The Grand Court has ruled that Butterfield Bank (Cayman) Ltd. did not act dishonestly when it failed to spot multiple fraudulent transactions from 2008-2010, causing a captive insurance company to be fleeced for about US$529,000.
The case stems from 2008, when the Cayman-based captive Geneva Insurance opened a corporate bank account with Butterfield. Geneva Insurance was owned by William Ritter and managed by Monkton Insurance Services Ltd. and its managing director, David Self.
By forging Mr. Ritter’s signature, Mr. Self fraudulently withdrew hundreds of thousands of dollars from Geneva Insurance between March 2008 and Sept. 2010, according to the Grand Court judgment. Mr. Self would be convicted of theft in Dec. 2012 for stealing more than $600,000 from another captive insurance client via similar methods.
According to Mr. Ritter’s claim, Butterfield should have spotted Mr. Self’s fraud and prevented the transactions from going through. The transactions were highly irregular and suspicious and, as a result, the bank must have deliberately or recklessly turned a blind eye and have therefore acted dishonestly, claimed Mr. Ritter.
“Mr. Ritter summarizes that the above-mentioned forgeries of his signature were so obvious, that the bank was being ‘willfully blind to the fraud’ when allowing the ‘irregular transactions’ in and out of the Geneva account, and accounts of other [Mr. Self] managed client companies to go through,” wrote Justice Richard Williams in his May 29 judgment.
Butterfield disputed Mr. Ritter’s claim, stating that it followed good banking practices when approving the transactions.
Butterfield added that Mr. Ritter became aware of forgery on Geneva account on Sept. 1, 2011, but did not tell bank until August 2012. This deprived Butterfield the opportunity to act properly to prevent a number of other transactions and to recover money wrongfully paid on forged signatures, the bank argued.
Graeme Skinner, Butterfield’s head of corporate banking, did admit that the fraudulent signatures “do vary to a degree which might have invited enquiry,” but stated that there was no evidence of dishonesty and more likely to be an “innocent error,” according to the judgment.
Justice Williams agreed with Butterfield.
“I accept that, armed with hindsight and with the advantage of the later gained knowledge (unknown at the time by anyone in the bank) the bank, which I accept is a bank with a specialized department serving commercial clients, accepts that some additional enquiries maybe could have been made,” he wrote in his judgment, “but this does not make the bank dishonest when applying the tests set out in the cases analyzed herein. There is no evidence the bank, as is pleaded, deliberately allowed transactions that were fraudulent to be processed.”
Justice Williams dismissed Mr. Ritter’s dishonesty claim and granted costs to Butterfield.