Ponzi Banking: The Law and Psychology of Banks that Service Financial Misconduct
What can be done about banks evading civil liability for failing victims of Ponzi schemes?
Banks often evade civil liability for routine services that enable Ponzi schemes and financial misconduct, creating significant barriers to justice for victims seeking compensation.
Martin Kenney and Dr Alexander Stein of Dolus Advisors tackle this thorny issue in their latest thought-leadership piece, just posted to the ILA Canada blog (the Canadian branch of the International Law Association).
Their interdisciplinary analysis braids the legal and psychological factors through examination of a judgment from Canada involving victims who failed in seeking compensation from enabling banks.
The judgment’s legal reasoning underscores that even where courts agree on intentional tort elements, approaches to mental state concepts — actual knowledge, willful blindness, reckless disregard, and fraud risk awareness — remain confused, vague, or inconsistent across jurisdictions. This complicates culpability assessments and hinders bank accountability.
Kenney and Stein argue that harmonising established jurisprudence with sophisticated psychological understandings of mental states — theories of mind in law and their real-world court implications — will enable courts to more reliably determine requisite mental state elements for holding banks accountable for harm caused.
They suggest this represents a vital step toward redressing power inequities and helping fraud victims recover against institutional enablers when legally permitted.
