Two Fraud Claims, One Lesson: Robust AML/CDD Could Have Blocked REVOLUT’S High Court Nightmares

Two recent High Court decisions, Larsson v Revolut and Terna Energy v Revolut,  considered how the legal doctrines of dishonest assistance in a breach of trust and unjust enrichment can be applied in the context of a bank or e-money institution receiving payments procured by fraud.

Larsson v Revolut and Terna Energy v Revolut AND Potential Money Laundering and AML/CDD Prevention

Link to Money Laundering:

• The civil cases (Larsson v Revolut and Terna Energy v Revolut) involve Revolut allegedly facilitating the receipt and transfer of fraud proceeds, characterised as trust property under dishonest assistance and unjust enrichment doctrines.
• This mirrors money laundering stages placement (receiving illicit funds) and layering (transferring them) as the fraudster integrates stolen money into legitimate banking channels without ownership rights.
• If intentional or reckless, such handling could escalate to criminal money laundering under laws like the UK Proceeds of Crime Act, exposing the institution to regulatory probes for enabling concealment of criminal origins, even absent proven knowledge.

How AML/CDD Checks Would Have Prevented It:

• Robust Anti-Money Laundering (AML) and Customer Due Diligence (CDD) protocols, including enhanced KYC verification, transaction monitoring for red flags (e.g., unusual inflows/outflows), source-of-funds scrutiny, and suspicion reporting, would detect fraudulent patterns early.
• By identifying high-risk customers or anomalous activities (e.g., rapid transfers of unverified funds), Revolut could have frozen accounts, rejected payments, or reported to authorities, blocking the breach of trust and averting liability, as process failures (not deliberate dishonesty) enabled the claims to proceed.

The two cases

The two cases involved the e-money institution Revolut: Larsson v Revolut and Terna Energy v Revolut. 

• The first essential element of dishonest assistance is that there must be a breach of trust.
• In a fraud context, the analysis is that when the victim’s money comes into the fraudster’s hands, the fraudster does not have legal ownership of the money.
• Instead, the fraudster holds it as a constructive trustee and is under a legal duty to return it to the victim of the fraud.
• The second essential element is that there has to be a breach of trust.
• If the fraudster pays the money away, then the analysis would be that there is a dealing with trust property, and that dealing is in breach of the trust because the only permissible dealing would be to return the money to the victim of the fraud.

By characterising the proceeds of the fraud as trust property,

• The law can trace them into the hands of the next person who receives them, so long as that person is aware of the fraudulent origin of the money.
• If a third party assists the fraudster in committing the fraud, the third party becomes equally liable with the fraudster, but only if the third party has sufficient knowledge of the fraud for the assistance to be classed as dishonest.

• Caroline Hearn, banking litigation expert at Pinsent Masons, said:
• “The dishonest assistance argument is not a new law.
• Banks have always been at risk of liability if they transfer or receive money that they know or have good reason to suspect is the proceeds of fraud, and the bank’s conduct meets the dishonesty threshold.
• However, it is difficult to win on this argument as usually the bank does not know anything at all about the underlying fraud, so it is impossible to prove it had dishonest knowledge.”
• Mike Hawthorne, banking disputes expert at Pinsent Masons, said:
• “The decision shows that, in theory, a bank can become liable for dishonest assistance where it allows its customers to receive and pay proceeds of crime in circumstances where it knew or should have known of the crime.
• The bigger picture, however, is that this appears to be an allegation of dishonesty based on what appears to be what was probably at worst a process failure.
• There was no evidence that Revolut knew anything about the underlying fraud. Still, the allegation alone was enough to allow the dishonest assistance part of the claim to progress towards trial.”

In the first case, Larsson brought a claim against Revolut, alleging that Revolut breached its contractual duties by failing to detect and prevent fraud.

