Business Regulations - Essay Example

Business Regulations Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Hong Kong Shanghai Banking Corporation is one of the world’s largest banking and financial provider. It has many constituent branches in various parts of the world including the one in London. In the recent past years the corporation has faced allot of criticism over the case involving one of its customers and the bank. The overview of Shah v/s HSBC case The family of the Zimbabwean citizen Gao Shah is claiming about $300 million worth of damages as a result of delays by HSBC. In the case, the corporation argued that it suspected the transaction to be fraud. The bank used the time to seek clarification from other authorities in regard of the transaction. In the twist of events the bank completed the transaction which later turned out to be mere suspicions (Applebyglobal.com. n.d, pp.3). According to part VII of POCA which states that any bank that transacts fraudulent transactions is liable to prosecution and the defense case will have a more legal basis if and only if they had consent of the transaction from SOCAs. The delay of the transaction was as a result of suspicion that Mr. Shah had been involved in money laundering saga, which led to freezing of the Shahs properties back in Zimbabwe. In the ruling, the court of Appeal ruled that, despite the facts presented by Mr. Shah’s lawyers that the bank corporation failed to delegate its duties, hence the case should go for full trail. The argument was that, since the bank did not execute its duties to the customers it should provide grounds for their suspicions. It later turned out that one of the employees of the bank had requested for a loan from Mr. Shah, which she did not get. This information changed the face of the case, because it how looks like a grudge from the HSBCs employee, against Mr. Shah after dismissing the loan offer. In the case, Mr. Shah claimed that HSBC (the bank) did not inform him of the suspicion and that he as a customer deserved to know why the transactions were delayed. The judgments In the first account, the court dismissed Mr. Shah’s entire claim arguing that the bank indeed acts according to its legal grounds. Later, in a court of Appeal the court ruled in the favor of Mr. Shah. In the argument, the judge said that under all cost, the customers should be informed of any suspicions against their transactions and that the bank should ask for some time from the customers to legally investigates the suspicion. Again, the judge acknowledged that the banks are in a dilemma in the sense that on one side the bank face the risk of been sued if they did not report any suspicions of money laundering and on the other side the same bank risk been prosecuted by their customers against the failure to execute their duties as instructed. The judge went further to say that if the banks fail to perform their duty of care within the legal timeframe, then it has breached its duty of care to the customers. The judge concluded by arguing that, the bank should at all times prove the course of suspicions on direct accounts (Applebyglobal.com. n.d, pp.7). What are the insinuations? It is clear from the judgment that any bank which fails to carry out its duty as per the customer’s instruction has a more legal ground to defend employees, if they have suspicions regarding the customer’s transactions, and the bank has gone a step further to legalize the suspicion by seeking more information from relevant authorities. In these context therefore, the bank should have suitable systems in place to investigate any kind of suspicions and all documents well placed in case the customer seek to enquire the reason of the delay. In the same case, the bank should conduct their investigation faster so as not to cause delays in the transactions. The investigation against money laundering should be done using the shortest time possible so as not to cause delays (roughly two days after the instructions of the transactions). The customer are obliged to know if any suspicions exist on their transactions, and finally, the employees of the bank should be well educated on issues relating to the suspicions and have the know-how of going about the suspicions. The education to the employees should be on a regular basis so as to catch up with the ever changing tactics of the money launderers. Financial regulations Financial regulations in a bank are forms of business regulations imposed by the government to regulate the relationships between customers and the bank operators. The regulations may differ between places and banks jurisdictions (Ryder 2011, pp. 3-6). Though these regulations may vary there are the common ones in most of the banks namely; to minimize the extent of the risk involved in lending money to potential creditors, to reduce the risk of failure due costumers’ employees relationship’s failure, and to protect under all cost the banking confidentiality. The banks are also obliged to inform customers of any delays in the transactions they are to carry if the bank feels without any reasonable doubt that the transaction at hand has some suspicions of money laundering or any other form of fraud, it is important for a bank to inform all the relevant authorities (like the anti-money laundering authority) if any suspicion is on their side, the banks are supposed to carry their duties as instructed by the customers without any delays failure to which the bank can be sued for failure to execute its duties as requested or instructed by the customers. Money laundering involves the act of hiding the source of money. The banks management is liable to know the source of the money every customer has instructed to be transacted. Failure to report any suspicions can lead to closure of the bank by the anti-money laundering authorities since the bank has breached a contract (not report the crime to the authority). It is therefore upon the bank management to know the customers identity and the form of the transaction to curb any form of money laundering case. In respect to Mr. Shahs case, the bank acted as per the regulations by involving the Serious Organized Crime Agency to vary whether the transactions was fraud or not. The law cases against money laundering Since money laundering is a serious crime, there are more than one law cases against money laundering all over the world. The following cases are some of the cases that prohibit money laundering. One, the Patriot Act requires that all the business operators to prevent, report, detect, and prosecute all the perpetrators of money laundering all over the world and more so in the united