Information

Here’s the fraud, where’s the money?

“It is possible that monies may have moved amongst those implicated of committing fraudulent activities. In this light it is recommended that a criminal case should be registered in order for a Section 205 Subpoena (in terms of the Criminal Procedure Act) to be executed, which in turn will allow for lawful access to all role-players’ bank account statements.” How many times have we reached similar conclusions as Forensic Investigators in our duty of not transgressing South African legislation such as –

  • Section 14 of the Constitution - the protection of privacy.
  • Section 33(1)(a) of the South African Reserve Bank Act - prohibits a director, officer or employee of the Bank, and an officer in the Department of Finance, to disclose to any person any information relating to the affairs of a shareholder [or customer] of the Bank; or a client of the Bank.
  • Section 236(4) of the Criminal Procedure Act - prohibits the disclosure of written information in court unless pursuant to a court order.
  • Section 8 of the Inspection of Financial Institutions Act - an inspector carrying out an inspection of a bank is obliged to preserve confidentiality unless the court, the law or the nature of an inspection compels disclosure.

This banker’s duty of confidentiality towards customers is a well-established principle as has been established in a 1924 English court judgment (Tournier v National Provincial and Union Bank of England) where is was stated that the duty of secrecy commences when the banker-customer relationship is formed and extends to information which the bank has obtained from sources whilst acting as banker to the customer. Even before the Tournier case in Abrahams v Burns 1914 the client’s confidentiality was acknowledged and it was stated that disclosure without sufficient reason, about the affairs of the client to a third party would render the bank liable.

The South African courts have acknowledge this duty confidentiality –

  • The court in Firstrand Bank Ltd v Chaucer Publications (Pty) Ltd 2008 (2) SA 592 (C) stated that it seems that for considerations of public policy that the relationship between a bank and its client must be of a confidential nature.
  • In George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988(3) SA 726(W) it was stated that once an account is opened there is tacit consensus [not to disclose customer information] arising from the operation of the ordinary rules of contract.
  • In Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (N)it was stated that a bank is bound by duty not to disclose any information about its clients.

The four exceptions to the duty of confidentiality as per Tournier decision are:

  • where disclosure is under compulsion of law;
  • where there is a public duty to disclose;
  • in the interest of the bank; and
  • where disclosure occurs with express or implied consent of the customer.

With the rise of crime many legislative inroads into duty of confidentiality have been made such as –

  • The bank finds itself in a practical dilemma arising from two conflicting duties: On the one hand, it has a confidentiality duty towards the customer whilst on the other hand it is required to disclose confidential customer information to the Financial Intelligence Centre in terms ofsection 29 of the Financial Intelligence Centre Act, 38 of 2001. This KYC standard reporting duty which requires a bank to breach customer confidentiality is in pursuance of money laundering control.
  • Sections 29 of the National Prosecuting Authority Act 32 of 1998 - Entering upon premises, for purposes of investigation, by the Investigating Director or any person designated by him to seize any document relating to an enquiry.
  • Financial Action Task Force (of which South Africa is a member) Recommendation 4 provides that countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations.

Furthermore, the growth of transnational crime has been accompanied by legislative enactments which have limited the operation of confidentiality e.g. constitutional rights to privacy under section14 of the Constitution, but section 36 permits such limitation of those rights in cases where it is reasonable or justifiable in a democracy based on human dignity, equality and freedom. Banks face a difficult task in balancing and reconciling their duties especially that of confidentiality. These dilemmas, limits, exceptions and qualifications have led to the erosion of the duty of confidentiality and public interest may be better served by making bank confidentiality no longer the rule but the exception. For example, Bank A conducts a forensic investigation which involves clients of both Bank A and Bank B. Bank A then provides information to Bank B to confirm the existence of the client of Bank B, to which Bank B respond in the affirmative. This for me is a watered-down version of bank-client confidentiality.

Is bank secrecy therefore a thing of the past? Well, legislative reform can certainly assist the Forensic Investigator to follow the money after the fraud was established or even during the investigation of the alleged fraudulent activities – because the money trail might even shed some clarity on the manner in which the fraud was committed.