Duties of the Banker to His Client in the Era of Rampant Terrorist Activity - Essay Example

Duties of the Banker to his Client in the Era of Rampant Terrorist Activity Introduction: Banking is one of the important factors in the development and stability of the nation. The stability of the nation is closely connected to the soundness of its banking system. Banking promotes investments and security to the people. In this light, bankers are tasked to safeguard the interest of their clients. The Duty of the banker to his client The primodial duty of the banker in relation to the handling of his client’s information is to observe confidentiality, that is, not to divulge to any third persons without the consent of the customer express or implied: the state of the customer’s account, any of his transactions with the bank, any of the information relating to the customer acquired through the keeping of his account as held in the case of Tournier vs National Provincial and Union Bank of England [1924] 1 K.B. 461. This obligation of secrecy imposed upon the banker admits some exceptions: if the banker is compelled to divulge the information by order of the court or the circumstances give rise to a public duty of disclosure, or the protection of the banker’s own interests requires it. This obligation of secrecy is an implied contract between the banker and the client. In this case, although the information was acquired not through the client’s account but through that of the drawer of the check, the disclosure constituted a breach of the banker’s duty to the client. The information though acquired from the drawer of the check, if it was made during the prevalence of the client’s account and in their character as the bankers, there is imposed upon the banker the duty of observing confidentiality of his client’s account. The bank should not give any reference or opinion without obtaining the consent of the client. In the case of Turner vs. Royal Bank of Scotland, the court ruled that the bank should not give “banker’s opinion” or “banker’s reference” regarding the account of the client based on an implied consent. As aptly held by the Court of Appeals, the clients are entitled to the confidentiality of their account and it is not for the banks to privately agree otherwise. Further, a bank could not rely on banking practice to imply its customers consent to the use by the bank of confidential information in order to give other banks references about his creditworthiness. Another restriction imposed on banks is that it will not be allowed to breach its duty of confidentiality merely to comply with a writ emanating from another jurisdiction as held in the case of X AG v A. Bank [1983] 2 All E.R. 464. Duty of Confidentiality and its exceptions The bank can freeze client’s account in cases where the account of the client is suspected as proceeds of the crime. For example, in the crime of money laundering, the Proceeds of Crime Act of 2002 provides that the disclosure that complies with the 3 conditions does not constitute breach of duty of confidentiality. The 3 conditions are the following: a). the information or other matters disclosed come to the person making the disclosure in the course of his trade, profession, business or employment, b). the information or other matter causes the person making the disclosure to suspect or gives him reasonable grounds for knowing or suspecting that another person is engaged in money laundering and c). the disclosure is made to the nominated officer as soon as is practicable after the information or other matter comes to the discloser. Under section 328 of the same Act, it was stated that (1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.(2)But a person does not commit such an offence if—(a)he makes an authorized disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;(b)he intended to make such a disclosure but had a reasonable excuse for not doing so;(c)the act he does is done in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct. In the event the bank freeze the account of the client suspected as proceeds of a crime during an investigation being conducted on the account of the client by virtue of a court order, the banker is barred to give an explanation. Otherwise, he committed the offense of “tipping off” which is a serious criminal offense. The bank is not required to adduce evidence to support that suspicion. This prohibition imposed to the bank regarding tipping off, is not absolute. The banker can inform the client regarding any investigation on his account only if the relevant authority or the court so directs as held in the case of Bank of Scotland v A [2001] 3 All E.R. 58. In the event that the account was found to be proceeds of the crime, or facilitates and supports the commission of the crime, the government in order to fight terrorism can order forfeiture of the deposits even if the deposits were made in foreign banks doing banking business in the US. In Libyan Arab Bank v Bankers Trust, where there is one contract between a bank and its customer governed by American and English law, the general rule is that the contract is governed by the law of the country where the account was held. The relevant law in the case was English Law as that was where the account was kept. So, foreign law is essentially irrelevant. The terrorist attack in 2001opened a discussion on the proper construction of 18 U.S.C. § 981(k). As a result, real or personal property which within the jurisdiction of the United States, constituting, derived from, or traceable to, any proceeds obtained directly or indirectly from an offense against a foreign nation, or any property used to facilitate such an offense can be ordered forfeited. In the case of US v Union Bank (Jordan) 487 F. 3d 8 (2007, which was in response to the telemarketing fraud conspiracy involving interbank deposits, it was held that it is the deposit of forfeitable funds into an account at a foreign bank and not the continued existence of forfeitable funds in that account that triggers the forfeitability of an equivalent amount of funds in the foreign banks interbank account. Under the provision of USA Patriotic Act, the general rule is that the foreign depositor, and not the foreign bank, is deemed the owner of funds seized under section 981(k), with the right to challenge the forfeiture and assert an innocent owner or other defense. Two exceptions to this rule are: (I) the basis for the forfeiture action is wrongdoing committed by the foreign financial institution or (II) the foreign financial institution establishes, by a preponderance of the evidence, that prior to the restraint, seizure, or arrest of the funds, the foreign financial institution had discharged all or part of its obligation to the prior owner of the funds, in which case the foreign financial institution shall be deemed the owner of the funds to the extent of such discharged obligation. Duty of the Banker and Measures to Ward off Risk of Terrorism In response to the risk of terrorism, banks imposed measures to protect itself by supervising the deposit-taking of financial institution as practiced by the Bank of Jamaica. It combines annual on-site examinations of each licensee with   on-going off-site monitoring facilitated primarily by prudential reporting requirements, which allow for continuous and timely review of developments in the financial condition of supervised entities both at the micro institutional level as well as at the macro systemic level.  Focus is placed on the quality and adequacy of licensees’ operations including their corporate governance and risk management frameworks, capital adequacy, and the overall financial condition. Conclusion: As client, it is good to know that duty of the banker to his client is to observe with utmost care the confidentiality of the account. Although this duty has exceptions especially in cases where the funds in the account are being suspected of being proceeds of the crime, it is illuminating to know that in order to ward off the risk of terrorism, funds are being forfeited or seized and that bankers imposed measures such as supervision over all financial institution. Read More