeal allowed an appeal in February 2010 by Mr Shah on two grounds.
HSBC argued that it would have committed criminal offences under POCA had it complied with Mr Shah’s instructions whilst suspecting that the transactions constituted money laundering. Mr Shah argued that the suspicion was irrational, negligently self-induced and mistaken, and, having been generated by a computer, not capable of being held by a human being.
The court held it was for the bank to prove its suspicion at trial in order to justify not following Mr Shah’s instructions and that summary judgement should not have been awarded on the basis of a witness statement by a solicitor of the bank attesting to its suspicion. Suspicion is held where a party thinks that there is a possibility, which is more than fanciful, that the relevant facts exist. In those circumstances, the matter should be investigated at trial by making disclosure and calling witnesses in the ordinary way. The court accepted that there was no evidence that HSBC had delayed in making its suspicious activity reports (“SARs”) (they were all made within two days of HSBC receiving Mr Shah’s instructions), but confirmed that, in principle, undue delay in making a SAR could be a breach of a bank’s duty of care to its customers.
This decision means that banks may not be afforded protection against later civil action where they make a SAR. It also means that customers may be able to obtain disclosure of banks’ internal documents relating to money laundering disclosures, and put them to proof at trial of the suspicions that have been reported to SOCA. It highlights the need for regulated firms to have systems in place so that any suspicions that lead to the making of a SAR are well documented and the SAR is made promptly.
It remains to be seen whether any final judgment in relation to the two grounds that were successfully appealed by Mr Shah will provide guidance for regulated firms as to how they comply with their money laundering obligations whilst also meeting their duties to their customers/clients.