The long running litigation involving HSBC and Mr and Mrs Shah has culminated in a recent decision (Shah and another v HSBC Private Bank (UK) Ltd ).
The claimants, Mr and Mrs Shah, had four of their money transfers delayed because the bank held a suspicion that the funds were criminal and made an authorised disclosure to SOCA (Serious Organised Crime Agency). The bank did not inform the claimants about the exact nature of the delay. The claimants lodged a claim against the bank for breach of contract causing substantial damages.
Issues for Banks
Banks run the risk of committing money laundering offences under the Proceeds of Crime Act 2002 (POCA) unless they notify the SOCA by making a Suspicious Activity Report (SAR). Once a bank makes a SAR to SOCA concerning a bank account it will not be able to undertake a transaction concerning that account until appropriate consent has been given or it risks committing money laundering offences. Informing customers about the exact details of the delay might constitute a “tipping off” offence under POCA.
The High Court found the bank had acted properly in refusing to follow instructions and had no obligation to provide information to the customers concerning the reasons for its refusal to act. It was held that there was an implied term in the contract that permitted the bank to refuse to execute payment instructions in the absence of “appropriate consent” where the bank suspected money laundering.
Advice for Banks
There was some helpful advice for banks:
Nominated officer: Whilst a formal appointment proved to not be essential, the appointment of a nominated officer should be properly documented to avoid any doubt.
Suspicion: A customer will not have a claim if the reason for delay is a genuine and honest suspicion of money laundering. Banks should produce and retain a clear and comprehensive audit trail of why they suspect money laundering. It would be practical to record all supporting information in the disclosure made to SOCA.
Tipping off: Banks should continue refusing to provide information to customers which might amount to tipping off. The case suggests that banks can simply inform customers that they are complying with their UK statutory obligations.
Terms and Conditions: These should seek to exclude liability where a customer suffers loss as a result of a delay or the bank’s refusal to provide information. It would also be prudent to ensure that compliance with anti-money laundering obligations are provided for in the terms and conditions of business.