As regulators globally become increasingly assertive in their enforcement activities, organisations in the regulated sector remain under the spotlight for the steps taken in response to corrupt practices. Compliance with anti-money laundering measures is a key part of this response, and one particularly difficult aspect is the need for such organisations to balance their reporting obligations under the Proceeds of Crime Act 2002 (POCA), while maintaining commercial relationships with customers.

As seen in cases such as Shah v HSBC Private Bank (UK) Ltd [2012] EWHC 1283, customers who suffer financial losses as a result of delays following a suspicious activity report (SAR) may seek redress from the courts – particularly if they feel there was insufficient basis for any suspicion of money laundering.

This is an issue which the High Court has recently considered in Iraj Parvizi v Barclays Bank Plc [2014] EWHC B2 (QB).

The Claimant claimed that he had suffered financially as a result of a SAR submitted by the Defendant in June 2013 to the Serious Organised Crime Agency (which was replaced by the National Crime Agency as the UK’s financial intelligence unit in October 2013).  He claimed that he had been denied access to his funds at a critical time and that he would otherwise have made considerable gains through his gambling activities.

In assessing the Defendant’s suspicion of money laundering, the Court considered R v Da Silva [2006] EWCA Crim 1654, a key case which established that suspicion must be a possibility which is more than fanciful –

a “vague feeling of unease would not suffice”.

However, the suspicion need not be clear or firmly grounded and targeted on specific factors nor based upon reasonable grounds.

It is for the Defendant to establish the primary fact of the suspicion in order to justify not following the customer’s instructions.

In this case, the Defendant provided the witness statement, and contemporaneous manuscript notes, of an analyst in its anti-money laundering team who was responsible for overseeing disclosures relating to money laundering offences and, ultimately, for submitting the SAR in question.

The witness statement revealed that concerns had existed regarding the significant gambling activity on the Claimant’s account, and that the source of the underlying funds could not be established.

The Court noted that there were some inconsistencies between the explanation given in the witness statement, the “rather sketchy” manuscript notes and the content of the SAR itself. However, it was significant that these documents were, of course, not envisaged as documents to be pored over by lawyers.

Therefore, and notwithstanding an arguable lack of reasoning in some of the evidence, it did establish a clear belief of suspicion which was more than fanciful. Accordingly, the Court found that there was no reason why the case should continue to trial as there was no real prospect of success.

The cases in this area clearly indicate that any suspicion that the customer is engaged in money laundering must be honestly and genuinely held, but need not be of a settled nature.

As a result, if a dispute does arise, customers will need to press for early disclosure of evidence from the individual responsible for deciding to make the SAR, including any working notes they may have prepared at the time.

In any such claim, firms in the regulated sector will find their position easier to defend if they have produced, and retained, clear and comprehensive records to explain why money laundering was suspected, and they may face criticism if this audit trail is inconsistent with the reasoning provided in the disclosure ultimately made to SOCA.

Any claim for damages in these circumstances will, of course, also be subject to arguments as to causation – as in Shah.

These arguments will turn on the facts of each case and, for example, the envisaged use of the account.