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...