Suspicions of money-laundering and mandatory injunctions

An important judgment was issued in April 2017 by the Court of Appeal concerning whether and in what circumstances the Court’s power to grant interim relief can displace the consent regime in the Proceeds of Crime Act.

An important judgment was issued in April 2017 by the Court of Appeal concerning whether and in what circumstances the court’s power to grant interim relief can displace the consent regime in the Proceeds of Crime Act (POCA). The Court allowed the National Crime Agency's (NCA’s) appeal against orders, made in the High Court, that RBS make a number of specified payments to its customer from accounts which it suspected held criminal property.

The judgment should give comfort to financial institutions (which have frozen accounts) when dealing with aggrieved customers who are threatening to apply for injunctions.

Background

N, an authorised payment institution, was a customer of RBS. It held approximately 60 active accounts with the Bank with an annual turnover of £700m. RBS suspected that credit balances held in some of the accounts were criminal property (per section 340 of POCA). Accordingly, it froze the accounts and sought consent from the NCA (per section 335) to return the funds to the customer.

N commenced proceedings against the Bank for an interim mandatory injunction requiring RBS to operate N’s accounts and for interim declaratory relief. Burton J ordered the Bank to make specified payments and also declared that in doing so the Bank “will not commit any criminal offence under POCA” and “that it is not obliged to make any disclosure as would or may be required by POCA or any other law.”

The NCA appealed against the orders. It argued that the Court had no jurisdiction to make the orders, alternatively it should have refused to make them as a matter of discretion.

The judgment

The Court of Appeal held that the consent regime is highly relevant when a court is considering the balance of convenience in an application for an interim injunction.

The Court did not consider that the significant potential losses to N (caused by the delay) offered sufficient justification to displace the statutory regime. While losses were an important factor, the statutory scheme was said to represent a “workable” and “reasonable” balance of conflicting interests and “ordinarily the Court should not intervene during the course of the seven day notice period and 31 day moratorium period.” Cases justifying such intervention are likely to be exceptional (and this situation was not sufficiently exceptional). One possible example given in argument of where the Court might justifiably grant an interim injunction would be where the applicant can identify demonstrable bad faith on the part of a bank.

On a practical level, the judgment highlighted the importance of communicating the urgency of the need for consent to the NCA at the time the suspicious activity report (SAR) is filed. In this case, the SAR was not marked as urgent and was not expedited by the NCA. However upon learning of the urgency, the NCA gave consent for the Bank to return the funds within four hours.

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