How Secret is Your Report of Suspected Money Laundering?

by Clare Tanner Esq. and Anne T. McCarthy

Employers who make reports under POCA of suspected money laundering can be required to disclose any relevant documentation in subsequent litigation with a disgruntled client. Firms should review their anti-money laundering procedure to ensure that suspicions of money laundering are properly documented. They can encourage their employees to report suspicions of money laundering. The identity of reporting employees will be kept confidential.

Excerpt:

Employees of parties who make authorised reports to the Serious Organised Crime Agency ("SOCA") under the Proceeds of Crime Act ("POCA") can sleep a little bit more comfortably in their beds following a recent High Court Judgment in Shah & another -v- HSBC Private Bank (UK) Limited [2011] EWHC 1713 (QB). The case concerned a bank but the principles apply equally to investment management and other financial services firms that are subject to POCA. Last year, at an earlier stage of the same case, the Court of Appeal decided that a party which was adversely impacted by a SOCA report could require the reporting firm to prove the existence of the suspicion which gave rise to the report and, potentially, to disclose the surrounding documentation. However, the High Court has now identified an exception in that documents containing the names of employees who report money laundering suspicions are in a class covered by public interest immunity. Mindful of the balance between the public interest in open justice and anonymity, the judge required the reporting firm to identify employees by number and department but not by name. However, this still might not be the end of the matter, as the judge left open the possibility of a further application by the claimant to discover the identity of any employee who was particularly involved in the formulation of the SOCA Report.

Background Facts

The claimant was a businessman with interests in, amongst other places, Zimbabwe. The claimant had had accounts with HSBC for a number of years and, in 2006, he transferred $28 million to HSBC from an account that he held with Credit Agricole. The claimant told HSBC that there was a risk that he would be impersonated by a third party and to protect his position wished to transfer the money for a short time. Three months later, the claimant gave instructions for the money to be transferred back to Credit Agricole. HSBC refused and informed the claimant that it was complying with its UK statutory obligations. HSBC made a suspicious activity report to SOCA and sought permission to perform the transaction. Consent was subsequently given and the transaction was carried out by HSBC.

The Complaint against HSBC

The claimant subsequently commenced proceedings against HSBC alleging that the bank's failure to execute his instructions and failure to provide information to which he was entitled had resulted in, amongst other things, the freezing and seizure of investments by the Zimbabwean authorities and losses of over $300 million. The bank resisted the claim, as it had suspected that the transactions in issue constituted money laundering. It argued that it had made an authorised disclosure seeking consent to effect the transactions such that it would have been illegal to give effect to them any earlier. The claimant put HSBC to proof of the existence of its suspicion, and the bank sought to dispose of the claim by way of an application for summary judgment.

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Anne T. McCarthy is a partner in the Commercial Litigation practice group. Her practice is focused on city and institutional work covering general banking, pensions and negligence actions.
Her banking work includes dealing with security issues, valuation negligence, recovery and tracing of assets, fraud claims, disputes over letters of credit, guarantee disputes, constructive trusts and general day to day issues concerning a bankers duty of care to its customer.

Anne also has a substantial negligence practice and has acted on some high profile claims seeking compensation against professionals on a range of issues, including valuation and lawyer negligence and pensions error and omissions work.

Clare Tanner is a special counsel in the commercial disputes practice group. She is involved in a broad range of commercial dispute resolution with a particular focus on banking, pensions and insolvency litigation. Her experience includes claims arising from breach of contract, negligence, breach of trust, wrongful trading, misfeasance and she has experience of claims with an international element.