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29.05.12

Claim against bank arising from suspicious activity reports fails

Mr Justice supperstone has handed down judgment in favour of the defendant bank in the trial of shah & Anor v HsBC Private Bank (UK) Ltd [2012] EWHC 1283 (QB). The parties had already made two trips to the Court of Appeal on preliminary arguments - judgments which have provided some helpful guidance on the friction between a bank's duty to its customer and its statutory obligations under the Proceeds of Crime Act 2002.

In 2006 Mr shah attempted to send $28m to an account in switzerland. The bank suspected the money to be the proceeds of crime and made a suspicious activity report to the serious Organised Crime Agency (sOCA). A further four reports were made over the next five months, with transactions being delayed while the bank awaited consent to proceed with the transactions from sOCA. Mindful not to commit the offence of "tipping off", the bank simply told Mr shah that it was "complying with its statutory obligations". Mr shah had substantial assets in Zimbabwe. The Zimbabwean authorities became aware that Mr shah's UK account was frozen and seized his investments in Zimbabwe (on the basis of rumours he was involved in money laundering). Mr shah alleged he suffered losses of over $300m in relation to the lost investments and sought to recover this sum in damages from the bank.

Mr shah claimed, inter alia, that HsBC was in breach of contract in failing to process his payment instructions and in failing to provide him with detailed information and documentary evidence as to the facts that had caused HsBC to fail to effect the transactions on his account. These arguments did not find favour with supperstone J. He did not consider that the bank had acted in bad faith. It had the requisite suspicion that the funds in Mr shah's account constituted the proceeds of crime. supperstone J applied the ratio in the Court of Appeal case of R v de silva [2007] 1WLR which set out that suspicion means that the bank must "...think that there is a possibility which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts or based on reasonable grounds'".significantly, supperstone J agreed to imply two terms into the bank's contract with Mr shah to the effect that it could refuse to execute instructions in the absence of appropriate consent from sOCA where it suspected that a transaction constituted money laundering, and that the bank would not provide information to the client if there was a risk of tipping off.

A full copy of the judgment is available below:-

http://www.bailii.org/ew/cases/EWHC/QB/2012/1283.html


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