Debanking case clarifies limits of AML/CTF Act protections for banks

‘Debanking’ is a term used to describe the process of a bank declining to provide banking services or withdrawing banking services from a customer. A decision to debank a customer can be made based on various factors, including legislative and quasi-legislative obligations (including prudential standards) and policy concerns. The power to debank a customer is typically provided for in the contractual arrangement between the bank and customer.  

• Merciful is a registered charity founded in 2016 to provide aid to various countries including Lebanon, Yemen and Syria.
• Mr Rabih Chammah, Merciful’s president, and his wife, Fatimeh Charafeddine, ran Merciful and were the signatories to its Suncorp bank account.
• The Suncorp bank account was opened in 2019, with the contractual relationship between Merciful and Suncorp regarding the account governed by Terms and Conditions.
• Between November 2019 and March 2022, four alerts were registered on Merciful’s account by Suncorp’s AML/CTF Operations Team in accordance with triggers within Suncorp’s Joint Anti-Money Laundering and Counter Terrorism Program (which it was required to maintain under the AML/CTF Act).
• There were a series of alerts and referrals from Suncorp’s Fraud Detection team, based on reasons such as large transfers sent overseas, spiked activity in high value transaction, and payments sent to a third-party money remitter.
• Suncorp’s internal reports in the April 2025 resulted in a manual risk rating of ‘high’ being placed on Merciful’s account.
• A report in April 2025 identified, among other things, ‘transaction activity consistent with the layering stage of the money-laundering cycle.’
• On 15 April 2025, Suncorp’s executive manager, Financial Crime - Strategy and Operations, received a Senior Management Report recommending that Merciful be exited because the provision of services posed a risk of money laundering/terrorism financing that could not be appropriately mitigated.
• As a result, on 16 April, Suncorp gave written notice to Merciful that it would be debanking Merciful on 8 May 2025 in accordance with clause 15.2 of the Terms and Conditions, which relevantly provided as follows:
  
  ‘15.2 When we can close your account
  
  We can close your Account immediately if:
  
  …
  
  (c) to protect our Legitimate interests;
  
  (d) we need to by law or to meet our prudential requirements’
   
• On 6 May, Merciful commenced proceedings seeking injunctive relief to restrain Suncorp from closing the account.
• Mr Chamma had also been disqualified from the NDIS – however, this did not come to Suncorp’s attention until after the account had been closed.
• Merciful argued that the proper construction of clause 15.2 only enabled Suncorp to close its account if it was ‘necessary’ to do so, and that ‘Legitimate Interests’ did not include risk appetite or reputational concerns. Merciful also argued that there was an implied obligation in clause 15.2 for Suncorp to act honestly, for a proper purpose, reasonably and not arbitrarily in exercising its contractual rights, which it had not discharged because it had not put the reports or investigations to Merciful, or given it the opportunity to respond.
• Suncorp argued that it had an express right under clause 15.2 to close the Merciful Account in order to protect its ‘Legitimate Business Interests’, which enabled it to make a commercial decision about whether the continuation of the account was consistent with the framework it had adopted to comply with its regulatory obligations. It said that clause 15.2 contained no implied term to act reasonably etc., but even if it had, Suncorp had acted in accordance with that obligation.
• Suncorp also argued that, if Merciful succeeded on its claim, section 235 of the AML/CTF Act would have provided it with protection from the claim, because in ‘debanking’ Merciful it acted in good faith, in compliance or supposed compliance with the AML/CTF Act and/or the Anti-Money Laundering and Counter-Terrorism Financing Rules 2007 (Cth) (AML/CTF Rules).

• Chief Justice (in Equity) Hammerschlag found that Suncorp was entitled to debank Merciful.
• The reasoning principally pivoted on the Court’s interpretation of clause 15.2 and the definition of ‘Legitimate Interests’ in clause 1.3 of the Terms and Conditions, which included its ‘legitimate business needs, prudential requirements, and any requirements that are reasonably necessary to protect it against a material risk of financial detriment.’
• His Honour found that protecting against the risk of banking services being used for money laundering/terrorism financing and protecting against the risk of financial detriment from that, was ‘self-evidently’ a legitimate business need and prudential requirement.
• His Honour also noted that legislative and quasi-legislative instruments – such as the AML/CTF Act, the AML/CTF Rules, and prudential standards issued by the Australian Prudential Regulation Authority (APRA) – obligated the bank to identify unacceptable financing risks and take steps to mitigate those risks, meaning that a lack of risk appetite for doing business with Merciful and/or concerns around the Bank’s reputation are legitimate business interests and prudential requirements.
• The Court rejected Merciful’s submission that there was an implied term in the Terms and Conditions that obligated Suncorp to identify to Merciful the facts it had relied on to justify closure or give reasons or an opportunity for Merciful to respond, in the course of exercising its rights under clause 15.2. Rather, it had a broad discretion that was really only circumscribed that the Bank’s opinion be based on an objective assessment.
• The Court also noted that while there was no requirement under clause 15.2 for Suncorp to show it had acted reasonably, in any event the Bank had established that it had acted reasonably and with a proper purpose on account of the nature of Merciful’s financial activities. This included significant upticks in donations between FY23 and FY24, merchant facilities being used to process high-value transactions and large sums of money being spent on high-value luxury goods.
• The Court noted that the fact that Suncorp may have known about some of these issues for some time before exercising rights to exit Merciful was of ‘no moment’, observing that no estoppel or waiver argument had been asserted by Merciful.
• While he did not make a definitive finding on the issue, Chief Justice (in Equity) Hammerschlag expressed doubts that section 235(1)(e) of the AML/CTF Act protected it from Merciful’s claim. That was because the ‘debanking’ of Merciful had been affected by Suncorp exercising its contractual rights, rather than a step taken in compliance with the AML/CTF Act regulations or the AML/CTF Rules.
• His Honour also noted that even if Merciful succeeded on its breach of contract claim, he would not have granted it the injunctive relief that it sought. While he noted that it was open to the Court to make an injunction of this sort, ultimately it would not have been appropriate in all the circumstances, such as the breakdown in the customer-bank relationship and the fact that Merciful had found another bank willing to do business with it.