Financial services should take note – they should have to do more to spot when they are being used by criminals to launder money.

A recent court decision (Crédit Agricole Corporation and Investment Bank v Papadimitriou) shows tolerance is waning for bankers claiming ignorance over why some clients go to such lengths to hide the origin of the cash they handle.

Issue

1. money launderers often use layers and layers of offshore companies and bank accounts to hide and move suspect funds across borders and jurisdictions, making it almost impossible for law enforcement to track them down.
2. This in turn makes it too easy to get away with crimes we all want to stop – corrupt politicians, tax evaders, terrorists, drug gangs, fraudsters and other criminals are all able to cover their tracks.
3. Yet banks often take these complex financial structures at face value and choose not to ask themselves why their clients are going to such convoluted lengths to move their money.

Privy council

1. The Privy Council is the highest court of appeal for a small number of independent Commonwealth countries, colonies and the Channel Islands and the Isle of Man. Its judges also sit on the Supreme Court of England & Wales, so while its decisions are not binding on English courts, its views are highly persuasive.

2. Last month (March 2015), it issued a decision which strengthens anti-money laundering principles in the UK and further afield.

The case Crédit Agricole Corporation and Investment Bank (Appellant) v Papadimitriou (Respondent) (Gibraltar)

1. The case concerned a collection of valuable art-deco furniture which was fraudulently sold by someone other than its owner.
2. To “clean” the proceeds of sale, the fraudster used a complex structure of offshore companies, foundations and bank accounts.
3. The Privy Council found that these complicated financial arrangements were clearly suspicious and should have raised red flags at Credit Agricole.
4. Lord Clarke, who gave the judgment, found that the arrangements “could not have any commercial purpose other than money laundering”.

The court found

1. that in such suspicious circumstances, a bank must satisfy itself that there is a legitimate reason for the complex financial arrangements.
2. It is not enough for a bank to ask simply where the funds came from.
3. In this case the bank was innocent of wrongdoing, but it was forced to pay the victim because it had benefited from the transaction and had failed conduct proper investigations in circumstances where the web of offshore companies involved was indicative of money laundering.

– A copy of the decision in Crédit Agricole Corporation and Investment Bank (Appellant) v Papadimitriou (Respondent) (Gibraltar) is here. http://bit.ly/1IQVcDW