Constructive Trusts: The Lurking Danger
A banker receiving an unexpectedly large deposit into an account
has to juggle the risks of a number of threats: avoiding liability
in money laundering, tipping-off offences, and not least the threat
posed by the civil law concept of constructive trust. A
constructive trust claim could cost the bank a substantial amount
of money and, unlike the system for criminal fines under POCA,
there is no tariff to cap the amount. Duncan Aldred, a partner in
the Banking Litigation team has written a full and detailed article
on the issues facing a bank holding money on constructive
trust.
To view the article in full, please see
below:
Full Article
You are a banker. A heavy deposit comes in. You are happy about
this, but alarm bells ring because you know about the risks around
money laundering. Maybe, on this occasion, the deposit arrives into
the account of an established customer, so there is no need for a
Know Your Customer check to be carried out. But if you are
suspicious that the money might represent proceeds of crime, there
is an obligation to make a Suspicious Activity Report
("SAR") to the Serious Organised Crime Agency
("SOCA"). You then have to obtain SOCA's consent to
dealing with the funds, or wait for time to expire without hearing
an objection before you can be safe in paying the money away. And
there's tipping off to remember, too. Under section 333A
Proceeds of Crime Act ("POCA") there is personal criminal
liability if you make a disclosure that is likely to prejudice any
investigation that might be conducted following your report.
Whether one of the deadlines on the SAR scheme expires without
SOCA getting in touch, providing you with comfort by default, or
SOCA positively responds with its consent for an intended
transaction, can you really afford to breathe a sigh of relief? In
many cases, the answer will be a clear No.
The SOCA – related dangers are all set out in POCA,
and, as a banker, you certainly need to have the provisions of that
statute clearly in mind, for the personal criminal liability of you
and your colleagues and for your Bank's reputation with its
regulators. But, while you keep your eye on that threat, you also
need to keep very clearly in mind the threat posed by the civil law
concept of constructive trust. A constructive trust claim won't
cost you your liberty, but it could cost the Bank a substantial
amount of money and, unlike the system for criminal fines under
POCA, there is no tariff to cap the amount.
What is a constructive trust, and what can you do to fend off
this hidden threat?
There must be people out there who are excited by the mechanics
of trust law. For most of us, though, this area seems rooted firmly
in the era of Dickens and brings to mind verbose and dusty deeds
executed with wax seals under elaborate Victorian signatures.
Constructive trusts are different. They are imposed upon a
relationship by the...
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