Wiesbaden Regional Court: Banks Obligated to Disburse Funds After Three Days After Fruitless Money Laundering Suspicion Report

Reports of suspicious activities under the German Anti-Money Laundering Act (AMLA) by banks are becoming increasingly frequent. Banks are legally obliged to report suspicious transactions if they suspect that these are being used for money laundering or terrorism financing. This often concerns cross-border transactions. While the German Central Office for Financial Transaction Investigations, also known as the Financial Intelligence Unit (FIU), recorded 15,496 suspicious activity reports in 2012, this number had risen to 337,186 by 2022. The reasons for this trend can be partially found in the legislation. While banks are only liable for damages caused by filing a wrongful suspicion report if it was filed intentionally or due to gross negligence. However, the stipulated fines for failure to report suspicious activities can be as severe as up to ten percent of the total annual turnover for serious, repeated, or systematic violations, and up to EUR 150,000 per violation for individual cases. In specific instances, the bank's anti-money laundering officer can also be held personally liable for not reporting. The criteria for filing a suspicion report are not stringent, leading banks to prefer acting with an abundance of caution and filing a report. Following such a report, an account may be temporarily frozen, creating potential risks for the account holder. A verdict from the Regional Court of Wiesbaden on January 11, 2024 (Case No.: 3 O 238/23) questioned the legitimacy of a bank's refusal to disburse funds after filing a fruitless suspicious activity report. The judgment clarified that banks are not permitted to withhold the payout of funds from an account beyond a three-day period following a suspicious activity report, unless the FIU or the prosecutor's office prohibits the disbursement within these three days.

Facts of the Case

The plaintiff, a private individual, had maintained a checking account with the defendant bank since 2008. Upon opening the account, she informed the bank of potential high incoming payments from an inheritance, which could be in the six-figure range. Until July 12, 2023, the account primarily showed regular income payments amounting to about EUR 2,000 monthly.
On July 12 and 17, 2023, the plaintiff's account recorded two incoming payments that first increased the balance by EUR 388,367.77 and then by an additional EUR 683,569.29. These transactions prompted the defendant bank to file a money laundering suspicion report with the FIU and temporarily freeze the plaintiff's account. No response was received from the FIU or the prosecutor's office. Despite the plaintiff's efforts to explain the origin of the funds, the bank refused to make the disbursements.

Account Freeze Unlawful if the Facts Have Been Clarified

The court determined that the defendant was not justified in withholding the plaintiff's funds for several weeks without cause. The suspicion report itself was found to be unjustified, as the facts of the case had been clarified. The plaintiff had informed the bank at the time of account opening that larger amounts could be transferred to her account in the future. The fact that only smaller sums were deposited in the interim does not automatically render the situation suspicious.

Banks Obligated to Disburse Funds After Three-Day Period Following Fruitless Suspicious Activity Report

Even assuming that the suspicious activity report was lawful, the bank should have made the payment after a three-day period had expired. Banks must report suspicious circumstances to the FIU in accordance with Section 43 (1) AMLA. According to Section 46 para. 1 no. 2 AMLA, a transaction may only be carried out after such a suspicious activity report if it is not prohibited by the FIU or the public prosecutor's office within three working days of the suspicious activity report. Such a prohibition was indisputably not issued in this case. The court then clarified that although the wording of the standard itself does not imply an obligation to carry out the transaction after the deadline has expired, the meaning of the standard cannot imply otherwise, meaning that the banking institution is obliged to carry out the commissioned transaction after the three-day waiting period has expired.

Practical Considerations and Conclusion

The details of the verdict highlight that a suspicion report cannot automatically be discounted, even if the bank was previously informed about the origin of the incoming funds. In such instances, the situation becomes difficult to assess as the account holder is unable to determine the reasons for the account freeze due to the non-disclosure provision outlined in Section 47 of the AMLA. They can only assume that a transaction ban has been instituted following an unusual transaction. Following unsuccessful inquiries with the bank, it is strongly advised for the affected account holder to seek legal counsel without delay and, where necessary, to initiate legal proceedings. In existential circumstances, contemplating an injunction might be necessary. Should the transaction freeze precipitate a company’s unability to make payments beyond three weeks, the governing body of the entity is mandated to declare insolvency. Despite the implications of this verdict, it remains imperative to preemptively notify the bank of any impending atypical transactions, particularly if they are cross-border, through a prior notification and statement. In the event of an ensuing account freeze, prompt legal intervention is essential to mitigate potential damages. Our firm stands ready to provide expert legal assistance to effectively uphold your rights.