The National Crime Agency v. N and Royal Bank of Scotland Plc [2017] EWCA Civ 253

The Court of Appeal in this case 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 background was, in summary, that the Royal Bank of Scotland (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 made a series of orders requiring the Bank to make a number of specified payments. In order to protect the Bank, the court made 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. The NCA appealed.

The Court of Appeal decided that:

  1. 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;
  2. the jurisdiction of the court to grant interim relief was not completely ousted, but the statutory procedure was highly relevant to the exercise of the court’s discretion, and 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;
  3. earlier authority considering the regime predating POCA needed to be considered with caution and could not be regarded as providing general guidance;
  4. 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 in his reasons or by the evidence; and
  5. no interim declaration or mandatory relief requiring the Bank to make payments should have been ordered. 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.

This decision is important for banks and brings much-needed clarity. In the absence of very clear evidence that the bank has acted in bad faith, it is now clear that the customer will be unable to seek an order from the court to compel the bank to take any action, during the period when it has frozen an account and is waiting for a response to a consent request from the NCA. This should reduce the risk of an otherwise invidious position, whereby banks would be required to comply 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.

Court blocks ex-Keydata’s cross- examination of witnesses Ford v. The Financial Conduct Authority [2017] UKUT 147 (TCC)

In April 2017, the Upper Tribunal refused an application by the former chief executive of Keydata Investment Services Limited (KIS), Mr Ford, for witness summons or letters of request in respect of eight named individuals, including senior individuals from the FCA, FSCS and Luxembourg regulator the CSSF.

The application was made in connection with the references by Mr Ford and by Mr Owen, former sales director of KIS, to the Upper Tribunal of decision notices issued by the FCA. In the decision notice issued in respect of Mr Ford, the FCA seeks to impose a fine of £75 million, the largest ever financial penalty imposed by the regulator on an individual, for Mr Ford's role in the collapse of KIS.

The Tribunal noted that, whether by witness summons or letters of request, evidence should be compelled only if it is relevant and will materially assist in the determination of an issue, or issues, in the proceedings. As in Jefferey v. FCA (FS/2010/0039), the test is not whether the party making the application hopes that the evidence sought will assist its case; that would be in the nature of speculation, or a fishing expedition.

The Tribunal observed that, pursuant to s133(4) of the Financial Services and Markets Act 2000, the evidence which it can consider is any evidence relating to the subject matter of the reference which, in this case, is the conduct of Mr Ford. Conversely, the application in question sought evidence on the issue of consumer detriment. The Tribunal concluded that there is a link between the alleged misconduct and consumer detriment, but that it is not the consumer detriment (or its causes) that will determine whether Mr Ford’s conduct amounted to misconduct. That was the principal question for the Tribunal and it would not assist Mr Ford to seek to characterise the FCA’s case as something different, in order to assert that it was the cause of consumer detriment rather than him.

On that basis, the Tribunal refused seven of the eight requests, allowing only the request for a witness summons to Peter Johnson. Mr Johnson, former senior compliance officer and Chief Operating Officer of KIS, was himself the subject of a decision notice issued by the FCA and made a reference to the Tribunal, joining the present proceedings. However, that reference was subsequently withdrawn and a final notice issued in respect of Mr Johnson in May 2016. The Tribunal accepted that Mr Johnson would be able to provide relevant evidence regarding certain operational and compliance matters as regards KIS, and that such matters, so far as material to the misconduct allegations against Mr Ford, would be relevant and likely of material assistance to the Tribunal. Accordingly, the Tribunal provisionally acceded to the application in respect of Mr Johnson although Mr Johnson himself will be given the opportunity to object.

Interestingly, the judge considered, but did not determine, whether the Tribunal had the power to issue a letter of request for the taking of evidence from individuals outside the jurisdiction, under Council Regulation (EC) No 1206/2001(the Taking of Evidence Regulation). Ultimately the issue did not fall to be determined in this case given that the requests did not meet the initial test of relevance and material assistance, as set out above.

The judgment is a helpful reminder of the test that the Tribunal will impose when seeking to determine whether evidence should be compelled, and that it is necessary for applicants to demonstrate the relevance of the evidence sought; the Tribunal is unlikely to allow a request that it considers amounts to a fishing expedition.