AML/CFT : Partial anonymity for persons making internal SAR/STRs

The case of Shah and others v HSBC Private Bank has been rumbling on for several years. In summary, HSBC considered that there were suspicions relating to the conduct of an account held by Mr Shah. Accordingly, an STR/SAR was filed with the UK's Serious and Organised Crime Office (SOCA) which incorporates the FIU.

Mr Shah says that he instructed HSBC to make certain payments but that they did not do so. HSBC says that that is true - but that the reason they did not do so was due to suspicion of possible money laundering and their duty to make reports to SOCA.

A series of connected transactions failed as a result of the transactions not being performed on time or at all. One of those resulted in a third party reporting suspicion of money laundering to the authorities in Zimbabwe - which then froze funds held by Mr Shah or his associates there.

The end result is that Mr Shah and others are claiming more than USD300 million from HSBC. Their first attempt failed: their claim was dismissed and that was upheld by the Court of Appeal.

But the Court of Appeal left a back door open for Shah: Longmore LJ said ""I do, however, part company with the judge when he reasons that, once he has rejected those contentions, Mr Shah can logically only be left with the bad faith assertion which he disavows. For my part, I cannot see why, rather than submit to summary judgment dismissing the claim, Mr Shah cannot require the bank to prove its case that it had the relevant suspicion and be entitled to pursue the case to trial so that the bank can make good its contention in this respect."

Shah used that backdoor and his case on that point came before the High Court. The decision was handed down on 4 July.

The Judge, Mr Justice Coulson, said "Longmore LJ made plain that it was for the defendant to prove that, as a matter of fact, it suspected the claimants of being involved in money laundering, and that it would be unusual to grant summary judgment in favour of a party who had the burden of proving a primary fact which was in issue."

Note that there is a very fine line to be drawn in this wording: it is the fact of suspicion not the crime itself that must be proved.

The judgment is long and will form the basis of detailed analysis in the next issue of World Money Laundering Report (see www.wmlro.com). It was anticipated and is referred to in my detailed review of counter money laundering laws published by Complinet.

In summary, the judgment removes the long-held presumption of absolute anonymity for those making internal reports. The MLRO of a financial services company is, of course, a matter of public record.

HSBC redacted from all documents the identities of all those who were referred to in them except for the MLRO. Coulson, J says that this is going too far and that those persons must be referred to with reference to their department and a number.

For huge corporations, that may provide a degree of comfort. In a smaller business, it is inevitable that, by making an application to the civil courts to force the organisation that files an STR to prove the fact of suspicion with reference to identifiers, that staff will become easily identified.

As in the case of The Bank v A Limited, the end result has been considered with regard to large banking etc. institutions and the impact on the far greater number of small reporting entities has been overlooked, leaving their employees open to considerable personal risk from criminals who now have an easy route to identify those who spoiled their schemes.