The fact that banks regularly check their customers' payment transactions and also monitor those over the long term is a welcome development in the fight against money laundering and terrorist financing. Increasingly, however, banks are responding with suspicious activity reports that regularly lead to an account freeze for weeks and even months – even if the facts underlying a "suspicious" transaction can be quickly clarified. In the time period following the suspicious activity report, no outgoing transactions are possible. The reason provided at that time by the bank is that the bank fulfils its audit obligations and is dependent on the assistance of the customer. At the same time, information and proof about the origin of funds is requested.
Proof of funds can be requested
According to BaFin, suitable evidence for the proof of funds can be in particular:
• a current bank statement relating to an account of the customer at another bank, showing the cash payment,
• an up-to-date bank statement relating to the account of a third party showing the cash payment (acting on behalf of a third party), supplemented by further documents and information about the third party,
• cash payment receipts from another bank,
• savings books of the customer, which show the cash payment,
• sales and invoice receipts (e.g. receipts for sale of car, gold),
• receipts relating to the variety of transactions carried out,
• testamentary dispositions opened by the probate court,
• donation contracts, notification of gift.
The bank as deputy sheriff of the investigating authorities?
In a recent case, the bank customer had made every conceivable out-of-court effort to provide the proof of funds required by N26 Bank. He submitted confirmations from his China-based employer, which clearly showed that the receipt of payment from abroad, which the bank considered suspicious, was a contractually agreed six-figure bonus payment. Nevertheless, N26 Bank not only upheld the account blocking, but also terminated the entire business relationship with the customer with reference to its terms and conditions.
Even after the account was terminated, the disappointed customer was not able to claim his assets from N26 Bank out-of-court nor able to persuade the bank to transfer his money to one of his accounts held at another bank. N26 Bank justified the withholding of the money with its internal audit, even after the proof of origin of funds had been provided.
Although the banks’ cautiousness is understandable, it must not fall into blind overzealousness, which can often threaten the continuity of customers. The fact that the bank did not pay out the money even after the termination and maintained its reluctance for weeks even after the lawsuit was filed, is significant.
The court did not have to rule on the client's obvious claim for payment, as N26 Bank ultimately paid out the plaintiff's assets prior to a verdict. But the matter was not over for the bank. The question of who was to bear the costs of the legal process was still contested after the main matter had been settled (i.e. after the entire credit balance had been paid out).
Pleasing in this specific case is the fact that the Berlin Regional Court followed the opinion of our law firm and ultimately imposed the entire costs of the litigation onto the bank. Until the very end, the bank tried to blame the customer for these costs and claimed that it acted as a dutiful deputy sheriff of the authorities.
However, the presiding judge at the Berlin Regional Court did not go along with this and ruled that in this specific case the defendant was to be ordered to pay the costs of the proceedings because the bank ‘would probably have been unsuccessful in the litigation without the occurrence of the event that settled the case. In the meantime, the defendant has paid the disputed claim without objection and thereby expressed that the plaintiff's claim was justified. In this respect, the defendant is not a substitute public prosecutor or vicarious agent of the Central Office for Financial Transaction Investigations, for which it may withhold the plaintiff's money for months without an official order at the expense of the account holder. (Court of Appeal, judgment of July 19, 2022, 4 U 78/22).’
Benjamin Hasan is a Board-certified expert lawyer for banking law and capital markets law and partner in the Frankfurt office of international law firm Michael Kyprianou. In his more than ten years of experience as a lawyer, he combines the expertise of an experienced litigator and expert lawyer in banking law with that of a bank manager. In the event of unjustified measures by a bank, financial service provider or a payment institution, he provides legal advice, advises on options for action and enforces the claims of his clients with the necessary emphasis and procedural finesse.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Benjamin Hasan, Partner at the Frankfurt office, via telephone at +49 69 247 428 444 or by email at email@example.com