Overview

Unlike the US and other jurisdictions, in the UK financial institutions and other firms in the regulated sector not only have to report suspicions of money laundering (including about their own clients) but they must also seek consent from the authorities to carry out any transactions which relate to the proceeds of the crime. Until the reporting firm receives actual or deemed consent under the legislation, it is not in a position to carry out a customer’s instructions without the risk of committing a criminal offence. The level of knowledge required before a firm is required to make a report is a very low one. A firm need only suspect that the property concerned is criminal property.

The regime means that UK firms who suspect their customers of money laundering are exposed to the risk of claims based on a breach of mandate when they fail to follow instructions.

Until now, the courts have been keen to protect banks from this risk by relying on the criminal sanctions which they face if they do not comply with the regime and highlighting the low level of suspicion which is required before a report must be made.

Last year, HSBC was successful in obtaining summary judgment on a claim brought by one of its customers, Mr Shah (and his wife). Mr Shah sought damages for breaches of duty and failure to follow his instructions to process transactions whilst requests for consent under the Proceeds of Crime Act 2002 (POCA) were pending with the Serious Organised Crime Agency (SOCA). On 4 February 2010, the Court of Appeal allowed in part Mr Shah's appeal against the summary judgment.

The decision in Shah and Anor v HSBC Private Bank (UK) Limited [2010] means customers can now obtain disclosure of banks' internal documents related to money laundering disclosures and put them to proof at trial of the suspicions they report to SOCA. The case also leaves open the possibility that banks may owe duties to their customers to inform them about money laundering reports which have been made about them.

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