life after hsbc's falciani list
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B R I E F I N G O N A N T I - M O N E Y L A U N D E R I N G D U T I E S 1 3 T H F E B R U A R Y 2 0 1 5
B R I E F I N G O N A N T I - M O N E Y L A U N D E R I N G D U T I E S
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Life after HSBC’S Falciani List
IntroductionConfidential information of some 30,000 accounts belonging to wealthy depositors from the elite to the illicit was leaked this weekby one of HSBC’s former employees: Hervé Falciani. The bank (or its clients) will no doubt see itself embroiled in a cross-jurisdictional anti-money laundering investigation for the $120bn (£78bn) of assets that it managed for its exclusive clients duringthe period of 2005 to 2007. The immediate fear symptoms were palpable after HSBC’s shares fell 2.2% on Monday 9 February2015 to 607.10 pence (London Stock Exchange).
In this briefing note, we will bring to light the generalduties and obligations that financial institutions havewhen faced with suspicious transactions. A timelyreminder!
Confidentiality versus Reporting Duties The concept of banking secrecy (which prohibitsbanks from divulging account holders’ information)is protected by statute in certain jurisdictions, suchas Switzerland or Luxembourg. In Gibraltar, banksdo not enjoy any statutory protection on secrecy, buthave a general duty of confidentiality to preserveclient information.
To protect clients’ information is not, however, anabsolute right; it is subject to other overriding dutieswhich banks have when identifying and reportingsuspicious transactions or, in some instances,instructions.
In Gibraltar, banks’ duties fall into two maincategories: (1) common law duty to make reasonableinquiries (in specific instances); and (2) statutoryduty to identify and report suspicious instructions ortransactions.
The duty to make reasonable inquiriesAt common law, banks do not generally have a dutyto question or investigate a client’s instructions ortransactions unless it is put on notice (actual or
constructive) of any wrong-doing or impropriety onthe client’s part. This is logical: a bank has acontractual duty to comply with a client’sinstructions as long as these do not contradict thebank’s mandate.
However, if a bank is aware (or has reason to believe)that the client could be concealing monies from thirdparties (e.g. for the purpose of fraudulently dodgingtaxes), then it should investigate and question theinstructions. If the bank’s suspicions are founded,then it should consider whether it has a duty toreport the activity or instruction under any relevantstatutory provisions or to seek legal redress to avoidany civil liabilities (e.g. by holding funds asconstructive trustee, etc).
The statutory duties to report (or opposeto) any suspicious transactionsA bank (or its employees) commits an offence if itknowingly assists a third pay to fraudulently evadeany income tax (section 67 Income Tax Act 2010(ITA 2010)). Of course, the offence is limited toincome which is taxable in Gibraltar. An underlyingquestion is thus: does a bank (or its employees) havea duty to report (or refuse) a transaction orinstruction if it has reason to be believe that the verypurpose of that instruction is to evade non Gibraltarincome tax? Although a bank would not be liable
under the ITA 2010, there are provisions in locallegislation that cater for that scenario.
Indeed, the Crime (Money Laundering andProceeds) Act 2007 (CMLPA 2007) makes it an
offence (provided there is knowledge or suspicion)for a person or entity to enter into an arrangement
(e.g. pursuant to a bank mandate) whereby it allowsfor the retention, control, transfer or removal ofproceeds of criminal conduct.
Equally, an employee of a financial business (e.g.insurers, bankers, depositors, etc) has a duty to reporta suspicious transaction or instruction to theGibraltar Financial Intelligence Unit (GFIU) if he:
(1) knows, suspects or has reasonable grounds tosuspect that one of his clients is engaged in moneylaundering, or attempting to launder money; and
(2) the information, knowledge or suspicion came tohis attention in the course of his trade oremployment.
As long as the criminal conduct is one which wouldbe indictable in Gibraltar, the employee has a dutyto report it to the GFIU; it is immaterial whether ornot the act or instruction is done overseas.
If you need any further advice on these or any otherrelated matters, please contact us.
B R I E F I N G O N A N T I - M O N E Y L A U N D E R I N G D U T I E S 1 3 T H F E B R U A R Y 2 0 1 5
Indeed, Gibraltar, as a jurisdiction, has been (and continues to be)wrongly accused by foreign media of enabling a platform by whichhigh net worth individuals (whether legitimate ones or otherwise) candodge taxes. Despite the inaccuracy of those allegations, it is inevitablethat the notion of banking secrecy (which Gibraltar, as a commonlaw jurisdiction, recognises) will be open to attack and criticism byforeign tax authorities.
Important! This update is only intended as a general statement of recent developments in this area and no action should be taken in reliance on it without specific legal advice.
Christian Rocca(Partner)
Steven De Lara(Associate)
Christian is a multifaceted lawyer and practices in theareas of banking, finance and commercial litigationin Gibraltar. He regularly advises banks on day to daymatters as well as representing leading UK, US andSwiss banks in financing and re-financing projectsinvolving an element of Gibraltar Law.
Steven specialises in cross border insolvency, with aparticular focus in multinational corporate groupproceedings. He often advises banks and leadingfinancial institutions in fraud related matters.
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