Editorial

Citation

Rider, B. (2010), "Editorial", Journal of Money Laundering Control, Vol. 13 No. 4. https://doi.org/10.1108/jmlc.2010.31013daa.001

Editorial

Article Type: Editorial From: Journal of Money Laundering Control, Volume 13, Issue 4

When risk becomes reality!

We live in an increasingly complex world. While developments in technology in the minds of some allow us to simplify the management of information, others argue that the ability to electronically handle and consider vast amounts of information actually results in rather more complexity. This is an issue that those concerned with identifying and interdicting money laundering are bound to confront. Of course, governments and those who set standards like things to be simple. A number of years ago, the Treasury’s then legal adviser, as a meeting of the Joint Steering Group, pooh-poohed the idea that bankers might find themselves in a situation where compliance with the anti-money laundering law and in particular the then Guidance Notes, might expose them to the risk of civil liability. Indeed, he advised that the notion was laughable and academic.

Banks and other financial intermediaries have paid lawyers a great deal of money in recent years to address just this issue. Indeed, perhaps this was a Treasury job creation initiative for City lawyers! Lawyers in public service, in most jurisdictions, understandably lack experience and, indeed, knowledge of civil and transactional law. Therefore, it is not uncommon to find that the relationship between what the public law requires and the civil law ordains is not entirely happy. A particular issue has arisen in regard to the obligations that an intermediary, such as a bank, might have to a client with which there is a fiduciary relationship, where the intermediary suspects that the client’s money might be subject to an equitable claim from a third party. In Bank of Scotland v. A Ltd (2001) 3 All ER 58 while the Court of Appeal tried to be as helpful as possible to banks in a genuine dilemma, it emphasised that an application to the court “must not be regarded as a substitute for financial institutions taking the decisions which should be their commercial responsibilities”. Furthermore, “the Court’s power to grant interim declarations (in criminal proceedings) will protect a bank from criminal proceedings, but will not automatically provide protection for the bank against actions by customers or third parties”.

The statutory protection afforded in most anti-money laundering laws for those who report in good faith suspicions is not unlimited. For example, it does not protect against defamation actions in all situations or civil claims brought by third parties. In the recent case of Shah v. HSBC (2010) All ER 477, the plaintiff claimed that HSBC had failed to promptly carry out the instructions that he had properly given the bank. HSBC retorted that it had delayed because it suspected that the transactions constituted money laundering. While the facts of the case are complex and a number of other important legal issues at stake, the real question before the Court of Appeal was whether the plaintiff should be allowed to proceed to trial. The Court of Appeal held that the allegation was not fanciful and the bank’s claim, which might well amount to a defence, that it suspected an offence might be committed, should be tested on the evidence. While the Court considered that the bank was prevented from informing the customer during the statutory period, the tipping off offence does not automatically continue to bite beyond this period. In particular, the Court recognised that there might be a duty of care and that other duties might arise in agency. While this decision is essentially procedural, it clearly does endorse the view that the circumstances in which a person formulates a suspicion and the handling of it, is subject to investigation buy the courts in ordinary civil litigation.

The reluctance of the compliance industry to take account of the potential impact of civil liability as a risk factor, in such circumstances, is understandable for a number of reasons. The law is complex and as the courts have admitted there is little precedent. The circumstances in which a claim can be successfully asserted on the basis of a breach of fiduciary duty is still uncertain (see AG for Hong Kong v. Reid (1994) 1 All ER 1) and there are very real practical issues when other jurisdictions are involved. However, those concerned with the identification and control of risk are in dereliction of their duties – both legal and regulatory, if they do not consider these factors.

Barry Rider