What You Don’t Know, Can’t Hurt: When Does a Beneficiary Bank “Know” That a Funds Transfer Is Improper?
Litigation Partners Peter Hargitai and Josh Roberts authored an article for the Banking Law Committee Journal, published by the American Bar Association's Business Law Section, discussing claims filed against beneficiary banks when a business discovers that an employee has been fraudulently transferring funds from a company account to their own beneficiary account. Rather than accepting responsibility for their own lax financial oversight, the businesses will often attempt to shift responsibility to the beneficiary bank (i.e., the bank receiving the fraudulent transfer on behalf of the individual). The underlying basis of these claims boils down to the assertion that the bank knew or should have known that the fraudster was stealing from the company—because the name on the payment order did not match the name on the account—and should have put a halt to the funds transfers. In their article, Mr. Hargitai and Mr. Roberts explore that statutes relevant in such claims and outline the different paths plaintiffs typically follow.