Legal opinion on Collection Service Agreement between 2 Banks

Mr. Z

Address….

Dear Sir,

Re:      Legal opinion on Collection Service Agreement between Bank 1and Bank 2.

We refer to your letter no. …………….. dated 24.04.2007 on the above subject.

From perusal of your letter and the provided documents it appears that, Bank 2 has been extending collection services to BANK 1 Group (“Bank 1”) in accordance with the Collection Service Agreement for Cash, Cheques, Drafts and Other Negotiable Instruments dated 09 June 2002 (“the Agreement”). 65 branches of BANK 2 are at present engaged to provide the said service.

Now, Bank 1 intends to include 55 more branches of BANK 2 under the existing collection service arrangement. They have sent the list of their corporate customers on whose behalf the money would be deposited in the shadow A/c of Bank 1 maintained with different branches of BANK 2.

The integrity of the corporate customers, contained in the list supplied by Bank 1, are not known to BANK 2. Bank 2 is only extending collection service to the corporate customers of Bank 1. According to the believe of BANK 2, if a single customer among the listed corporate customers is found to be involved in money laundering or hundi, BANK 2 may be put at the risk of a fine or the employees of BANK 2 may face imprisonment under the Money Laundering Prevention Act 2002.

In view of the above circumstances, you have asked us to give our legal opinion as to how the interest of BANK 2 may be protected in this regard.

OUR OPINION:

Any person who is connected with money laundering in any way shall be presumed to have committed a crime and may be imprisoned and/or fined in accordance with Section 13 of Money Laundering Prevention Act 2002 (“the Act”).

Moreover, Banks, Financial Institutions and other institutions involved in financial activities are under a duty to collect the complete and accurate identity of all their customers, provide information if asked by Bangladesh Bank and report any unusual dealings or dealings which might be related to money laundering to Bangladesh Bank in accordance with Section 19 (1) of the Act. If they fail to perform their duty, then Bangladesh Bank may take appropriate action against them in accordance with Section 19 (3) of the Act, and/or fine them in accordance with Section 19 (4) of the Act.

As, Bank 1 intends to include 55 more branches of BANK 2 under the existing collection service arrangement, the Agreement has to be amended to incorporate the changes. Such amendment has to be done by executing an amendment agreement signed by both parties. BANK 2 may take this opportunity to incorporate the following additional clauses to protect the interest of BANK 2 against allegations of money laundering.

After Clause 4.1.3 of the Agreement, we suggest the insertion of the following clauses:

“4.1.4 That it has collected the complete and accurate identity of all its corporate and/or other customers, who shall avail the collection services under this agreement, in accordance with Section 19 (1) of the Money Laundering Prevention Act 2002.

4.1.5 That none of its corporate and/or other customers, who shall avail the collection services under this agreement, is involved in any money laundering activity as defined in Section 2 (l) of the Money Laundering Prevention Act 2002.

4.1.6 That it shall collect the complete and accurate identity of all its future corporate and/or other customers, who shall in future avail the collection services under this agreement, in accordance with Section 19 (1) of the Money Laundering Prevention Act 2002.

4.1.7 That it shall promptly report any unusual dealings or dealings which might be related to money laundering of its corporate and/or other customers, who shall avail the collection services under this agreement, to Bangladesh Bank and Bank 2. It shall also instruct Bank 2 to stop providing the collection services to the reported customers.”

After Clause 5.2 of the Agreement, we suggest the insertion of the following clause:

“5.3    In event of default of any of the terms, conditions, representations and warranties of this Agreement, the defaulting party shall indemnify the non defaulting party for any loss, damage or expense incurred and/or suffered by such non defaulting party in consequence of such default.

5.4        Bank 1 shall indemnify Bank 2 and its officials/employees for any or all fines, losses, claims, expenses, damages, liabilities arising out of or in connection with any action taken by Bangladesh Bank against Bank 2 or in connection with any fine imposed by Bangladesh Bank upon Bank 2 that are in any manner based upon or occasioned by the failure of Bank 1 to perform its duties under Section 19 (1) of Money Laundering Prevention Act 2002

5.5        If any employees/officials of Bank 2 faces imprisonment or is subject to a fine, under the Money Laundering Prevention Act 2002, for performing the obligations of Bank 2 under this Agreement, then Bank 1 shall indemnify Bank 2 and its officials/employees for any or all damages, liabilities, fines, expenses including the cost of legal representatives arising out of or in connection with such criminal litigation.”

Please note that, with regard to the potential imprisonment of the relevant employees of BANK 2, the interest of BANK 2 can not be entirely protected. Our suggestions given above will only indemnify BANK 2 for the legal and other relevant expenses. The possibility of imprisonment is a business risk and the decision to take that risk is up to BANK 2.

If you have any further equerries please do not hesitate to contact us.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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