The significant threats posed to the world by terrorism are reflected in the increasingly onerous obligations placed upon banks requiring, amongst other things, a high degree of scrutiny of the activity on customer accounts to avoid breaching any sanctions regime in place.
A failure to take required steps can amount to a criminal offence. Against that backdrop, it is hardly surprising that banks are taking an increasingly cautious approach in their relationships with customers. However when that cautious approach leads to the curtailment of banking services to customers, there is obvious scope for challenge.
The recent decision of Elaine Hmicho -v- Barclays Bank plc  EWHC 157 is an example of one such challenge. The case concerned an application by Mrs Hmicho for interim injunctive relief against Barclays Bank (the "Bank") relating to the Bank’s decision in May 2015 to freeze three of her bank accounts.
Mrs Hmicho was a UK resident whose husband was a Syrian national. Mr Hmicho had been the subject of financial sanctions since March 2015 and was a "designated person" for the purposes of the relevant UK legislation. Consequently his own accounts with the Bank were frozen in May 2015 (which decision was not the subject of challenge). Mrs Hmicho, however, sought to challenge the validity of the Bank's decision to freeze the three accounts held in her sole name (the "Accounts").
The Bank's position
The Bank asserted it was required to freeze the Accounts. It relied in particular upon regulations 3, 4 and 5 of the Syria (European Union Financial Sanctions) Regulations 2012 which provide, amongst other things, that a bank must not:
- deal with funds or economic resources belonging to, or owned, held or controlled by, a designated person if the bank knows, or has reasonable cause to suspect, that it is dealing with such funds;
- make funds available, directly or indirectly, to a designated person if the bank knows, or has reasonable cause to suspect, that it is making the funds so available; or
- make funds available to any person for the benefit of a designated person if the bank knows, or has reasonable cause to suspect, that it is making the funds so available.
It was the Bank’s case that although the Accounts were in Mrs Hmicho’s name it had "reasonable cause to suspect" that the funds in the Accounts belonged to, or were owned, held or controlled by Mr Hmicho and, that if the funds within the Accounts were released, it would be making them available to Mr Hmicho in breach of its obligations. The Bank's terms and conditions also permitted it to choose not to follow a customer's instructions in such circumstances.
The Bank thought the following facts suspicious:
- the source of the monies in the Accounts (a large number of credits appearing to have come directly from Mr Hmicho);
- the timing of receipts into the Accounts (coming very shortly after Mr Hmicho's being named as a designated person in March 2015);
- the unusual value of recent deposits and withdrawals; and
- the inconsistency of the recent transactions with past account activity.
The Bank argued that, on the basis of its suspicions, it was concerned it would be committing a criminal offence were the Accounts to be unfrozen and funds allowed to be released. In the circumstances, the Bank was contractually entitled to ignore Mrs Hmicho's instructions.
Mrs Hmicho's position
Mrs Hmicho disputed that the Bank had "reasonable cause to suspect". She argued that there were important differences between the words "belonging to", "owning", "held" and "controlled by". As the Accounts were held solely by Mrs Hmicho, they could not belong to Mr Hmicho. The monies deposited were gifts to allow Mrs Hmicho to meet various family-related expenses, including school fees for their children, and therefore these monies were not owned by Mr Hmicho. Moreover, there was insufficient evidence either for the assertion that he held them or that he controlled them. The activity on the Accounts in fact showed that it was Mrs Hmicho who controlled them. Although Mr Hmicho had certain abilities to deal with the Accounts (eg online banking), he had never exercised them.
Mrs Hmicho argued that the court's focus should not be on where funds had come from (past activity) but rather on the present and her explanations as to what she would be using the monies for. There was a serious issue to be tried and Mrs Hmicho argued that the court could, on the merits of the parties' positions, have the necessary high degree of assurance that if it allowed the application, she would later be able to establish at trial that requiring the Bank to unfreeze the Accounts was the right decision. Further, when balancing the consequences for the Bank of not freezing against the "dire state of affairs" faced by Mrs Hmicho, given the impact on her family and personal life if the Accounts remained frozen, the balance of convenience favoured Mrs Hmicho.
Mrs Hmicho’s application was refused. The judge felt that it was "quite impossible" at that interlocutory stage to have the "high degree of assurance" that she was right and the Bank was wrong. Further, he felt that the Bank might very well be able to demonstrate at trial that it had every reason to be suspicious in relation to the activity on the Account - the invitation to focus on the present rather than the past was unrealistic. The timing and nature of the account activity were important factors in the judge's conclusion that the Bank's suspicions might ultimately be found to be reasonable. While he sympathised with the difficulties caused by the Accounts being frozen, he considered the balance of convenience fell firmly on the Bank's side, because of the risk it faced of committing a criminal offence.
The case offers some useful guidance on how concepts such as ownership and control may be interpreted. By confirming that accounts "controlled by designated persons" may well extend to accounts held by other non-designated parties, such as spouses, the case highlights the very real difficulties banks may face in complying with their duties.
The decision is a welcome one from the banks' perspective and a useful demonstration of how the court balances the conflicting interests of a customer who is unable to access their bank account and a bank which risks committing a criminal offence if it does not restrict or prevent that access.
It is clear however from a number of recent cases in which DLA Piper has been involved, that these conflicting interests, emanating in particular from the imposition of various sanctions regimes, increase the prospect of challenges from customers who have been adversely affected.