At the beginning of July 2019, the Royal Bank of Scotland (RBS) won a crucial case, setting a president for how banks should respond to suspected money laundering.
The claimant in this case, (known as ‘N’) was an authorised Money Service Business (MSB) that provided foreign exchange and payment services to its customers. At the time of the claim N banked with RBS until 2015 when the bank froze all accounts held by N and terminated its banking relationship following an investigation in which RBS formed a suspicion that several of N's customers were perpetrating boiler room scams on vulnerable individuals. In response to this action, N commenced legal proceedings challenging the legally of the action taken by the bank.
After a compressive hearing, including witnesses from both sides, (RBS employees and N’s Money Laundering Reporting Officer) the Royal Courts of Justice handed down the judgement, rejecting all claims brought against the Bank.
The Bank considered that there were exceptional circumstances for closing the accounts;
The Bank's view was rational and held in good faith;
If the Bank was required to meet the standard of objective reasonableness, it met that standard;
The Bank's discretion was exercised in a reasonable manner and the circumstances fully justified the steps taken by the banks;
The Bank's opinion that a refusal to process payments was prudent in the interests of crime prevention was reasonable and reached after consideration of the material circumstances;
The Bank's opinion was legally correct and based on a sound understanding of the relevant legal principles; and
The Bank adopted a proportionate approach taking account of the adverse impact that freezing the accounts would have on N's business’.
The case highlights the need for MSBs, and all other regulated institutions, to develop and maintain effective policies and procedures relating to Anti-Money Laundering and Know Your Customer controls. This will reduce the risk of the organisation being used for money laundering as well as protecting banking and other partners from handling the proceeds of crime.
Many Banks are undertaking a de-risking approach to MSB and other payments institutions unless these firms can demonstrate they have robust AML and KYC controls which are aligned to the bank’s requirements and expectations.