Authored By: Keneiloe Kompi
National University of Lesotho
- Case Title & Citation
Title: Mamare Rampooana & 2 Others v First National Bank of Lesotho Ltd. (2023)
Official Citation: [2023] LSHC 132
- Court Name & Bench
Court Name: Lesotho High Court, Commercial Division
Judge: Mokhesi J
- Date of Judgment
3 August 2023
- Parties Involved
Applicants: Mamare Rampooana; Mare Desmond Rampooana; Notable Technologies (PTY) LTD.
Respondent: First National Bank of Lesotho Ltd
- Facts of the Case
The facts which precipitated the institution of this application are as follows: The 1st Applicant held a personal bank account with the Respondent Bank as opposed to a business account. On the 5th and 6th July 2022, the officers of the respondent noticed unusually large and multiple transfers of money being made from Platinum Credit Limited’s bank account to a number of individuals including the 1st applicant. Immediately they were flagged as suspicious transactions. The amount in respect of the 1st respondent was One Million, Nine Hundred Thousand Maloti (1,900,000). It is common cause this amount was inconsistent with the previous history of activities in the 1st applicant’s account. The Respondent triggered what it termed a “provisional freeze” on the account while it ascertained from the 1st applicant the source and legitimacy of the funds.
When the 2nd Applicant asked the bank why his mother’s account (1st Applicant) had been frozen, he was requested to provide proof of source of the funds and the relevant supporting documents. The 1st and 2nd Applicants are both directors of the 3rd Applicant. Both Applicants then produced an invoice directed at Platinum Credit Limited by the 3rd applicant, for having rendered business advisory, consultancy and Strategy Planning services to Platinum Credit Limited. The value of the invoice was Two Million Maloti (M2,000,000.00). As the invoice did not refer to the 1st applicant the respondent was still not satisfied. The 2nd Applicant also provided the bank with a letter from Platinum Credit Limited in terms of which the Managing Director of the latter company notified the Respondent that Notable Tech had provided Platinum Credit Limited with business consultancy and advisory services, and that the invoice was for such service, excluding tax.
The Managing Director of Platinum Credit Limited notified the Respondent that they had tried to pay the money into the 3rd Applicant’s business account, and when the money could not go through, they requested on alternative bank account into which payment could be made. The 2nd applicant provided the personal account of his mother (1st Applicant) into which the money was deposited. When this exchange could not yield the results in terms of satisfying the Respondent about the source of the funds, the latter decided to freeze the 1st Applicant’s account as aforesaid.
When it was evident that the Respondent could not be persuaded to unfreeze the account, the Applicants instituted this case in the High Court for the following relief: declaring of the account irregular and unlawful; reversal of a credit amount of M1,882,852.43, as irregular and unlawful; and directing the Respondent to re-activate 1st Applicant’s account with a M1,882,856.43 credit as it was before.
- Issues Raised
The first issue was a preliminary issue, which was whether the 2nd and 3rd Respondents had locus standi in the case.
The second issue was on the merits and it was whether the Respondent’s act of freezing the bank account of the 1st Applicant was lawful.
- Arguments of the Parties
The respondent had raised a preliminary point that the 2nd and 3rd Applicants do not have locus standi regarding the locus standi as the bank account in question belongs to the 1st Applicant.
To this point the applicant argued that the supporting affidavits have been filed in terms of which these applicants associate themselves with the averments in the founding affidavit deposed to by the 2nd respondent, and that they all have interest in the subject matter of this litigation. On the merits, the Applicants argued that no court order authorized the Respondent to freeze the 1st applicant’s account and that its reliance on the provisions of the Money Laundering and Proceeds of Crime Act, 2008 read with Money Laundering Regulations No. 19 of 2019, is equally without merit.
The Respondent, on the other hand, argued that it imposed a “temporary freeze” on the 1st Applicant’s bank account due to large transfers of money which were made into this account which were determined to be inconsistent with the account’s transaction history. These transactions were suspicious, triggering it to log a ‘suspicious transaction’ with the Financial Intelligence Unit (FIU) in terms of the anti-money laundering legislation. The Respondent further argued that “immediately thereafter” it was served with a court order directing it to reverse the payment totalling an amount of M2,805,493.23, and that the same court order also interdicted it from making any further payments from Platinum Credit Limited account without Platcorp Holdings Limited’s prior written consent, and that this order remained extant.