• Larsson argued that Revolut dishonestly assisted in a breach of trust by crediting the payments to the accounts in the fraudsters’ names despite the SWIFT messages saying that the payments were for the benefit of Mr Larsson.
• The value of the claim in Larsson v Revolut is CHF 466,617.73 (approximately £400,000).
• Larsson made payments from his Swiss UBS account to five accounts that fraudsters had set up at Revolut.
• The purported objective of the transactions was to purchase shares in a company, with the fraudsters telling Larsson that his money would not be at risk because it would be held in accounts in his own name until it was time to transfer the funds to buy the shares.
• The money transfers were international, so they were made using account numbers sent by SWIFT message as opposed to the account number plus account holder name system that is used for domestic transfers.
• The SWIFT messages stated that the payments were for Larsson's benefit, but the accounts were actually in the fraudsters' names. Revolut credited the payments to the accounts before spotting the issue and stopping the final payment.
• The judge held
• That there was no contractual duty on Revolut to check the names on the accounts, as this is not how international payments initiated via SWIFT messages work.
• However, the judge did not think that the case was clear enough to strike out the dishonest assistance part of the claim.
• That it was too early to say whether, on a full investigation, there might be some evidence suggesting that Revolut knew about the fraud or turned a blind eye to it sufficiently to meet the dishonesty test.
• The case will have to continue to trial and be decided on the facts.

The second case, Terna Energy v Revolut, involved a claim for unjust enrichment to recover €700,000.

1. The fraudster tricked Terna into paying cash to a fake supplier, with the payments processed through Revolut.
2. The payment was initially frozen but later released by Revolut, with Terna claiming Revolut took no steps to investigate the reasons for the payment.
3. The essential elements of unjust enrichment are that
   1. The receiving party has to be enriched at the expense of the other party, and it must be unjust for the receiving party to keep hold of the money.
   2. If the paying party can prove those elements, there is, in principle, a liability on the receiving party to repay the money, even if the receiving party actually paid it to a third party.
   3. Unjust enrichment was previously considered an almost impossible claim to make against a bank unless there were very unusual circumstances.
   4. The basis rationale was that, especially with international payments, the receiving bank is usually at the end of a long chain of transfers involving other banks, so it is hard to say that it has been “enriched” at the expense of the person who originated the payment, as opposed to being enriched at the expense of the last but one bank in the chain.
   5. Even if the claimant could get over that problem, the next line of defence for the receiving bank would be that the incoming payment at all did not enrich it, because it only received the money on behalf of its customer.
   6. As soon as the money comes into the account, the bank has a matching liability to pay out to its customer.
4. However, the judge in Terna disagreed with the conventional analysis and held that it was at least possible for a bank, in this case Revolut, to be enriched by an incoming payment at the expense of the defrauded party.
   1. As regards the chain of payments point, the judge held
      • That the real nature of the transaction is a payment from A to B, and
      • The fact that A and B used agents (the intermediate banks) to facilitate the transaction is a matter of process only.

1. 2. As regards the matching liability point,
      • The judge held that if the receiving bank knew that the payment had been procured by fraud, it would not have an obligation to account to its customer for the payment.

3. So, in that scenario, there would be no legal liability between the bank and the customer, and the bank would itself be “enriched” by the incoming payment.

Revolut has been granted permission to appeal the Terna Energy case to the Court of Appeal.

5. The judge recognised that his analysis was opposed to previous analyses by judges at the same level and said,
1. “Given the vast numbers of transfers of funds which take place through the banking system every day, and the need for clarity as to their legal effect, these are issues which will arise again and again and must sooner or later be resolved at the appellate level”
2. “Obviously, none of this comes into play until the receiving bank has some reason to suspect fraud, but that just begs the question of what knowledge would be enough to create suspicion of fraud.
6. Pending the appeal, this decision creates uncertainty for receiving banks about the potential liabilities that could flow from their fraud detection systems flagging indicators of fraud on incoming payments.
7. There is also a question mark over how much both paying and receiving banks have to do to comply with the still-unknown scope of the ‘retrieval duty’, for example, taking steps to stop the money by notifying the next bank down the line of the suspected fraud.

Consequences

8. We can expect paying banks to err on the side of caution when they are notified of fraud by their customer and to pass the information to the receiving bank even faster than before.
9. Receiving banks could then be at risk of unjust enrichment claims if they allow their customers to use the money before resolving the fraud markers.

Sources

• https://www.pinsentmasons.com/out-law/news/high-court-approach-dishonest-assistance-unjust-enrichment-claims
• Larsson v Revolut 
• Terna Energy v Revolut