The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian QC has won $10,000 in damages from Scotiabank (Bahamas) after it abruptly closed his law firm’s bank accounts without giving any warning.

Justice Ian Winder, in a recent Supreme Court verdict, ruled he was “not satisfied” that the alleged failure of Maurice Glinton QC and his law firm to fully meet the bank’s demands to verify their identities “warranted the immediate closure” of their Bahamian and US dollar accounts.

He found that Scotiabank (Bahamas) was “contractually or otherwise legally obligated to give.... reasonable notice” to Mr Glinton that it was preparing to close the company’s bank accounts - a move that could have potentially crippled its business activities and cost it clients.

The Supreme Court justice also determined that the Canadian-owned banking giant cannot “unilaterally impose and enforce measures” that “prejudice” or deviate from the duties it has to customers it holds banking relationships with, but he only awarded $10,000 after finding the episode had caused Mr Glinton “little by way of actual damage”.

While the Freeport-based QC had argued the accounts’ closure had caused him “embarrassment and inconvenience” and “blighted the professional reputation” his firm enjoyed, Justice Winder said banking confidentiality meant details of the affair were only known to the parties involved.

His verdict, though, has implications for the wider Bahamian banking industry and its individual and corporate clients, as it means that institutions cannot arbitrarily shut down customer accounts without warning if identity and other due diligence-related documents have not been provided.

The verdict is also likely to strike a chord with many Bahamas-based firms and citizens who, for the past two decades, have had to contend with a Know Your Customer (KYC) due diligence regime that many still regard as overly bureaucratic, inefficient and time-consuming.

The Central Bank has sought to move KYC procedures to a less prescriptive, risk-based approach based on the circumstances and activities of each individual client, but the regime - which was introduced in response to the 2000 “blacklisting” by the Financial Action Task Force (FATF) - remains perceived as inflexible red tape that has undermined The Bahamas’ competitiveness.

Mr Glinton yesterday told Tribune Business that his complaint had exposed “a number of breaches”. While he had received the $10,000 damages, the QC has yet to recover his legal costs that the judge also ordered paid to him.

Hitting out at the ever-increasing volume, and cost, of the fees levied by Bahamian commercial banks on their consumers. Arguing that “most of the banks nowadays are not earning money the traditional way”, via interest income on their loan books, Mr Glinton also criticised the Canadian-owned banks for moving back office functions elsewhere in the Caribbean even though The Bahamas is their biggest profit earner.

“What is going on here is not banking,” he argued. “Decisions are made in Barbados, Trinidad or Jamaica. If you pick up the phone to get in touch with your branch manager, the one who deals with your account, you first have to go to a switchboard that might be in Jamaica and they connect you with The Bahamas.

“I think it is absurd but no one seems to care. At one point in time we used to have a first-rate industry in this country but that is no longer so. Career bankers have long gone.... There’s no doubt that The Bahamas is the major contributor to the bottom line of these banks’ Caribbean operations, yet we’ve allowed the switchboard to be moved elsewhere. You’re creating employment for them and reducing employment here.”

Mr Glinton initiated proceedings against Scotiabank (Bahamas) after “the involuntary and without notice closure” of his law firm’s US$ client account on November 23, 2016, which followed the termination of its Bahamian dollar account six days earlier.

The QC “discovered the closure of the US dollar account by chance” when he met with the Scotiabank (Bahamas) branch manager. The US$ account had been opened in January 2000, and Mr Glinton said its use had been uninterrupted apart from one occasion when he failed to provide a Central Bank permit giving him permission to maintain the foreign currency account.

“Scotiabank sought to justify its action on the basis of Maurice Glinton’s failure to respond to correspondence requesting updated information,” Justice Winder said. “Scotiabank says that in seeking to comply with its obligation to ensure that it possessed updated KYC information on all its customers, numerous attempts were made to obtain requested information from the plaintiff.”

Scotiabank (Bahamas) said letters written to Mr Glinton and his firm on December 5, 2014, and March 17, 2015, had prompted no response. Sherell Bullard, the small business banking manager for its Freeport branch, and another officer went to his offices on March 18, 2016, in a bid to obtain the requested information but was successful.

The bank admitted that Mr Glinton provided copies of his passport, National Insurance Board (NIB) card and utility bill on April 7, 2016, but six of its nine KYC requested documents remained outstanding. “They say that on November 17, 2016, that its branch and retail management took the decision to close both the accounts of Maurice Glinton,” Justice Winder noted.

However, Mr Glinton said he had provided all the necessary KYC paperwork to Scotiabank in mid-2015 in relation to the firm’s Bahamian dollar account apart from a current Certificate of Good Standing and address verification.

He argued that as long as the account was not being operated negligently, or in a fraudulent or criminal manner, Scotiabank was not exposed to risk or potential liability, and therefore did not need to close his company’s bank account. The Freeport-based attorney also contended that exchange control permission was required from the Central Bank to close a US dollar facility.

“Maurice Glinton contends that Scotiabank did not exercise any caution or restraint out of respect for the legal obligations and duty it owed to him as its customer,” Justice Winder said. Scotiabank, though, argued that his KYC information had not been updated since 1993 when the Bahamian dollar account was opened, and that he had “stubbornly” refused to co-operate.

Justice Winder, in his ruling, said Scotiabank (Bahamas) had failed to show how its Small Business Financial Services Agreement, which allegedly gave it the right to terminate accounts without notice if requested information was not provided, applied to Mr Glinton and his firm. He found there was insufficient evidence to show this agreement had been incorporated into the contract between the parties.

Scotiabank (Bahamas) also alleged that it was entitled to close the accounts because they were in deficit, but Justice Winder found that this resulted from the bank debiting fees to settle charges for servicing them. He ruled it should have notified Mr Glinton that closure would result when the accounts went into a deficit position, which it failed to do.

“Additionally, in the case of the US dollar account, some consideration must be made for the fact that Maurice Glinton could not personally put the account into credit, as it required US dollars which could only occur by a deposit by a foreign client,” Justice Winder added.

He ruled that customers had a legitimate expectation that Scotiabank would act “reasonably” when exercising the potential remedies available to it on closing accounts.

“Maurice Glinton’s principal complaint is simply that Scotiabank acted improperly when it closed the accounts and facilities, and terminated the relationship without giving him any notice of its decision and intended action, so as to afford him opportunity to make other accommodating arrangements for the convenience of his firm’s clients,” Justice Winder concluded.

“Scotiabank’s failure to give due notice of the closure of the account is compounded by the fact that it also failed to notify Maurice Glinton even after the closure of the account.... I was also not satisfied that Scotiabank’s argument that outstanding matters under the Financial Transactions Reporting Act warranted the immediate closure of the account.”