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SAR inspection granted by the High Court: could this be a warning to banks?

  • United Kingdom
  • Fraud and financial crime

25-10-2018

In Lonsdale v National Westminster Bank plc [2018] EWHC 1843 (QB), in proceedings for breach of contract, breach of the Data Protection Act 1998 and defamation, the Court granted an application by Mr Lonsdale to inspect suspicious activity reports (SARs) made by NatWest (the Bank) relating to his accounts

Mr Lonsdale held seven accounts with the Bank. On 10 March 2017, the Bank froze one of those accounts for eight working days, reflecting the time it would have taken the Bank to seek consent from the National Crime Agency (the NCA) following the making of a SAR. By late 2017, the Bank had submitted several SARs to the NCA in relation to activity in the relevant bank accounts and had frozen Mr Lonsdale’s remaining accounts. Following closure of the bank accounts, Mr Lonsdale brought claims against the Bank for breach of contract, breach of the Data Protection Act 1998 and defamation. Mr Lonsdale made an application for an order requiring the Bank to provide inspection of the SARs since those reports were referred to in the Bank’s defence.

The Court granted Mr Lonsdale’s application on the following basis:

-      CPR 31.14 applied, with the ordinary position being that where a document is mentioned in a statement of case or a witness statement (as was the case here), the other party will have a right of inspection;

-      The Bank’s submissions that any such order may have the effect of requiring it to commit an offence under section 333A or 342 of the Proceeds of Crime Act 2002 (POCA) – the offences of ‘tipping off’ and making ‘a disclosure which is likely to prejudice the investigation’- were unsupported by any evidence;

-      There was no evidence that the SARs, submitted around 16 and seven months ago respectively, were now required to be kept confidential; and

-      Inspection was necessary for the fair disposal of the claims. The content of the SARs was germane to the assessment of whether the Bank’s employees had a relevant genuine suspicion, which was the key issue in the contract claim; and the SARs were the primary communication alleged to be defamatory.

Impact on Firms

Section 338(4A) POCA makes clear that where an authorised disclosure is made in good faith, no civil liability arises in respect of the disclosure on the part of the person by or on whose behalf it is made. In our view, this case is unlikely to affect the general protection provided by section 338 POCA.

Firms should be comforted by existing caselaw on the meaning of suspicion, including the fact that they do not have the responsibility or expertise to investigate criminal activity to satisfy themselves that the grounds for their suspicion are ‘well founded, reasonable or rational’. The Court of Appeal ruled on the constituent elements of suspicion in R v Da Silva [2006] EWCA Crim 1654. Suspicion was said to be ‘a far less assured state of mind than either knowledge or belief’. For suspicion to be warranted the individual must think that there is a possibility which ‘is more than fanciful that the other person was or had been engaged in criminal conduct.’  

Ordinarily, the firm and its Money Laundering Reporting Officer (‘MLRO’) bear responsibility for any defamatory remarks made in SARs. In light of section 338(4A) POCA (noted above), the MLRO should continue to make disclosures wherever knowledge or suspicion of money laundering has arisen. NCA guidance makes plain that a SAR should contain as much factual information as possible (e.g. details of the person(s) involved and the whereabouts of the property) and should be clear and concise. Speculation, conjecture and derogatory remarks should naturally be avoided.

In those circumstances, firms should not shy away from their reporting obligations, as long as the reasons for the suspicion are justified with reference to accurate facts and events and expressed in neutral language – characteristics that one would hope already feature in the majority of SARs.

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