Anti-money laundering measures are not a carte blanche for arbitrariness displayed by banks
Cross-border payments are referred to as foreign payments. Bank customers who wish to make a payment within the EU, to Liechtenstein, Iceland, Norway or Switzerland can do so by SEPA transfer. SEPA stands for "Single Euro Payments Area". More than 36 European countries are now part of this Single Euro Payments Area. Between these countries, the rules for cross-border payments are standardised, making transfers easy. Nevertheless, bank customers regularly experience problems.
In a specific instance, a bank customer received a large transfer from within the SEPA zone and wanted to withdraw this sum in cash at a branch of the bank and keep it in a private safe, a legitimate undertaking that should not be questioned further. However, the bank refused to process the customer’s request for a cash withdrawal. Instead of clarifying any queries effectively and independently with their customer, the bank instead submitted a suspicious transaction report to the FIU (Financial Intelligence Unit), also known as the Central Office for Financial Transaction Investigations, and blocked the customer’s account (the later plaintiff).
More often, banks are reacting with suspicious transaction reports, which regularly lead to account freezes lasting weeks and even months, even if the facts underlying a "suspicious" transaction could be clarified quickly. During the time following the suspicious transaction report, no outgoing transactions are possible.
In this case, the bank ignored all out-of-court attempts for clarification and communication of set deadlines and instead referred to its internal investigations.
Banks lack initiative and genuine interest in clarification
The bank customer had made every conceivable effort out of court to provide proof of origin and clarification. For example, the client submitted confirmation from the original bank, where the assets were invested in the client’s own account. This clearly provided proof of ownership. Nevertheless, Targobank not only remained persistent with the account blocking, but also terminated the entire business relationship with the customer in reference to the general terms and conditions.
Even after the account was terminated, the disappointed bank customer did not succeed in demanding the return of all assets from Targobank or persuading the bank to transfer all the money to an escrow account of the client’s lawyer. It was only after the lawsuit had been filed that the defendant paid out part of the assets. The bank justified the withholding of the remaining amount even after the proof of origin had been provided on the basis of its own internal audit and the submitted suspicious transaction report. However, the bank’s reasoning did not convince the court.
Although the caution of banks is well-intentioned, this must not lead to negligent handling of customer funds, which can often threaten the existence of customers. The fact that the bank did not return the money in full even after the termination of the bank account and maintained its narrow-mindedness for weeks even after the lawsuit had been filed testifies to a questionable understanding of the law.
No trace of insight
The court now had to rule on the client's remaining payout claim, as Targobank had paid out a six-figure partial amount of the plaintiff's assets before a judgment. However, this was not the end of the matter for the plaintiff. Without any trace of insight, the bank requested that the action be dismissed. The bank’s lawyers also demanded that the bank customer bear the costs for the legal proceedings.
What the bank intended to do with the client's retained assets remains a mystery. Until the very end the bank had tried to win the lawsuit and also to impose the legal costs on its ex-customer and to act as an exemplary private detective for the authorities. However, it is pleasing that the Wiesbaden Regional Court followed our opinion and affirmed the claim for restitution and ultimately ordered the entire costs of the litigation to be borne by the bank.
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 +49 69 247 428 444 or email email@example.com