We have just published our second tip-sheet on the substantive claims available to victims of bribery and corruption, which sets out the key details for a claim in knowing receipt. This claim allows a victim to sue anyone who received the benefit of assets taken in breach of trust, in circumstances where it would be unconscionable for the recipient to keep them. We explain who can be sued, when the claim applies, what needs to be proved, when the claim will fail, and what can be recovered in our tip-sheet here.
Click through here for a quick summary of the key issues on the tort of bribery that states, and indeed any victim of bribery, should know. Our tip-sheet covers the basic legal principles, identifying available defendants, the circumstances when a claim can be brought and the facts that must be established to bring a successful claim. It also considers the available remedies and the impact on contractual relationships.
To what extent must a bank make inquiries as to the commercial purpose of a transaction, particularly a transaction involving an offshore structure? And when is a bank liable to compensate a victim of theft for receiving funds deriving from stolen assets and using them for its own benefit?
These were the questions addressed in Credit Agricole v Papadimitriou by the UK’s Privy Council (the court of final appeal for the UK’s overseas territories and Crown dependencies, and for Commonwealth countries that have retained it as the ultimate appeal Court; its decisions are authoritative in English law as it comprises judges from the UK Supreme Court).
It is an important and potentially far-reaching decision.
An honest bank, which had unknowingly received stolen funds and used them to repay itself a loan made to the fraudster, was required to compensate the victim of the theft. It must do so because it failed to investigate the commercial purpose of the transaction under which it received the funds in circumstances where the unnecessarily complex structure and cost of the transaction were indicative of money laundering.
The impact of the judgment may reverberate around the risk departments of financial institutions (or, indeed, other regulated entities). It is relevant where stolen funds, or funds deriving from stolen assets, have been used, for example, (a) to discharge a loan or overdraft, (b) to pay substantial fees for a transaction or (c) where the bank has enforced security taken over a stolen asset.
The case concerned the proceeds of sale of artworks stolen from a private collector. It could equally apply to assets or funds stolen by a public official from a bank, or to bribes, which the bank has used for its benefit, for example to pay fees or to pay-off a loan or overdraft. A bank facing a claim from an aggrieved state could be found liable if it failed to seek an explanation when it had serious cause to question the proprietary of a transaction.
The rationale of the case is not, however, applicable where the Bank has simply received funds into a customer’s account and transferred them away on the customer’s instructions. In those circumstances, a claim would only be available against the Bank if it has been dishonest.
Finally, it is noteworthy that the Privy Council reached its decision applying the standards of money-laundering legislation in place in 2000, not the much higher requirements that apply under the present money-laundering regime. In our view, this suggests that the courts will apply a much higher standard to more recent conduct.
A public official receives a bribe to award a contract. Does the bribe “belong” to the official or to the state that he or she represents?
The answer to the question can matter a great deal to the success of a claim. But the issue has been controversial and the answer was for a long time unclear in English law, particularly in recent years.
The English position has been conclusively resolved by the the United Kingdom’s Supreme Court. It decided that the bribe belongs to the state. The decision ensures that English law is identical to other major common law jurisdictions.
This is important for a number of reasons:
- First, if the official becomes insolvent, all of the funds can be claimed by the state in preference to the claims of other (innocent) creditors.
- Secondly, if the funds are invested in assets that increase in value, such as property in a rising market, the state will be entitled to recover the entirety of those assets. This means the state takes the benefit of the increase in value. In the absence of ownership, this would be more difficult, if available at all, because the increase in value is not itself usually a result of any wrongdoing.
- Thirdly, claims based on ownership offer more effective mechanisms to trace and recover funds.
- Fourthly, a claim by the state may be subject to less onerous requirements that claims must be brought within a certain period.
- Fifthly, the state may be able to obtain better rates of interest on sums awarded to it. That can make a difference when bribes are substantial and uncovered only after a significant period of time.
Our fuller briefing on the English legal position, linking to the judgment, appears here.