The Court of Appeal case of HSBC v Shah[1] predictably hit the headlines in the legal and financial press in February of this year resulting in an outcry.

The facts and implications were widely reported. Seemingly, anyone within the regulated sector who fails to take reasonable care when submitting a suspicious activity report (SAR) to the Serious and Organised Crime Agency (SOCA) may be sued for losses suffered by their customers if that report proves to be false or erroneously made.

On further reflection, however, just how much does this change the current position?

The Proceeds of Crime Act 2002 requires knowledge, suspicion or, reasonable grounds for suspicion, of an offence of money laundering to be reported.

Whilst the courts have been markedly reluctant to define “suspicion”, the De Silva[2] case clearly stated that there must be some possibility based on fact and that a suspicion which is merely “fanciful” or based on “a vague feeling of unease” would not be sufficient.

The Court of Appeal in Shah confirmed this position and stated that the bank would have a good defence if it could show it actually had suspicion.

The case also considered that undue delay in making a SAR could be a breach of a banker’s duty of care.  The Law Society have for some years in their guidance advised solicitors to deal with money laundering issues quickly, reminding us that we still have a duty of care to our clients throughout the reporting process.  This is sound advice for anyone in the regulated sector.

Provided, therefore that the report is made promptly and is based on genuine grounds this should not lead to liability.

What then can we all do to help prevent claims like the Shah case?

1. Training and awareness.  It is essential that all regulated sector employees receive not only training on money laundering at the outset of their employment but that this is regularly updated. At Optima Legal we have found that practical training using real examples is the best way of highlighting genuinely suspicious circumstances.
2. Obtain as much supporting information as possible to help the investigation.  Remember professionals cannot turn a “blind eye” to obvious facts, which if investigated, would lead to a suspicion of money laundering. Very often we are afraid to ask questions or ask for additional information which is essential to enable an informed decision as to whether there is any genuine cause for concern for fear of “tipping off.”
3. Decide what continuing duties we have to keep our customers or clients updated as we may no longer be able to claim that to do otherwise would be tipping off,  particularly once there is no risk of prejudice to an investigation.
4. Act promptly both in internal and external reporting if any suspicions do arise so that a SAR to SOCA can be made at the earliest opportunity.  In the Shah case the courts did not comment on what would be an unacceptable delay but agreed that a delay of two days between receiving the payment instruction and making a disclosure did not constitute negligence.
5. Have a full paper trail documented of reasons for suspicion and retain those records.
6. Make sure that we have people ready and able to deal with not only the original SARs but also with any issues and complaints which will inevitably follow the Shah case.

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