The second leg of the Respondent’s arguments was that, the transactions involved raised suspicions because they did not fit with the knowledge base for which the business relationship between the Respondent and 1st Applicant was established. Therefore, in terms of Guideline 2 read with Guideline 11 of the Financial Institutions (Anti Money Laundering Guideline 2000, Guideline 7 read with Guideline 18(1) of the Money Laundering (Accountable Institutions) Guidelines, 2013, it was enjoined to report any transactions which raised suspicions.
It went further to argue that in terms of Money Laundering and Proceeds of Crime (Amendment), Act, 2016, Section 11 (1A) (b) thereof, it is obligated to conduct an on-going customer due diligence on the relationship it has with its customers which includes scrutinizing transactions undertaken to ensure that they are consistent with the accountable institution’s knowledge of the Customer, the business and risk profile. In doing so in some instances it demands information from clients concerning the source of their funds where it suspects that the transaction involved is related to commission of money laundering offence and to report same to the FIU in terms of section 18 of the Money Laundering and Proceeds of Crime Act, 2008 as amended.
- Judgment
In the decision, the court ordered the following:
- It declared that the freezing of the 1st Applicant’s bank account by the respondent was irregular and unlawful.
- It declared that the reversal of the credit amount of M1,882,856.43 was irregular and unlawful.
- The respondent should pay the costs of suit on the ordinary scale.
- Ratio Decidendi
On the first issue, the court stated relied on the definition from Mars Incorporated v Candy World (Pty) Ltd [1990] ZASCA 149: 1991 (1) SA 567 at 575 H-I; citing that locus standi referred to the capacity of a person to institute proceedings and the interest such a person has in the outcome of the case, what is commonly refers to a direct and substantial interest in the relief sought. In the present matter, the court found that the 2nd Applicant deposed to the founding affidavit as the director of the 3rd Applicant whose funds were deposited into the bank account of the 2nd Respondent (its other director) following the rendering of services by the 3rd Applicant to Platinum Credited Limited. In as much as the account which was frozen belonged to the 1st Applicant, the court’s view was that the 3rd Applicant had a direct and substantial interest in the outcome of the matter as it alleged the funds were meant for it. The court reasoned that the only person who should not have been joined as a party in this matter was the 2nd Applicant as he does not have a direct and substantial interest in the outcome of the matter, he was merely a director of the 3rd Applicant. The point of lack of locus standi in relation to the 2nd applicant had been correctly taken.
On the merits; the court relied on the following provisions to arrive at its decision: In terms of Guideline 7 of Money Laundering (Accountable Institutions) Guidelines 2013: “An accountable institution shall –
(a) Obtain a sound knowledge of the purpose for which the customer or client is seeking a business relationship with the accountable institution; and
(b) Report any dealing which appears not to fit the knowledge base for which the business relationship was established.”
Read with this Guideline is Guideline 19 of the same Money Laundering Guidelines (Accountable Institutions) Guidelines 2013 which imposes an obligation on the financial institution to report suspicions of money laundering to Financial Intelligence Unit. These reporting requirements are also provided in Section 18 of the Money Laundering and Proceeds of Crime Act, 2008 as amended.
Basing itself on these provisions, the court found that nowhere was the bank authorised to freeze a client’s bank account on suspecting money laundering. The court held that, all these provisions say is that the bank must report either to the Central Bank, law enforcement authorities or to the Financial Intelligence Unit. It further held that the outcome would be different if the Respondent argued that it is empowered by the contract between itself and the 1st Applicant to freeze her account on noticing suspicious transactions, but there was no such argument.
The court was further persuaded by authority in the case of South African Petroleum Energy Guild (NPC) v RMB Private Bank (2014/27890) [2014] ZAGPJHC 368 dealing with a similar matter basing itself on similar provisions of South African legislation (Financial Intelligence Centre Act 38 of 2008). It drew from this authority that the said provisions do not authorise the bank to freeze its clients’ bank accounts upon notice of suspicious activity in their accounts except report them from relevant authorities. The court therefore, agreed with the 1st Applicant that the freezing of its account was unlawful.
- Observations
The decision in this case reinforces the principle that banks do not have the unilateral authority to freeze its customers’ accounts. It emphasises that banks are merely watchdogs, not enforcers in anti-money laundering laws. The only lawful way a bank can freeze or restrict transactions in a client’s account is when a competent authority obtains a court order empowering it to do so. They may detect and report suspicious transactions but cannot punish clients by freezing accounts without judicial authorization. Doing so violates customer rights and undermines due process.
