Improper payments – how allegations of sexual offences could affect banking relationships
Last week, two women who had accused financier Jeffrey Epstein of sexual abuse filed lawsuits in the US against JP Morgan Chase and Deutsche Bank, alleging the banks had ignored suspicious withdrawals from his accounts and payments. The lawsuits ultimately accuse the banks of aiding and facilitating Epstein’s conduct.
Would such a lawsuit be possible in the UK and should those accused in the UK and their banks and financial institutions (FIs) on this side of the Atlantic be worried? This article discusses some of the issues individuals and FIs could face in the event of a scandal emerging, and what the implications might be for the future of payments processing.
The emergence of historic sexual abuse in the UK
The watershed moment in the UK was the emergence of allegations against TV and radio personality Jimmy Saville following his death in 2012. Since then, there has been a steady increase in the investigation and prosecution of individuals for historic allegations of sexual abuse, including Max Clifford, Rolf Harris and Gary Glitter.
The Independent Inquiry into Child Sexual Abuse (IICSA) published its final report in October 2022. This did not consider the role of FIs in facilitating offending, but the inquiry did look at the role of other institutions, such as the police and prosecutors in their approach to the handling of allegations if made at the time.
Civil proceedings offer the only legal recourse for victims of historic sexual abuse where the abuser is deceased – criminal proceedings cannot be initiated nor pursued against those who have died (see R v Turk  EWCA Crim 391). As well as compensation from the Criminal Injuries Compensation Authority, civil litigation (whether against a deceased’s estate or those still alive) is another option whereby victims can seek compensation from the alleged wrongdoers. In the UK, civil proceedings have a lower burden of proof than criminal courts, and so it is possible for the litigation to succeed on the same facts, even where the accused was acquitted.
Civil proceedings in England and Wales for personal injury claims have a three-year limitation period (which can be extended in some circumstances). In its final report, IICSA recommended “the removal of the three-year limitation period for personal injury claims brought by victims and survivors of child sexual abuse in respect of their abuse“. Should Parliament implement this recommendation, it is likely more civil claims will come to the fore in England and Wales.
What could banks do when historic sex scandals emerge?
The first, and immediate step, is for the FI to ascertain whether there is a link between the institution and the accused individual, whether personal accounts, company accounts, trusts or accounts of close and allegedly complicit associates. It will be of paramount importance to the FI whether it has exposure to the alleged conduct itself, as the potential consequences are threefold:
– Civil: the potential for a lawsuit as occurred in the US.
– Criminal: while it has not occurred so far, there may be circumstances where a bank’s conduct (or the individual employees) was so linked to the underlying sexual abuse allegations that FIs (and/or its individual employees) could find themselves indicted as part of a conspiracy to commit sexual offences or pervert the course of justice in England and Wales. Within the Epstein lawsuit, it is claimed that named individual employees had specific knowledge of Epstein’s sexual abuse.
– Regulatory: regulators such as the Financial Conduct Authority or the Institute of Chartered Accountants in England and Wales could launch an investigation into the conduct of the FI or individual employees for their role, and whether they continue to meet the ‘fit and proper’ test.
The likely course of action against the FI or its employees (if any) will largely depend on what degree of knowledge/suspicion can be fixed to the FI or the individual employee. Those with actual knowledge or well-founded suspicion should be concerned. A central consideration will also be whether the exposure is wholly fixed to the institution itself, or whether the issues are more acutely that of the individual professional involved with the individual accused of the allegation.
If a FI has concerns about a nexus to the alleged behaviour, it will need to consider whether to continue to hold accounts for the accused individual. This is a question of attitude to risk and reputation for the bank. If the account held does not appear to have been involved with the allegation (or for example, the account postdates the allegation), it may be that no action will be needed in terms of temporary freezing of funds or account closure.
Once exposure has been ascertained, it will be important for a FI to ensure that it has a response procedure in place and has relevant and appropriate advisers (for example legal, reputation management, communications etc) on hand to ensure an effective response is in place. As is true of any scandal, it is important to consider strategy and approach early. The same considerations will apply to the account holder accused of wrongdoing, who may also need to consider their response to minimise the risk that allegations will affect their banking relationships.
A cautionary tale of thoroughness – the future of processing payments
Banks are already heavily regulated and have to pay attention to due diligence and obligations in respect of anti-money laundering (AML) procedures, compliance with sanctions and preventing terrorist financing.
However, in the US lawsuit, one of the allegations pertains to a cash withdrawal by a private individual where the withdrawn funds ultimately would be used to pay a victim of abuse. It is therefore a curious consideration as to whether there should be a requirement to conduct more thorough checks with regards to individual payments/withdrawals beyond those required for AML/sanctions/terror financing. This development will be carefully followed by FIs on both side of the pond.
While banks have a Quincecare Duty to protect customers from fraud, it is easier to identify potentially fraudulent payments without much invasion into the personal life of the individual who holds the account. It is, however, more difficult, and substantially more invasive, to identify payments which could be made towards victims of sexual abuse. It would be a drastic step to suggest that banks should monitor and regulate every withdrawal/payment by any individual, to the extent that inquiries are made into all payments or withdrawals. Even if banks were to limit this overly cautious approach to those who were publicly accused of sexual offences, many allegations of sexual abuse against high-profile individuals are historic and are therefore of little use in identifying contemporaneous payments.
Draconian information gathering measures would be a substantial invasion into an individual’s private life, and also create issues in terms of data retention. Private individuals are unlikely to have much trust or confidence in their banks were this to become a course of action that banks needed to take.
How should banks approach media reports when considering problematic contemporaneous payments?
Banks often take an overly cautious approach and cease to provide services to an individual accused of criminal offences, before any consideration is given to the truthfulness or credibility of the allegation. However, there is an inherent danger for banks in placing reliance on allegations made on social or traditional media, which are likely to be unproven and may ultimately be false.
While it is not for banks or FIs to conduct investigations into allegations, in the post #metoo era where cases such as Paul Blackledge are becoming more common, it would be sensible to adopt a middle ground before going to the drastic step of closing accounts. In Blackledge v Person(s) Unknown  EWHC 1994 (QB), Mr Justice Saini noted that the Blackledge case was a “striking example of how the internet and social media can be used to abuse and damage innocent individuals with apparent impunity“.
Without taking a more cautious approach, account owners will be concerned that allegations may affect their banking relationships, and it is as yet unclear what would be a proportionate response by FIs to protect themselves from litigation by the alleged victims.