PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
Money laundering legislation requires banks to freeze transactions pending clearance if there are reasonable grounds for suspecting that the funds concerned in the transaction may be the proceeds of crime or connected with criminal activity. The procedure involves the filing of a Suspicious Activity Report (SAR) with the Serious Organised Crime Agency (SOCA). If no ruling on the SAR is received from SOCA within a certain period of time, the transaction can proceed.
When banking giant HSBC delayed completion of three legitimate transfers – one by a fortnight and two by about a week – by a Zimbabwean businessman, pending clearances from SOCA, the result was a sequence of events which included his affairs coming under the scrutiny of the Metropolitan Police and the anti-money laundering authorities in Zimbabwe. This led to his being served with a search warrant by the Zimbabwean police, who conducted searches at his office and home. The businessman had also been reported to the Zimbabwean authorities by a former employee who alleged that he was engaged in money laundering.
As a result of the actions of the Zimbabwean authorities, the businessman brought a claim against HSBC for losses of more than $300 million.
Although the court rejected the claim on more than one ground, of most interest to business people contemplating large and perhaps unusual transactions was the ruling that the bank had acted properly in delaying the payment so that clearances could be obtained from SOCA.
If you are considering a transaction which might cause your bank enough concern to lead to a referral to SOCA, it is usually sensible to advise the bank in advance and to make sure that any enquiries or clearances are obtained in good time. This is especially true if a delay must be avoided.