Anti-Money Laundering (AML) Legislation: A Bank's Liability in Complying

By Chuan Thye Tan; Daniel Chia

In the recent related English cases of Shah v HSBC (UK) Ltd [2009] EWHC 79; Shah v HSBC (UK) Ltd [2010] EWHC Civ 31; Shah v HSBC (UK) Ltd [2011] EWHC 1713; Shah v HSBC (UK) Ltd [2011] EWCA Civ 1154; Shah v HSBC (UK) Ltd [2011] EWHC Civ 1669, the English Courts were faced with the question of whether a bank could be liable to its customers for taking its time to verify the source of funds in compliance with its obligations under AML legislation. A subsidiary issue related to whether the bank was obliged to disclose the identity of its employees who had first raised concerns over the source of funds and whether it was appropriate that the suspicions of such employees be tested at trial under cross examination.

Although the decision is not binding on Singapore Courts and English AML legislation is different from Singapore's, the decision is a useful guide to banks on the policy considerations behind AML legislation and the bank's duty to abide by such legislation.

The Cases

The Plaintiffs were account holders with HSBC Private Bank (the Bank). They commenced proceedings against the Bank for damage caused by delays in executing 4 fund transfers from the Plaintiffs' accounts. The Bank's defence was that it suspected that the funds represented proceeds of crime and hence, the Bank could not proceed with each of the transactions until after disclosures were made to the relevant authorities and the appropriate consents were given under the relevant English regulations. The Plaintiffs then sought disclosure of the names of the bank officers who were involved and sought to challenge the rationale behind their suspicions that the monies may have represented proceeds of crime. In particular, they sought to show that the suspicion was "self-induced", "mechanical" and "not rational".

The English Courts dismissed the Plaintiffs' claims and their subsequent application to amend their claim. The English Courts also refused the Plaintiffs' attempts to seek disclosure of the Bank's employees' names.

In so doing, the English Courts made the following important statements:

A bank is not liable in negligence when it acts to fulfil its statutory...