When can a bank close my account? Analysis of Human Appeal International Australia v Beyond Bank Australia Ltd (No 2)  NSWSC 1161
In a recent Supreme Court of NSW case, Human Appeal International Australia v Beyond Bank Australia Ltd (No 2)  NSWSC 1161, it was held that Beyond Bank Australia Pty Ltd (the Bank) had wrongfully de-banked Human Appeal International Australia (the Customer) when it ended its relationship with the Customer and terminated its banking facilities without providing valid reasoning.
The case gives rise to an interesting question – when and in what circumstances can a bank decide to close the bank account of a customer?
The New South Wales Supreme Court addressed the complex and intersecting issues surrounding the termination of banking facilities and “tipping off” provisions under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). This case serves as an illustrative example of the challenges faced by reporting entities, such as banks, in adhering to regulatory expectations while managing their risk.
- De-banking is the term used to describe the situation in which a bank refuses to offer banking services or withdraws such services from a current customer;
- the Customer in this case was the largest Muslim charity in Australia;
- In March 2021, the Customer established banking facilities and opened a bank account with the Bank;
- In August 2021, the Bank informed the Customer that it would be terminating its facilities but declined to provide any reasons for the termination beyond reliance on its terms and conditions that gave the Bank the right to close any account upon the provision of 20 days’ notice;
- the Customer commenced proceedings against BB claiming that the termination of its facilities was invalid;
- the Customer contended that the Bank was only entitled to terminate its facilities if it was acting in good faith and with reasonableness. Where the Bank did not demonstrate it had a valid reason to terminate the facility, the Customer argued that it should be inferred that no reasonable grounds existed;
- the Customer contended that if the Bank’s terms and conditions permitted termination without the requirement for justification or explanation, this would be in violation of the Customer Owned Banking Association’s Code of Practice. This code emphasises the need for trading terms to equitably consider the interests of both the Bank and its customers.
Tipping off obligations and notice to produce
In his ruling, Parker J assessed the Bank’s responsibilities in light of the AML/CTF Act and how they intersected with the concept of de-banking.
Specifically, Parker J scrutinised sections 123 and 124 of the AML/CTF Act, which forbid banks from providing advance notice to external parties regarding reports on suspicious matters, in the context of the Bank’s decision to de-bank the Customer.
Through a notice to produce for inspection, the Customer sought access to documents supporting the Bank’s decision to terminate the banking relationship.
Despite the production of a termination letter making reference to a prior ‘review,’ no records of this review or the decision were presented by the Bank. The Bank otherwise produced very few documents in answer to the Notice to Produce.
The Bank placed much emphasis on the relevance of the AML/CTF Act and took the position that it was prevented from disclosing its reasons for de-banking the Customer due to sections 123 and 124.
Validity of termination
The Customer contended that the relationship between a customer and bank is based on good faith and argued that the Bank lacked reasonable grounds for the termination.
During the hearing, the Bank admitted it could terminate only with a valid commercial reason. Parker J proceeded on the basis that this concession was specific to this particular case and acknowledged its potential inapplicability to all customer-bank relationships.
When evaluating the validity of the given commercial reason, the Customer pointed out the lack of evidence regarding the termination decision.
The Bank referred to its obligations under the AML/CTF Act as the context for its decision to terminate and argued that, if the termination was related to the Act, it would be prevented from presenting evidence of that under section 124. Reading between the lines, it would appear that the Bank’s decision to de-bank the Customer was motivated by potential anti-money laundering concerns.
Parker J ultimately rejected the Bank’s arguments and found that the Bank’s decision to de-bank the Customer was invalid due to insufficient justifications.
Parker J also held that the Bank’s terms and conditions did not align with the Code of Practice since they did not strike a “fair balance” between the parties’ interests, as required by clause 4.2 of the Code. This was because the terms and conditions did not mandate that BB specify reasons when de-banking.
This case serves as a useful reminder that banks can in certain situations close the accounts of customers. However, this will usually require the bank to go a step further and provide reasons to the customer.
The decision also underscores the challenges faced by banks aiming to “de-bank” clients perceived as potential AML/CTF Act risks.