Banks’ due diligence

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On 24th March 2015 The Privy Council issued a judgment which strengthens anti-money laundering principles in the UK and other jurisdictions. The case of Crédit Agricole Corporation and Investment Bank (Appellant) v Papadimitriou (Respondent) (Gibraltar) [2015] UKPC 13 involved a collection of valuable art-deco furniture which was fraudulently sold by someone other than its owner. To “clean” the proceeds of sale, the fraudster used a complex structure of offshore companies, trusts and bank accounts. The court found that these complex financial arrangements were clearly suspicious and should have raised red flags at Credit Agricole bank. Handing down the judgment Lord Clarke found that the arrangements “could not have any commercial purpose other than money laundering”. In such suspicious circumstances, a bank must satisfy itself that there is a legitimate reason for the complex financial arrangements. It is insufficient for a bank to ask simply where the funds came from. In this case, though the bank was innocent of wrongdoing, it was ordered to pay the victim because it had benefited from the transaction and had failed conduct proper investigations in circumstances where the web of offshore companies involved was indicative of money laundering. The court ruled that the bank should be penalised for turning a blind eye to suspect funds.