Facts:
On the 12th November 1999, the BPLL opened an account for the Sheen SARL company. The articles of association of this company stated that it aimed to provide financial services ( as credits and investments services) and its two principal directors had their tax domicile in the Channel Islands, the account being opened by an Italian mandatory. Despite this risky situation the bank did not check the reality of the incorporation of the Sheen company, of its accreditation and its activities. By using another company, the IPFE, to ensure the promotion of its services, the Sheen company made French people invest in several false products and defraud important amounts of money. It created confusion by making these people emit the bank cheque at the name of the BPLL, so they believe the Sheen company was a branch of this bank. Although consequent transfers were realized by the Sheen company and numerous bank cheque were emitted to its benefice, the bank did not conduct further researches.
The main issue:
Two main issues were discussed in this case. The first one concerned the obligation of due diligence of financial institutions at the opening of the bank account and especially to check the accreditation of any company providing financial services. Is this obligation, targeting in particular foreigner companies, a restriction of the freedom to provide services in the European Union? The second issue consists in the determination of the legal consequences of the absence of enhanced due diligence by the bank in a particularly risky situation. Is this lack to subscribe to its obligations constitutive of a fault, implying a civil liability towards the victims of the fraud operated by the Sheen company?
As far as the first issue is concerned, the Commercial chamber of the Cour de Cassation considered that there was no restriction of the freedom to provide services. On the second one, the judges confirmed the Court of Appeal reasoning and ruled that the lack of enhanced due diligence measures in a situation presenting so many risks and abnormalities can be constitutive of a fault and result in the compensation of the victims of the fraud.
NB: The compatibility of these due diligence obligations with European primary law was confirmed by the ECJ in case C-212/11.
Procedure:
The bank BPLL (Banque Populaire Loire et Lyonnais) was suited by several customers for a breach of its obligation of due diligence when opening the bank account of the Sheen company, an investment firm incorporated under Irish law. The bank was sentenced by the Court of Appeal of Lyon on the 29th October 2009 to compensate several customers, considering that it committed a fault when abstaining to check the existence, real activities and incorporation of the Sheen company. The BPLL raised an appeal against this judgement. It was based on several grounds : the fact that a particular investigation on a foreigner new customer would have been a breach of the freedom to provide services enacted by article 39 of the European Community Treaty and the finality of this due diligence obligations which is limited to the prevention and detection of money laundering and not establishing the bank liability towards victims of fraud.
Outcome:
The Commercial Chamber of the Cour de Cassation partially annulled the appeal judgement. The judges rejected the arguments of the appellant on the substance of the obligation of due diligence but considered, as far as compensation is concerned, that the Court of Appeal could not put the burden of proof on the bank.
