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Volume 3, Edition 1 Chatterbox 07/04/2020

Part Two: Regulatory Response
In Focus: FATF

UK Court Rulings

Conducting Due Diligence in a
new digital era. “Understanding
and leveraging the use of digital
identity.”

6 March 2020 - The number of
digital transactions are growing
at an estimated 12.7 % annually. In the UK, case law precedents are
By 2022, an estimated 60% of equally important in defining the The payments were made, but not
global GDP will be digitised. policies that a firm is required to have before JP Morgan made a report
In any financial transaction, in place and here’s two that we noted under the Proceeds of Crime Act 2002
knowing your customer is that are interesting. to the NCA and sought a Defence
essential to ensure that the funds Against Money Laundering (“DAML”).
involved are not linked with Quincecare – are you covered? JPM did not receive any notification of
crime and terrorism. However, First, a cautionary tale relating to the concern from the NCA and proceeded
in a digital context, traditional management of suspicious reporting with the transactions. This was of
verification tools do not apply. and a relatively obscure but important course subject to the usual caveat that
legal development that is worth a defence against money laundering
The FATF has developed monitoring. would not protect the company in the
guidance that will help event of civil action.
governments, financial If you’re not already aware of the In the early days of PoCA there were
institutions, virtual asset service Quincecare case, settle back and read certainly concerns about constructive
providers and other regulated on! trusteeship and civil liability which
entities determine whether a largely disappeared in a miasma
digital ID is appropriate for use In 1992 and Barclays Bank plc v of defensive SARs and s37 of the
for customer due diligence. Quincecare, the High Court ruled Serious Crimes Act which provided
Reliable digital ID can make it that an implied term of a contract an apparent safe haven for regulated
easier, cheaper and more secure between a bank and its customer firms from civil liability, ala HSBC v
to identify individuals in the was that the bank owes a duty of Shah.
financial sector. It can also help care not to execute the customer’s
with transaction monitoring instruction if it knows the instruction And so, the development in December
requirements and minimise has been dishonestly given, or it shuts 2019 is a timely reminder that the
weaknesses in human control its eyes to obvious dishonesty, or acts Quincecare duty is comprised of
measures. recklessly in failing to make inquiries. two separate but equally important
obligations.
Digital ID systems are More recently, in the Federal Republic
evolving rapidly. To of Nigeria v JP Morgan in December Firstly, a regulated form has a duty
determine whether a digital 2019, the courts allowed the State not to execute fraudulent payment
ID is suitable, governments, of Nigeria to pursue JP Morgan for instructions. But, conversely, a
financial institutions and other failing in its Quincecare duties. firm also has a positive duty “to
stakeholders should: do something more” to resolve
The claim is based on an account, held its concerns or suspicions about
1. Understand the assurance in the name of the State of Nigeria, and apparently fraudulent instructions.
levels of the digital ID system’s the proceeds of the sale of disputed oil So simply filing a SAR doesn’t cut it.
technology, architecture and exploration rights. Quincecare - one to watch!
governance
On the instruction of Nigerian officials, https://www.brickcourt.co.uk/news/
Continue overleaf... who were authorised signatories on detail/jpmorgan-subject-to-the-
the account, JPMorgan paid $875 bankers-quincecare-duty-of-care-in-
million in six tranches to an offshore 875m-corruption-case
company owned by a former Minister
of Oil.

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