states of America. In addition, within the business management they should identify the client name, source and the recipient of the money. Two, the Bank Secrecy Act of 1970 requires that banks and other financial institutions keep proper documents of the transactions and in any similar account report the case to the authorities against anti-money laundering (Mann & Roberts 2010, pp. 78) .It also requires the banks report any money transactions exceeding $10,000 and again have the documentations. Three, in the wake of 1986, another law was implemented (Money Laundering Control Act). The act recognizes money laundering as a criminal crime and condemns transactions of such nature. It further advises the banking system to comply with report and record the transactions. Four, Money Laundering Suppression Act of 1994 recommended that the bank management review and implement proper training programs which should enlighten the employees on the issue of money laundering procedures. Banks should prosecute the perpetrators of such offences to relevant law enforcers, among other recommendations. Finally, Money Laundering and Financial Crime Strategy Act which among other things, established task forces that investigate and prosecute money launderers in places with high money laundering cases (Smith 2011, pp. 3). Law cases against breach of duty to customers by bank There are many obligations of the banks to their customers as there are law cases of the same. For example there is the duty of secrecy, confidentiality and execution of duty right among others. In most of the cases the customer’s right to secrecy and confidentiality are breached and the customers can take a legal action against the bank’s management. With the case in hand, the HSBC (the bank) was again obliged to let the customer (Mr. Shah) know of the delays and the suspicions involved. On similar considerations, the bank would have seek consent from the customer and proceeded with investigation therein. With these failures, the customer had no other choice but to sue the bank for the delays and the losses incurred by these delays. On the other hand, the bank acted within its jurisdictions right to investigate the suspicion and report the same to the SOCAs. The failure therefore occurred only with the move of remaining silent about the suspicions. If say the suspicions where true, the bank would have nothing to worry about but to go a step further and prosecute Mr. Shah. Since this is not the case the bank has to take full responsibility and pay for the damages incurred (UIBPC 2009, pp. 186). Repercussions of the case to banks and customers relationships Arguably, it is without fear of contraction that the case has to some extent affected the relationship between customers and the bank. One, the magnitude of the information the customers are liable to get when conducting a transaction with a bank has to increase, since if the customer, say, does not get the sufficient information he/she can sue the bank against breached of right to be informed (Contributors 2010, pp.89). On the other hand the bank should seek legal consent as to how far the information enquired by the customer should entail. These have made HSBC to put in place internet software that helps online customers to distinguish between fraud transactions and the genuine ones. Again, the bank has implemented programs that educate their employees on how to handle fraud transactions and the extent of the information disclosed to the customers. The case has also impacted the way customer handle their transactions, (not only with the banks, but also with other business providers). On other accounts, the case has affected the amount to be transacted in one individual transaction. If the amount exceeds a certain amount, then the transaction has to experience some delays as it gets to be investigated for fraud by anti-money laundering agencies. Since the case was one of a kind, it gives customers legal grounds in to lie their cases incase such an offence re-occurs in the bank or anywhere else. The case has also awoken the anti-money laundering agencies on matters relating to the transactions and the person’s identity (Ryder 2011, pp. 57). The banking officer should again seek more information from the individual customers the identity, the nature of transactions, and the recipient of the money and the source of the same. In the occasion that these deals are not given, then the bank can have a suspicion with the transaction. In a clerical account, the bank should keep this information properly in case they are required in future. Finally, it is obvious that the bank will face defamation effect, since the customers have lost trust with the conduct and the nature of business transactions they offer. Conclusion In the light of Mr. Shah’s case it is evident that there was a breach of duty and injustice suspicions of fraud. It is therefore important for every bank and other business organizations to take precautions against such defamation by merely using good faith of the customers. It is therefore advisable for the bank to take necessary step to attract customers (by way of convincing) that the case was not due to banks failure but the bank was acting as per the regulations. It is also upon the bank to know the nature of transactions they regularly deal with and applied measures to investigate them using the shortest time possible (as supported by the laws above). It is worth noting that the customers are too advised to take precautions not to be involved in any fraud transaction. As closure of these arguments, the bank should take care not to lose their customers and the customers to lose the bank. Bibliography Applebyglobal.com. n.d. Shah v. HSBC – Potential Liability for Reporting Money Laundering Suspicions Part 1.UK: Applebyglobal.com. [Online] at: http://www.applebyglobal.com/publication-pdf-versions/briefs/briefs-2010/shah-v.-hsbc-money-laundering-suspicions-%28april-2010%29.pdf. Retrieved on 11th March 2012. Contributors. 2010. World Money Laundering Report Vol. 9 No. 5. UK: Vortex Centrum Ltd. Mann, R & Roberts, B. 2010.Business Law and the Regulation of Business. Colorado: South-Western College/West. Ryder, N. 2011.Financial Crime in the 21st Century Law and Policy.UK: Edward Elgar Pub. Smith H.2011. Corporate Fraud, Investigations and Asset Recovery Update. London: Smith H. [Online] at: http://www.herbertsmith.com/NR/rdonlyres/B2066D5B-FD03-4C65-B9A7-3738C36BE2B5/0/9358Corporatefraudupdate_d11.pdf . Retrieved on 12th March 2012. USA International Business Publications Croatia.2009 Financial & Banking Law and Regulations Handbook. USA: Intl Business Pubns. Read More