Suspected Fraud And “Tipping-Off”: A Dilemma For Banks

Author:Ms Gillian Dobby
Profession:Herbert Smith
 
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Bank of Scotland v. A Ltd, B and C (on appeal)

In a previous article we commented on the decision of Laddie J in the Bank of Scotland v. A Ltd and Others (Chancery Division, 23 June 2000). Earlier this year, the matter came before the Court of Appeal ([2001] I WLR 751, Lord Woolf CJ, Robert Walker, Judge LJJ), highlighting, yet again, the invidious position in which banks and other financial institutions can find themselves by reason of the "tipping-off" provisions contained in s93D of the Criminal Justice Act 1988 ("the Act"), and the costs burden and civil liability to which they may be subjected.

Section 93D of the Act makes it an offence to disclose information to another which is likely to prejudice an investigation or proposed investigation by the police into money laundering.

The facts

In summary, the Bank (the Bank of Scotland) became suspicious of A Ltd's accounts held at the Bank and made its own enquiries which were designed to set its mind at rest. In fact, they had the opposite effect and led the Bank to believe that it might be regarded as a constructive trustee of the funds which it held in the accounts (since it had grounds for believing that the money might have been obtained through 'Prime Bank Instrument Fraud' or something similar). The Bank therefore contacted the police, the International Chamber of Commerce's Commercial Crime Bureau and the British Bankers Association. As a result, it became aware that investigations were being conducted into activities closely associated with A Ltd, and into the activities of those connected with A Ltd.

The Bank was understandably concerned that if it paid out the monies it held in the account it could be held liable to third parties as a constructive trustee. If it did not do so, then it risked an action being brought by its customer, against which the Bank believed it would not be able to defend itself since the police were likely to invoke the tipping-off provisions contained in the Act.

The Bank therefore applied, without notice and in private, to Mr Justice Lightman for directions. The Bank submitted a skeleton argument but did not present any evidence. Lightman J made an Order freezing the account of A Ltd and providing for all matters relating to the application, including the identity of the parties and the existence of the Order, to remain confidential.

On 21 December 1999, A Ltd (unaware of the earlier Order of Lightman J) made an application to the Commercial Court to...

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