Key Aspects

-A landmark decision by UK’s High Court provides interesting lessons on Financial Institution’s freedom to close bank accounts based on mere suspicion vs contractual obligations vis-à-vis the client. 

- It also poses the question of an effective media monitoring program where the curation of source quality becomes even more important vs technologically impressive, however, practically changing live news screening of the entire client base and further decision making based on it. 

- The UK High Court didn’t go into the details of Uzbekov’s arguments that the media allegations might have been fabrications in a context of a commercial war and defamation campaign. However, this leaves the question of fake news from anonymous UK based resources such as Talk Finance or Russia based Kompromat.ru large open. 

- The judgment also serves as a reminder of the delicate balance that must be maintained between robust AML enforcement and fair customer treatment.

Background and Case Overview

Revolut, a global digital payment service provider, faced a legal challenge from one of its former customers, Ildar Uzbekov, after the company blocked and then closed his account. 

The claimant, Ildar Uzbekov, UK citizen since 2007, entrepreneur and son in law of a prominent Russian coal mine magnate Alexander Shchukin, opened an account with Revolut in 2018. In March and April 2020, Revolut blocked and then closed his account. In doing so, it returned about £11,000 to Kevin Knight, a car dealer to whom Mr Uzbekov had sold a Range Rover. Revolut now says that it blocked and closed Mr Uzbekov's account because, after considering media reports, it formed the view that Mr Uzbekov might be involved in money laundering, that the funds in his account might constitute criminal property and that his continued use of the account might damage its reputation and goodwill.

Mr. Uzbekov, after recovering the funds that were returned to a third party by Revolut, claimed distress and embarrassment, seeking a formal declaration that Revolut had no grounds to suspect him of money laundering:

“Mr Uzbekov accepts that he suffered no financial loss, but pleads that he suffered "embarrassment", "distress and inconvenience", "difficulties in making and receiving payments" <...>”.
 

Submissions from Revolut

Revolut’s legal team outlined that the company had acted within its contractual rights, as stipulated in its standard terms of service. These terms allowed for immediate suspension or closure of an account in exceptional circumstances, particularly if the customer's activities could potentially damage Revolut's reputation. Revolut maintained that the claim for breach of contract raised by Mr. Uzbekov was triable but contended that a declaration would serve no useful purpose and that the proceedings amounted to wasteful and disproportionate litigation։

“Revolut accepts that the breach of contract claim raises triable factual issues, but contends that a declaration would serve no useful purpose, so there is no real prospect of the court granting one; and that the proceedings amount to wasteful and disproportionate litigation”.

Submissions from Uzbekov

Mr. Uzbekov's representatives argued that Revolut's actions were not only a breach of contract but a significant one that warranted judicial scrutiny. They emphasized that Mr. Uzbekov had been subjected to a smear campaign, and the closure of his account by Revolut had contributed to this narrative. The defense argued that a declaratory judgment would provide Mr. Uzbekov with vindication and would serve the public interest by reinforcing the need for financial institutions to adhere to their terms of service and to treat their customers with due care.

Detailed Analysis of the Judicial Decision

Mr. Justice Chamberlain's judgment focused on several critical issues, including the utility of declaratory relief and the role of the court in resolving disputes that might otherwise be seen as disproportionate in the context of the relief sought.

The court took a firm stance on the practicality of declaratory relief. It emphasized that the utility of such relief must be determined objectively and is not solely based on the claimant's subjective desire. Justice Chamberlain cited Financial Services Authority v Rourke [2002] CP Rep 14, where Neuberger J said this:

"…so far as the Civil Procedure Rules (CPR) are concerned, the power to make declarations appears to be unfettered. As between the parties in the section, it seems to me that the court can grant a declaration as to their rights, or as to the existence of facts, or as to a principle of law, where those rights, facts, or principles have been established to the court's satisfaction. The court should not, however, grant any declarations merely because the rights, facts or principles have been established and one party asks for a declaration. The court has to consider whether, in all the circumstances, it is appropriate to make such an order.
…
It seems to me that, when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration."

In Mr. Uzbekov's case, the court found that the declarations he sought would not serve a useful purpose in the broader context, nor would they vindicate his reputation in any substantial sense since they would not address the veracity of the underlying allegations of money laundering.

The judgment also highlighted the importance of efficient and proportionate use of judicial resources, aligning with the overriding objective of the Civil Procedure Rules to deal with cases justly and at proportionate cost. The court was wary of setting a precedent that could encourage other claims where the litigation costs and court resources would be out of proportion to the potential benefits or remedies obtained.

Furthermore, Mr. Justice Chamberlain pointed out alternative avenues that Mr. Uzbekov could have pursued for reputation management, such as defamation proceedings, which are specifically designed to address reputational harm and include safeguards like a requirement for serious harm and a limitation period.

Implications for Financial Service Providers and KYC/AML Practices

The ruling has significant implications for financial service providers, particularly those involved in KYC and AML compliance. It underscores the importance of having clear terms of service that can withstand judicial scrutiny and the careful consideration required when making decisions based on media reports and potential reputational risks.

The judgment also serves as a reminder of the delicate balance that must be maintained between robust AML enforcement and fair customer treatment.

Conclusion

The Revolut vs. Uzbekov judgment represents a cautionary tale for financial institutions in their AML efforts and customer relationship management. The decision to strike out the Particulars of Claim for abuse of the court's process under CPR 3.4(2)(b) highlights the court's reluctance to support claims that do not offer practical benefits or serve a broader public interest:

 “insofar as Mr Uzbekov suggests that it would be in the public interest to grant the relief sought, there are other more appropriate mechanisms for protecting the public from the improper closure of accounts by financial institutions”. 
<...>

“Even if nominal damages and a declaration in the form sought were ultimately granted, the cost to the defendant (in money and time spent by its staff) and the impact on the court's resources (and indirectly on other litigants and potential litigants) would be disproportionate to the marginal objective benefit the relief would confer on Mr Uzbekov. The game is not worth the candle”.

Financial institutions and their KYC/AML compliance partners must take note of the court's stance and ensure that their actions are justified, well-documented, and proportionate, not only to protect against financial crime but also to uphold the rights and reputations of their customers.