In the long-running dispute, Shah and Another v HSBC Private Bank (UK) Ltd (see our Law-Now reporting on the earlier judgment of the Court of Appeal on 4 February 2010), the Court of Appeal has finally considered what level of disclosure the bank was required to give to prove its money laundering suspicions. In particular, the Court considered whether the bank was required, as part of standard disclosure, to disclose the names of its employees who reported suspicions of money laundering to the bank’s money laundering reporting officer (“MLRO”) in circumstances where there was a dispute as to the genuineness of those suspicions. The Court found, on the facts of the case, that the names of the individuals did not need to be disclosed as that information neither adversely affected the bank’s case, nor adversely affected or supported the claimant’s case.
Mr Shah and his wife, Mrs Shah, (the “Claimants”) are claiming damages of $300 million from HSBC Private Bank (UK) Ltd (“H Bank”). The losses were allegedly sustained as a result of three delays and one refusal to execute certain instructions given by Mr Shah to transfer funds from H Bank to an account that he held with Credit Agricole. H Bank delayed acting on the instructions because the bank reported suspicions that the proposed transactions may have resulted in money laundering to the Serious Organised Crime Agency (“SOCA”) and sought permission to proceed. Once a report had been made, the bank was unable to carry out the instructions until SOCA either permitted or did not refuse permission to make the transfers.
In the previous decision relating to this matter, as reported in our earlier Law-Now, the Court of Appeal held that where the bank was, on the face of it, in breach of contract for not complying with their clients’ instructions, it was for the bank to prove that it genuinely held the suspicions of money laundering alleged. This could require the bank to provide evidence of the suspicion, including the documents reporting those suspicions to SOCA. However, whether proving the suspicions did require disclosure of such evidence in this case, was not decided at that time.
The bank subsequently submitted witness evidence from its MLRO relating to the process adopted by the bank in making reports to SOCA. The bank also disclosed, as part of standard disclosure, certain documents containing the information considered by the bank in forming its suspicions, but redacted the names of the employees concerned (instead indicating the function of the employee in question and designating each individual a reference number). A dispute arose as to whether the bank was entitled to redact the names of the individuals.
In the lower court, Coulson J held that:
- the bank’s obligation to make standard disclosure required it, in principle, to reveal the names of its employees who reported suspicions of money laundering to the MLRO; but
- the bank was prima facie entitled to maintain their anonymity on the ground of public interest immunity. The bank appealed the Judge’s finding that standard disclosure required the individuals’ names to be revealed in principle, while the Claimants appealed the Judge’s finding that their anonymity could in fact be maintained.
The Court of Appeal, in its judgment of 13 October 2011, dismissed the Claimants’ appeal and allowed the defendant bank’s cross appeal. The decision turned on the facts of the case. When the claim had first been served, the Claimants had raised four positive claims against the bank as to why the alleged suspicions were wrong and should not have resulted in delay to processing their transfer instructions. All of those arguments were rejected by the court in its findings on a summary judgment application by H Bank. However, what remained was the question whether the bank genuinely held its suspicions, which resulted in the report to SOCA and the delay to processing the transactions.
The Court of Appeal noted that there was not, therefore, any positive case put forward by the Claimants which the redacted information could support. Accordingly, the only question was whether the redacted material adversely affected the bank’s defence. On the facts of the case, the Court found that the Claimants’ desire to obtain disclosure of the names was a “fishing expedition”. Their disclosure was not required by the obligation to give standard disclosure under the Civil Procedure Rules.
The Court noted that if there was an allegation of bad faith involving one of the employees who had raised suspicions, the identity of whom H Bank was seeking to conceal, then their identity could be disclosable as it could support the other party’s case. However, there was no genuine issue of this kind here. H Bank had disclosed significant material relating to the generation of its suspicions and had supported this with witness evidence from the MLRO. It was content to rely on this to evidence the genuine nature of its suspicions and, on the facts, it was not required to disclose anything further.
H Bank’s cross appeal succeeded as, on the facts, the information to be redacted neither supported the Claimants’ case nor adversely affected H Bank’s case. However, the case turned heavily on the facts (including the lack of any positive case by the Claimants concerning the genuineness of the bank’s suspicions) and the Court appeared to have been impressed by the level of disclosure and evidence already given by the bank as to its suspicions. In fact, Lewison LJ noted that H Bank had gone further in its disclosure than had been suggested by the Court of Appeal in the previous summary judgment application, by not only providing evidence from its MLRO, but also disclosing the information on which he relied in forming his suspicions (subject to redacting the names of the other individuals in the bank).
Therefore, banks still need to be mindful when considering the processes and procedures they have in place in terms of money laundering reporting as these could be laid open to scrutiny. The robustness of those procedures and the paper trail showing that they have been complied with, could be an important factor in future disputes between customers and banks where payment instructions are not complied with due to money laundering suspicions. The value of a clear and documented reporting process has not changed.
Finally, Lewison LJ and Munby LJ agreed that it was not appropriate in this case to decide whether public interest immunity could be relied on to avoid disclosure of individuals’ names. If in a future case it were found that individual bank employees’ names were disclosable, then whether such immunity could be relied on would depend on whether that immunity outweighed any countervailing considerations of public interest.
Please click here to read the judgment: Shah and Another v HSBC Private Bank (UK) Ltd  EWCA Civ 1154
Please click here on this link to read the June 2011 judgment in the High Court: Shah & Anor v HSBC Private Bank (UK) Ltd  EWHC 1713 (QB)