A Court of Appeal ruling on anti-money-laundering obligations will bring relief for businesses, including law firms, and remind lawyers of the importance of having appropriate systems to evidence concerns leading to suspicious activity reports (SARs).

In a judgment last week, the court dismissed a claim made by Zimbabwean national Jayesh Shah against HSBC Private Bank for damages allegedly caused by the bank’s SARs to the Serious Organised Crime Agency under its Proceeds of Crime Act 2002 (POCA) obligations.

Lord Justice Longmore found that the suspicion had been honestly and genuinely held by the bank’s nominated officer. He said Shah’s loss was caused primarily by his own actions, which HSBC could not have foreseen, and that Shah had failed to mitigate his own losses.

The judge implied terms into the bank’s contract with Shah to the effect that it could refuse to execute instructions in the absence of consent where it suspected money laundering, and that the bank would not provide information to the client if there was a risk of tipping off. After SOCA had given consent, the bank complied with all payment instructions except for one transaction which the claimant had cancelled.

The case raised alarm bells among law firms and other businesses handling client money when the Court of Appeal ruled in 2010 that the bank could be required to adduce evidence to prove that its suspicions were expressed in good faith. Daren Allen, partner at City firm Berwin Leighton Paisner who acted for HSBC, said: ‘For many years there has been considerable debate about the obligations owed to the customer of the reporting institution when it has made SARs to SOCA.

‘This robust decision brings a welcome relief for [businesses] who feared they may be liable for damages for simply complying with their legal obligations under POCA.’

Zaiwalla & Co, which acted for the claimant, did not respond to a request for comment.

Susannah Cogman, corporate crime and investigations partner at City firm Herbert Smith, said: ‘The case emphasises the importance for [law] firms of having appropriate systems in place to ensure that the suspicions which lead to SARs being made to SOCA are appropriately evidenced.

‘Having a documented audit trail of the firm’s suspicions should assist both in establishing the genuineness and basis of the reported suspicion, which will be important for the firm and for individuals who are at risk of being called to give evidence of their suspicions.’

The Law Society has published guidance on the case.