The Role Of Banks In Fraud And Asset Recovery Litigation

• Published date: 05 January 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Criminal Law, Financial Services, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: SKRINE
• Author: Ms Elizabeth Goh Yeek Li

Introduction

In the course of a fraud litigation, it is not uncommon for the plaintiff to seek the banks' assistance to preserve the fraudster's assets in the banks pending trial, or to provide relevant information and documents relating to bank accounts. However, banks often appear reticent about their readiness to render such assistance, having in the forefront of their minds the banking confidentiality rules as well as their duties to their customers.

This Alert will discuss what banks can or cannot do in the face of fraud, and how they can help the plaintiff get the appropriate Orders without breaching their banking secrecy obligations.

Banking Secrecy

As a starting point, banks are subject to a statutory duty of secrecy under section 133 (1) of the Financial Services Act 2013 ('FSA'), which prohibits them or their officers from disclosing any document or information relating to the affairs or account of any customer to another person.

Any person found to be in breach of his duty of secrecy shall be liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding RM10,000,000.00 or to both, as provided under section 133 (4) of FSA.

However, there are circumstances where banks are permitted to disclose banking documents or information to a third party. These permitted disclosures are set out in Section 134 of FSA read together with Schedule 11, and include circumstances where disclosure is necessary to comply with an Order made by a Court not lower than a Sessions Court.

Preservation and Tracing of Assets

Central to a fraud litigation is the importance of preserving the defendant's assets in the bank accounts and obtaining timely disclosure of the details of the alleged wrongdoings from the defendant's banks. As such, the plaintiff will invariably apply for injunctive reliefs and/or disclosure Orders against the defendant's banks at the early stages of trial.

Interlocutory Injunction

The two most common types of injunction sought by the plaintiff are: (1) a Mareva injunction (which freezes the monies in the defendant's bank account(s)); and (2) a prohibitory injunction (which prohibits the defendant from disposing of his assets).

While an injunction is sought and ordered against the defendant, the subject matter of the injunction (especially a Mareva injunction) is more often than not the monies, shares or other assets held in a bank. In these circumstances, the plaintiff will extend a copy of the injunctive Order to the bank in...