As asset recovery lawyers, we are tasked with recouping monies lost to fraud. One of the issues we constantly face is the shifting camouflaging of assets. These move not only between bank accounts, but across national frontiers. Fraudsters know this movement (and the “layering” of stolen assets) adds to the confusion when attempting to trace assets, placing additional hurdles between their victims and their money.

Under normal circumstances it is understandable if banking systems fail to pick up on transactions that could be considered suspicious by others. But there is a difference between systems failures and what judges point to as a form of dishonesty on the part of those who may be sued for facilitating a fraud – “wilful blind-eye knowledge of the obvious.”

We all have a role to play in trying to identify rogues and how they manipulate regulated professionals and financial systems.

It’s alarming how often we discover transactions that have managed slip through the regulatory net. Not all can be attributed to a failure of oversight, but very few fall into a “wilful blindness” category either. If they did, then we would likely be discussing a serious wrong on behalf of the banker concerned.

Banks make a lot of profit, and everyone – from a teller to the CEO – is rewarded with bonuses. There is nothing inherently wrong with bonuses, but the incentive they provide may sometimes impact on decisions, affecting an individual’s rationale and potentially their integrity.

Payments linked to fraud

Our firm was part of the international team that recovered assets from the huge Allen Stanford Ponzi scheme (the world’s second largest Ponzi fraud in 2009). As part of that asset recovery process, we identified what we perceived to be significant shortcomings in the banking processes of several major banks, which we concluded had assisted Stanford in processing and moving over $10 billion of stolen funds from his victims. Acting for the joint liquidators of Stanford’s Antiguan bank, in some cases the courts agreed with our assessments; in others, they did not.

But these are high-profile cases and we must hope that those running banks have taken notice of these, and other, matters before the courts. Bankers have needed to up their game or face the risk of being held to account for failing to pick up on dubious transactions.

Now, a civil action in the UK is highlighting similar alleged failures. Lloyds and its Bank of Scotland subsidiary have been served with a £287m ($370m) claim, brought by the liquidators of a broadcasting company for allegedly processing payments linked to an alleged £1.2 billion ($1.6 billion) fraud.

The liquidators are asserting that the banks failed to question payments made by two suspects and therefore facilitated money laundering, citing that a “reasonably skilful and careful banker” would have probed the validity of the transactions, as movements were ‘inconsistent with the legitimate business of the group.’” The Serious Fraud Office is also investigating the collapse of the group, and the investigation is ongoing.

Constant vigilance

These cases all serve to underline why fraud victims must have the right to sue banks to recover their losses. Firstly, this provides a means of restitution for victims, helping them to recover their financial standing. And secondly, it acts as a deterrent for banks, compelling them to take their due diligence responsibilities seriously. If banks face significant financial and reputational risks for failing to prevent fraud, they are more likely to invest in better security measures.

In fairness, the problem is not purely in banking: we all have a role to play in trying to identify rogues and how they manipulate regulated professionals and financial systems. The problem banks have is that they are such an obvious link in the chain, victims know that they have the means to put right what they have done wrong. As such, they must walk the tightrope between increased profits and the risk of losing out in damages claims.

Given the pivotal role banks play in the financial ecosystem, it is essential that they be vigilant in policing money transfers, particularly when there are indications of fraudulent behavior. They have both ethical and legal responsibilities to prevent such behavior and transactions. But when banks fail in such duties to monitor and protect us from fraud, they should be held accountable.