Banks May Have To Prove POCA 'Suspicions' When Delaying Carrying Out Instructions

In a judgment handed down on 4 February, the Court of Appeal held that a bank which makes an authorised disclosure under the Proceeds of Crime Act 2002 (POCA), preventing it complying with a customer's payment instruction, may have to prove its suspicions at trial – summary disposal of the question without disclosure and evidence is not appropriate. This decision raises important issues for bank money laundering procedures.

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In a judgment handed down on 4 February, the Court of Appeal held that a bank which makes an authorised disclosure under the Proceeds of Crime Act 2002 (POCA), preventing it complying with a customer's payment instruction, may have to prove its suspicions at trial – summary disposal of the question without disclosure and evidence is not appropriate. This decision raises important issues for bank money laundering procedures.

Relevant legal provisions

Where regulated firms, including banks, suspect money laundering in connection with a transaction with which they are concerned, they can avoid liability if, before carrying out the transaction, they make an authorised disclosure to the relevant authorities (under section 338 POCA), and have obtained appropriate consent to continue. Where a bank makes an authorised disclosure in connection with a customer's payment instruction and the authorities have either: (i) not given notice within 7 working days of their refusal to continue with the transaction; or (ii) have refused in that period but have not within the following 31 day "moratorium period" obtained an order freezing the account, the bank must then carry out the customer's instruction.

It is a further offence under section 333 POCA, called "tipping off", to disclose information to anyone knowing or suspecting it may prejudice an investigation that may be conducted following the authorised disclosure.

Facts

The Claimant, Mr Shah was a wealthy businessman with interests in Zimbabwe. He had held accounts with HSBC ("H Bank") in London and Geneva for some years. In July 2006 he transferred $28m to his London account from an account with a different bank, explaining that this was to be for a short period of time; the monies would then be transferred back to the original account. In September, following Mr Shah's instruction to pay the funds back to the original account, H Bank said it could not do so as it was "complying with its UK statutory obligations" – i.e. H Bank had reported a suspicious transaction and was awaiting clearance as required under the POCA procedure. Consent to make...