Financial fraud – Banks are under no obligation to be a detective – Criminal law
UK: Financial fraud – Banks have no obligation to play detective
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To what extent, if any, do banks have the obligation to investigate to protect their customers against fraud? The High Court has considered this crucial issue in a case involving a woman who lost £ 700,000 after being the victim of a sophisticated scam.
The woman made international payments from her bank account after a fraudster convinced her that her money would be safe and that she was participating in an investigation by the Financial Conduct Authority and the National Crime Agency. Although she was tricked into making the payments, the bank felt she had authorized them and denied any responsibility to reimburse her.
She sought damages from the bank on the grounds that it had an obligation to protect it from the devastating consequences of the fraud. She claimed that, had the bank fulfilled this obligation, it would have questioned ostensibly voluntary transactions so that they were interrupted, or at least delayed enough to give her a chance to get her money back.
The bank replied that its claim was incorrect. She argued that she had no obligation to protect her from the consequences of the payments she authorized on the basis of a fraudulently induced belief. Such an obligation would conflict with the bank’s obligation to comply with the instructions of its customers. The real cause of his loss was his willingness to make the payments, and the bank was under no obligation to question his instructions.
Speaking on the matter, the court noted that the woman was seeking to impose certain standards of detective and investigative work on the bank, including a potential liaison with the police, aimed at identifying suspicious payments. As such, it called on the Court to extend the scope of the bank’s functions beyond the established limits. Even if the existence of such an obligation were established, it would be subordinate or incidental to the primary obligation of the bank to act on the instructions of its customers.
It was not commercially realistic to expect bank staff to question clearly genuine customer instructions. To require the bank to do detective work, or to act as a guardian or guardian of the commercial wisdom of customers’ decisions, would be unduly burdensome.
Although she expressed deep sympathy for the woman, the court concluded that extending the bank’s duty of care to cover the facts of her case would be unprincipled and unacceptable. It would not be fair, just or reasonable to impose such an obligation. The court rendered a summary judgment in favor of the bank. Philipp v Barclays Bank PLC. 2021
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