Court sides with Barclays in fight to unfreeze funds caught by sanctions
Published 1 July 2015
In the recent case of Elaine Hmicho ("Mrs Hmicho") v Barclays Bank Plc ("Barclays"), the High Court considered an application by Mrs Hmicho for an interim injunction to require Barclays to unfreeze her accounts which had been frozen in May 2015 following her husband's designation under the EU’s sanctions on Syria earlier this year.
Mrs Hmicho is a UK resident and is married to Mr Samir Hmicho, a Syrian national ("Mr Hmicho"). The couple hold a number of bank accounts with Barclays, including three accounts which Mrs Hmicho holds in her sole name (the "Accounts").
Various EU Regulations impose asset freezing measures against certain persons identified as being responsible for the violent repression of the civilian population in Syria. The EU Regulations apply to the UK following the introduction of the Syria (European Union Financial Sanctions) Regulations 2012 (the "UK Regulations"). Consequently, Barclays is obliged to freeze "funds and economic resources belonging to, owned, held or controlled by" those listed in Annex II to the EU Regulations.
In 2015, Mr Hmicho was identified as a designated person and his name was added to Annex II. As a result he has been the subject of financial sanctions. This resulted in Barclays freezing all bank accounts held by him, as well as the Accounts, in May 2015. Mrs Hmicho subsequently sought an interim injunction to require Barclays to unfreeze the Accounts.
Barclays' argument was that Regulation 3 of the UK Regulations applied, because the funds in the Accounts belonged to, or were owned or held or controlled by Mr Hmicho, a designated person. As such, Barclays was prohibited from dealing with these funds. Barclays considered that by unfreezing the Accounts and releasing these funds it would be 'making the funds available, directly or indirectly' to Mr Hmicho, or for his benefit, since Mr Hmicho would thereby obtain a significant financial benefit. In view of this, Barclays argued that Regulations 4 and 5 of the UK Regulations also applied.
The Court heard that several significant payments into the Accounts came from Mr Hmicho's own accounts at Barclays. It was suggested that the reasonable inference to be drawn from these transactions was that these payments were made to circumvent any financial sanctions which Mr Hmicho had come under. As Barclays had "reasonable cause to suspect that this was the case", by unfreezing the Accounts, Barclays would be dealing with such funds. The bank's main concern was that it would be committing a criminal offence under the UK Regulations if the funds were to be released. Accordingly, it was argued that Barclays could, under its Terms and Conditions, refuse to follow Mrs Hmicho's instructions, including those instructions to unfreeze the Accounts.
Mrs Hmicho argued that Barclays was wrong to act on the origin of the funds, rather than the fact that the monies were to be used exclusively to maintain Mrs Hmicho's family, and that this made it a case in which the injunctive relief sought was entirely appropriate. She also argued that the funds in the Accounts clearly belonged to her; the Accounts were solely in her name and, more importantly, the payments constituted gifts from Mr Hmicho.
The Judge disagreed with Mrs Hmicho and the application was refused. The Judge considered it was impossible to have the necessary 'high degree of assurance' at this interlocutory stage that Mrs Hmicho will succeed at trial with her claim for final injunctive relief. More importantly, he failed to see how at trial Barclays would be unable to show that it has "reasonable cause to suspect" that it would be dealing with funds belonging to, or owned or controlled by, Mr Hmicho, who was a designated person under the EU Regulations.
The Judge recognised that significant payments were made into and out of the Accounts at a time when Mr Hmicho had been identified as a designated person and they plainly amounted to suspicious activity, and he held that Barclays had been correct to question what role Mr Hmicho may be playing in relation to the Accounts.
In the circumstances, the Judge held that it would be inappropriate to order Barclays to take action which could render it liable under the UK Regulations. The balance of convenience favoured Barclays and the Judge quickly dismissed Mrs Hmicho's argument that damages would be an inadequate remedy.
In what was a difficult situation for the bank, the Judge agreed with the decisions made by Barclays and accepted that it had acted correctly to protect itself and prevent any unlawful behaviour. It is sometimes hard to determine the appropriate action to take in such circumstances, and the Courts can be quick to criticise the decisions taken by many banks. However, in the circumstances and at this stage in the proceedings, the Judge could not criticise any action taken by Barclays; it had monitored its accounts correctly, noted any unusual behaviour and taken appropriate action to manage the situation in line with EU and UK Regulations.