ML SUSPICIOUS ACTIVITY REPORTS - what's on your mind?

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 crucial, and one challenging aspect is:-

• The need for such organisations to balance their reporting obligations under the ML legislation while maintaining commercial relationships with customers.
• [ML legislation, e.g. the UK Proceeds of Crime Act 2002 (POCA), the Mauritius Financial Intelligence and Anti-Money Laundering Act. 2002 [FIAMLA], Jersey's Proceeds of Crime (Jersey) Law 1999 [POCJL] ]

Consider Shah v HSBC Private Bank (UK) Ltd [2012] EWHC 1283 and Iraj Parvizi v Barclays Bank Plc [2014] EWHC B2 (QB).

• In these two cases, customers who suffered financial losses due to delays following a suspicious activity report (SAR) may seek redress from the courts – particularly if they feel there was an insufficient basis for any suspicion of money laundering.

Iraj Parvizi v Barclays Bank Plc [2014] EWHC B2 (QB). https://www.bailii.org/ew/cases/EWHC/QB/2014/B2.html

The Claimant [TC] claimed that he had suffered financially due to a SAR submitted by the BARCLAYS 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).

TC claimed he had been denied access to his funds at a critical time and would otherwise have made considerable gains through his gambling activities.

In assessing the BARCLAYS 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, firmly grounded, targeted on specific factors, or based on reasonable grounds.

BARCLAYS should establish the primary fact of the suspicion to justify not following the customer's instructions.

In this case, BARCLAYS provided the witness statement and contemporaneous manuscript notes of an analyst in its anti-money laundering team 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 TC's account, and
• The source of the underlying funds could not be established.

The Court noted 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 not envisaged as documents to be pored over by lawyers. Notwithstanding an arguable lack of reasoning in some of the evidence, it did establish an apparent belief that suspicion was more than fanciful.

Accordingly, the Court found no reason the case should continue to trial as there was no real prospect of success.

CONCLUSION

The cases in this area 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.

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

If they do not, they may face criticism if this audit trail is inconsistent with the reasoning provided in the disclosure ultimately made to the FIU.

SOURCE

• https://archive.comsuregroup.com/news/iraj-parvizi-v-barclays-bank/
• https://www.bailii.org/ew/cases/EWHC/QB/2014/B2.html

https://www.signaturelitigation.com/financial-and-regulatory-disputes-update-january-2015/