By Greg Standing
Money laundering officers (MLOs) in
financial institutions will be breathing a sigh of relief following
the decision in Shah v HSBC Private Bank (UK) Ltd.
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The court confirmed that where money laundering
is honestly suspected and a report has been made to the Serious
Organised Crime Agency (SOCA), banks can refuse to execute
customers’ payment instructions or provide information to them
which might constitute “tipping of
f” without
being in breach of contract. Similar principles will apply in other
contractual situations in which money laundering is suspected.
In Shah, HSBC delayed several of the claimants’
payment instructions, suspecting the funds were criminal property.
HSBC made authorised disclosures to SOCA and once consent had been
given by SOCA to proceed, processed the payments.
The reason HSBC gave the claimants for the
delay was that it was complying with its statutory obligations. It
argued that any other explanation could have led to a “tipping off”
under the Proceeds of Crime Act 2002 (POCA), which is an offence.
As a result of HSBC’s actions, the Zimbabwean authorities seized
the claimant’s assets in that jurisdiction. The claimant sought to
recover losses it allegedly suffered ($330m) from HSBC, alleging
HSBC was in breach of contract in failing to process their
instructions promptly or explain the delays.
Did HSBC hold a relevant suspicion of money
laundering as required, and was it obliged to provide information
to its customers? The court held that “suspicion” means the MLO
must believe there is a more than a fanciful possibility that the
money is criminal property. A vague feeling of unease is not
enough, but there is no obligation to undertake extensive
investigations.
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By GlobalDataHere, the MLO had honestly and genuinely
suspected that the funds were criminal property when making the
disclosure to SOCA.
The court held there was no implied duty on
HSBC to provide its customers with information relating to its
communications with SOCA and the disclosures that had been made, as
to do so might constitute tipping off. Such an implied term would
undermine the integrity of the reporting regime and would operate
as a disincentive to report suspicious activity.
The court held that the claimant’s losses were
too remote. There had been no assumption of responsibility by HSBC
for the losses that occurred, and HSBC’s delays in complying with
the payment instruction did not cause any loss to the
claimants.
This is an important judgment and provides
helpful guidance for all financial institutions with reporting
obligations under POCA.
Greg Standing is a partner in Wragge &
Co’s finance litigation team
