Courts can side step consent regime under POCA - but not often

Frozen accounts

N is an authorised payment institution which provides FX and payment services. N held business accounts with Royal Bank of Scotland plc (RBS). Suspecting that the credit balance on certain of these accounts was criminal property, RBS froze the accounts and sought the consent of the National Crime Agency (NCA), under POCA, to return the funds to N. The NCA gave consent for funds to be returned to N.

Whilst RBS was seeking consent from the NCA, N commenced proceedings for an interim mandatory injunction requiring RBS to operate its accounts and for interim declaratory relief. By the time of the hearing, N had found alternative banking facilities and was not therefore concerned with requiring RBS to operate its accounts going forwards. N did however seek to require RBS to carry out past payment instructions. At no time had RBS sought, or the NCA provided, consent for RBS to carry out any of N’s payment instructions. RBS argued that in the absence of consent from the NCA, it could not process the payment instructions as to do so could expose the bank to criminal liability.

Court orders payments to be made, despite no NCA consent

At first instance, Burton J ordered RBS to make specific payments, and provided a declaration that RBS would not commit any criminal offence under the money laundering legislation by complying with the orders. Burton J considered that the time limits to give consent, which could reach a maximum of 42 days, would have "almost certain disastrous consequences" for N. Burton J indicated that the NCA’s consent regarding the return of funds to N demonstrated that the NCA had "no evidence as of now that any of this money is the proceeds of crime or constitutes or represents the benefit from criminal conduct".

NCA appeals – a ‘dangerous lacuna in the POCA regime’?

The NCA appealed, arguing, inter alia, that such court orders create a dangerous lacuna in the POCA regime and operate to prevent the NCA from carrying out its statutory functions in preventing money laundering.

Court can disapply the POCA regime - but not often

On appeal, Hamblen LJ agreed with the NCA that Parliament has entrusted the NCA with the task of deciding whether consent should be given to carry out certain actions. This meant that "ordinarily" the court should not interfere. Although the POCA regime does not completely oust the jurisdiction of the court to grant interim relief, the statutory regime is highly relevant to the exercise of the court’s discretion. The statutory regime “cannot be displaced merely on a consideration of the balance of convenience as between the interests of the private parties involved. The public interest in the prevention of money laundering as reflected in the statutory procedures has to be weighed in the balance and in most cases is likely to be decisive. Cases justifying such intervention are likely to be exceptional, although the test is not one of exceptionality. One possible example given in argument might be demonstrable bad faith by the bank.”

Hamblen LJ also noted that should the balance of convenience be a consideration, this would most likely fall in favour of the bank. Since it will be very difficult for a court to establish whether the funds concerned actually are criminal property, and/or whether the suspicion is relevant or genuine, the balance of convenience would likely favour the bank; the potential risk of criminal liability to the bank is likely to outweigh any prejudice to the customer.

Interim declaration should not have been granted

As stated above, Burton J had declared that RBS would not be committing a criminal offence by making the transfers ordered by the court. However the Court of Appeal ruled that the case was not sufficiently exceptional to justify the grant of this interim declaration. Whether the bank would commit a criminal offence in making the transactions and whether it was obliged under criminal law to make disclosure were questions of substantive law that only permitted a final, not a temporary, answer. Assuming that an interim answer could be given, the court would need a high degree of confidence in an applicant’s entitlement to a declaration before such relief could be granted. The need for a close consideration of the merits is particularly important where, as in this case, the grant of interim declaratory relief is likely to be determinative of the issue. Burton J’s findings that there was no evidence that the monies were suspected to be or were criminal property were not borne out by the evidence or the judge’s reasoning. The declaration should not have been made.

Nor should the mandatory orders to make the payments have been made

It was clear that the grant of interim declaratory relief was integral to Burton J’s decision that the balance of convenience favoured the granting of mandatory interim injunctive relief (to make the relevant transfers); relief should be granted “provided that the defendant can be given protection by reference to the provisions of POCA.” If it was inappropriate to grant an interim declaration to provide such protection, it was inappropriate to grant a mandatory interim injunction. Therefore, mandatory injunctive relief should not have been granted either.

Comment

Banks are correct to err on the side of caution; the risk of criminal liability is likely to override the damage to commercial interests in most cases. The Court of Appeal’s ruling suggests that the balance of convenience is likely to lie in favour of the public interest in the prevention of money laundering in most cases, and only in exceptional circumstances, for example where a bank has acted in bad faith, is the public interest likely to be overridden and a payment order made by the courts, without NCA consent. The ruling confirms that the court does have jurisdiction to override the compulsory statutory consent procedure under POCA by granting interim relief, but such occurrences are likely to be rare.

The potential six-fold increase in the length of the moratorium period (up to 186 days) under the Criminal Finances Act 2017, which received Royal Assent in April 2017 and is likely to enter into force later this year, could potentially leave more scope for the balance of convenience to be tipped in favour of the customer. We may also see more cases on these issues before the courts, as firms are increasingly stuck between a rock and a hard place when awaiting NCA consent following a disclosure.

See our article on the Criminal Finances Act 2017 here.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Amy Edwards at amy.edwards@allenovery.com. ​