The Court confirmed that "suspicion" is purely a subjective matter and that there is no additional requirement of reasonableness, rationality or lack of negligence. However, where a bank fails to take reasonable care in making the requisite disclosures as soon as reasonably practical, it may be in breach of its general duty of care to its customers.
Facts
The claimants sued the Bank for damages arising out of delays by the Bank in executing four transfers from the claimants’ accounts in 2006/7 and its failure to explain the reasons for the delays. At the time, the reason given by the Bank was that it was complying with its UK statutory obligations. In fact, the Bank had suspected that the funds were criminal property and therefore, before the Bank would proceed with each transaction, it had to make an authorised disclosure to the Serious Organised Crime Agency (SOCA) and wait for appropriate consent under Pt 7 of the POCA. In each case, consent was provided and the transfers were made shortly after.
The Bank argued that it had a “suspicion” under the POCA that the requested transfers involved criminal property. The Bank was therefore compelled under the POCA to make an authorised disclosure under s338 and seek appropriate consent under s335. Until consent was forthcoming or the relevant time limits expired, it could not carry out the claimants’ instructions and could not be liable in law for failing to do so. The claimants submitted that under s335 of the POCA, where a banker genuinely and reasonably suspected money laundering, he would be entitled to refuse to make a payment unless he received consent. Accordingly, any implied restrictions on the banker’s duty was limited to where suspicion was both genuinely and reasonably held. In particular, the claimants added that the suspicion had to be rational, not fanciful, not unreasonable, not induced by negligence on the part of the Bank and not generated automatically by, for example, a computer program.
The Court rejected completely the claimants’ attempted refinements to the concept of suspicion under the POCA. Suspicion is a subjective requirement. There is no additional requirement of reasonableness, rationality or lack of negligence. The Court observed that there are good practical reasons for this – banks are not law enforcement agencies and so do not have the responsibility or expertise to investigate criminal activity to satisfy themselves that the grounds for their suspicion are well founded, reasonable or rational. As to automatic generation by a computer program, the Court observed that this was not realistically ever likely to be the case as human intervention and decision making would be an inevitable part of the disclosure process.
In order to impugn a decision to make an authorised disclosure under the POCA, the claimants must challenge the good faith of the suspicion which the Bank states that its employees held. The claimants in this case had not sought to do this.
The claimants also asserted that the Bank had failed to take reasonable care in making the disclosures to SOCA as soon as reasonably practical. As to this claim, the Court found that banks do owe a general duty of care to their customers and that, whilst a bank’s duty to comply with its obligations under the POCA might restrict and qualify those duties, it was arguable that such duties were not completely excluded by the POCA. So, if a bank sought appropriate consent to make a bank transfer under the POCA and, having obtained such consent, unreasonably delayed in carrying out the authorised transfer, it might well be acting in breach of duty. However in this case, there was no unreasonable delay. The Bank was also correct not to inform the customer exactly why the transfers were being delayed as this might have prejudiced a criminal investigation and put the Bank at risk of criminal liability under s333 of the POCA.
Comment
This English judgment sends a strong message: banks will not be judged harshly when they have decided to make a disclosure to the authorities under the POCA on the grounds of a “suspicion”. The decision will provide further reassurance for banks that complying promptly with their obligations whenever there is an element of suspicion will not expose them to liability, even if it later transpires that the suspicion was unfounded either as a result of the bank’s negligence or otherwise. Given the recent discoveries of fraud in the financial markets, this reassurance is timely.
However, the Court’s approach could lead to an innocent customer suffering loss due to its instructions not being followed. Unless the bank’s suspicion is based on “bad faith”, or involves excessive delay in making the disclosure, the customer will not have any right of recourse. The claims in this case highlight that the damage to the customer may not only be the immediate issue of delayed payment but, where third parties guess the reason is a POCA disclosure, huge reputational damage. However, the UK Parliament has decided that the possibility of this happening is a worthwhile trade-off in the fight against serious organised crime and the Court has resisted an attempt to put “an unwarranted gloss” on the legislation.
Applicability of the judgment in Hong Kong
The issues arising in this case are equally applicable to Hong Kong given that English judgments remain highly persuasive. The Organized and Serious Crimes Ordinance Cap 455 (OSCO) is the principal piece of legislation governing money laundering activities in Hong Kong. Similar to the UK provisions, under s.25A OSCO, there is a "whistle-blowing" obligation on any person who knows or suspects the existence of proceeds or potential proceeds of an indictable offence. The obligation to make a report to an authorized officer arises where a person knows or suspects that any property (i) directly or indirectly represents any proceeds of an indictable offence (ii) was used in connection with an indictable offence or (iii) is intended to be used in connection with an indictable offence. It is a criminal offence if a person fails to report, as soon as reasonable, such knowledge or suspicion to the Joint Financial Intelligence Unit (JFIU) by way of a Suspicious Transaction Report. Accordingly, as long as a bank can be shown to have the required knowledge or suspicion, a reporting obligation will arise.
The JFIU encourages institutions and businesses to make Suspicious Transaction Reports where, although they are not aware of the specific crime that is connected to the suspicious transaction, one or more suspicious activity indicators exist. Such indicators will include evidence of large or frequent cash transactions, "U-turn" transactions where money passes from one person to another and is then returned to the original person, use of shelf or shell companies or companies located in recognised tax havens. In addition to these indicators, if a bank's customer is unable or unwilling to provide a reasonable and/or legitimate explanation of the financial activity undertaken, this may also reinforce the bank's suspicion. In these circumstances, a bank may need to carry out a thorough investigation and make a decision as to whether a Suspicious Transaction Report should be made.