SITUATIONS WHERE LIABILITY WILL ARISE UNDER CIVIL LAW IN ENGLAND AND WALES WHEN BANKS AND OTHERS HANDLE PROCEEDS OF CORRUPTION

Date01 April 2000
Published date01 April 2000
DOIhttps://doi.org/10.1108/eb027270
Pages131-154
Subject MatterAccounting & finance
Journal of Money Laundering Control Vol. 4 No. 2
Chapter Three
SITUATIONS WHERE LIABILITY WILL ARISE
UNDER CIVIL LAW IN ENGLAND AND WALES
WHEN BANKS AND OTHERS HANDLE PROCEEDS
OF CORRUPTION
The Committee has considered the present state of
English civil law in relation to remedies available to
victims of money laundering. We summarise here
the relevant rules and principles of English law. See
'Summary of the current legal position' below.
In summary, we recommend codification and
clarification of the law in this area. The law relating
to liability for those involved unwittingly in assisting
a money launderer or receiving laundered monies
(including in the context of the conflict of laws) is
insufficiently certain for market participants to take
action with confidence as to their position. In order
to maximise certainty, we would recommend, as
part of a codification process, the introduction of a
clear statutory safe harbour for market participants
so as to make clear exactly what they were required
to do and what they were not.
Any such codification would of course need to
be undertaken generally, not just in relation to the
imposition of liability in connection with the receipt
of laundered funds. The creation of an exceptional
regime to benefit the victims of money laundering
would create unacceptable complexities and variations
in this area of the law.
As regards reform of the law, we feel that, overall,
the balance of English law in this context is about
right, and we do not recommend increasing civil
liability for banks and professionals. Any extension
of liabilities on financial institutions or professionals
could act as a deterrent to such organisations partici-
pating in the UK's financial markets on grounds of
both principle and costs.
In terms of principle, an extension of liability for
intermediaries would carry with it an implicit asser-
tion that those involved in the financial markets
have a positive duty to police potential money-
laundering activity elsewhere. This might be resisted,
in our view with some legitimacy, on the basis that it
is a function that should properly be reserved to states
themselves (and their law enforcement agencies).
As for costs, the concern is that an extension to
liability would carry with it the necessity for further
expenditure to minimise liability which in turn
may make the UK an unattractive place to do busi-
ness.
This is especially relevant in light of the propo-
sals of the Basel Committee and now the European
Union to introduce a more formal requirement for
banks (and also, in the EU, investment firms) to
hold capital against operational risk, which may be
affected by legal risk. Any amendment to English
law in the context of money laundering might well
have the effect of increasing the capital required to
be held by UK-incorporated institutions. Those
overseas institutions conducting business in the UK
through a branch presence may also be affected in
the capital base they need to hold in order to satisfy
the regulators in the jurisdiction where they are
incorporated.
Summary of the current legal position
28 'Corruption', 'proceeds' and
'handling'
28.1 The corruption under consideration involves
two main activities: bribery of senior public officials
and misappropriation by them of state assets.58 The
two are not always distinguishable.
28.2 Large bribes need to be accounted for in the
books of the payer. For example they may be
described as remuneration or commission for services
rendered, or as loans to shell companies, or as pay-
ment for goods which have been over-invoiced or
not delivered at all. An investigator who finds that
money has been paid for no, or for inadequate,
consideration may not know whether the motive of
the person responsible for the payment is to profit
himself by theft or to profit a third party by a bribe.
28.3 Corruption arises in particular where there are
large payments by way of aid donations or loans
Journal of Money Laundering Control
Vol. 4, No 2, 2000, pp. 131-154
Henry Stewart Publications
ISSN 1368-5201
Page 131
Liability Under Civil Law in England and Wales
flowing from an international organisation or a first
world state to a third world state, or where large
payments are made from a third world state to a
supplier of goods or services in the first world. The
latter may be funded by the former. Corruption
also occurs within all states, whereby those in
power embezzle state funds or are bribed by local
traders. The proceeds of corruption are, in the
former case the product of aid donors' funds, and in
the latter, the product of the local economy which
arc simply exported to the first world.
28.4 Proceeds of corruption may be in the form of
money or other assets, whether financial securities,
real property or movable property such as works of
art.
28.5 Handling here includes not only disposing of
such proceeds, but also advising and assisting on
their disposal. Those who handle the proceeds of cor-
ruption in England and Wales are mainly financial
institutions, lawyers and accountants, but also include
others such as auctioneers and dealers in real and
movable property.
29 Who may be a defendant?
29.1 A principal whose agent has been bribed has
the right to recover the amount of the bribe from
cither the briber or the agent. The principal may,
alternatively, recover from the bribed agent, as
damages for fraud, any loss, in excess of the amount
of the bribe which he has actually sustained in conse-
quence of entering into the transaction in respect of
which the bribe was given. He need not elect
between these alternatives before the time has come
for judgment to be entered in his favour in one or
other of
them.59
29.2 Those who handle the proceeds of corruption
encounter the civil law mainly in the following ways:
(a) as persons named in a court order freezing assets
of which they have custody for a person against
whom an allegation of corruption is made;
(b) as defendants to a claim for restitution of assets
they have received from a person against
whom an allegation of corruption is made; or
(c) as defendants to a claim for compensation for
their own wrongdoing in assisting in or advising
on the disposal of proceeds of corruption.
29.3 Claims for compensation for wrongdoing are
normally:
(a) for 'dishonest assistance' in a breach by another
of his fiduciary duty. The fiduciary is typically
a person in a responsible position within the
claimant organisation;
(b) for participation in a tort of wrongful inter-
ference with proceeds of corruption which are
in the form of moveable property (where
liability is strict ie it arises without proof of
dishonesty or negligence);
(c) for the tort of negligence, or for breach of
contract, for breach of a duty of care in the
performance of services to the claimant; or
(d) for participation in a tort of conspiracy to injure
the claimant.62
29.4 Dishonest assistance in a tort where the assis-
tance falls short of participation (ie where the assister
docs not participate sufficiently to be jointly liable for
the tort) does not attract
liability.63
29.5 Where a defendant is sued, and he claims that,
if he is liable at all, then so too are other people who
were involved, then there is a need for a mechanism
for those others to be brought before the court as
defendants, and for laws as to how any liability is
to be distributed.
30 Who may be a claimant?
30.1 All claimants must claim to be victims of the
alleged misappropriation or wrongdoing. But not
all those who claim to be victims are entitled to be
claimants.
30.2 A victim must normally be a person whose
claim is based on a right of property. The simplest
case is where a private individual claims for return
of his own property, or compensation for its loss.
Claims by states are assimilated to this. In the UK
and some other Commonwealth countries when
the state is a victim the claimant is generally the
Crown represented by the Attorney-General.64 But
a state is funded by taxation and the true victim is
not the state but the people. Similarly, with com-
panies, the claim must normally be brought by the
company. The true victims may be the shareholders,
but they can only claim in exceptional cases where
the company remains under the control of the alleged
wrongdoers. So too with trusts. Normally it is the
trustees who must sue, even though their loss is not
personal. The beneficiaries who are the real victims
may not sue unless the trustees are themselves the
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