A business customer sent a wire to another bank to pay one of its vendors, but the vendor says it never received the money. The wire was sent to an account with the same account number as the account that received the payment, but the names associated with these two accounts were different. The wire beneficiary’s bank immediately closed the account for fraud but has denied our request for reimbursement. Are we entitled to be reimbursed by the beneficiary’s bank?

No, we do not believe you have the right to be reimbursed by the beneficiary’s bank for the wired funds.

Article 4A of the Illinois Uniform Commercial Code (UCC) provides that the bank for a beneficiary of a wire transfer may rely on an account number to identify the beneficiary “if a payment order received by the beneficiary’s bank identifies the beneficiary both by name and . . . bank account number and the name and number identify different persons” and “the beneficiary’s bank does not know that the name and number refer to different persons.” The UCC Official Comments provide that “know,” as used in this section, means “actual knowledge” that the name and number refer to different persons. Consequently, unless you can prove that the beneficiary’s bank had actual knowledge that the name and account number, referred to different persons, it will not be required to reimburse you.

Additionally, your customer may be responsible for the inconsistency between the account number and name provided in their wire instructions if they had notice that the wire transfer might be paid by the beneficiary’s bank on the basis of the account number. You can prove that your bank provided the customer with proper notice if they signed a written statement providing such information.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/4A-207(b) (“If a payment order received by the beneficiary’s bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply: (1) Except as otherwise provided in subsection (c), if the beneficiary’s bank does not know that the name and number refer to different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary’s bank need not determine whether the name and number refer to the same person.”)

UCC Official Comments, Section 4A-207, Comment 2 (“Subsection (b) allows banks to utilize automated processing by allowing banks to act on the basis of the number without regard to the name if the bank does not know that the name and number refer to different persons. ‘Know’ is defined in Section 1-201(25) to mean actual knowledge, and Section 1-201(27) states rules for determining when an organization has knowledge of information received by the organization. The time of payment is the pertinent time at which knowledge or lack of knowledge must be determined.”)

Illinois UCC, 810 ILCS 5/4A-207(c) (“If (i) a payment order described in subsection (b) is accepted, (ii) the originator’s payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary’s bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply: . . . (2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator’s bank proves that the originator, before acceptance of the originator’s order, had notice that payment of a payment order issued by the originator might be made by the beneficiary’s bank on the basis of an identifying or bank account number even[] if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator’s bank satisfies the burden as proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.”)

UCC Official Comments, Section 4A-207, Comment 3 (“Subsection (c) is designed to protect the originator . . . Under that subsection, the originator is responsible for the inconsistent description of the beneficiary if it had notice that the order might be paid by the beneficiary’s bank on the basis of the number. . . . If the originator is not a bank, the originator’s bank must prove that its customer, the originator, had notice. Notice can be proved by any admissible evidence, but the bank can always prove notice by providing the customer with a written statement of the required information and obtaining the customer’s signature to the statement. That statement will then apply to any payment order accepted by the bank thereafter. The information need not be supplied more than once.”)

Illinois UCC, 810 ILCS 5/4A-207(d) (“In a case governed by subsection (b)(1), if the beneficiary’s bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows:

(1) If the originator is obligated to pay its payment order as stated in subsection (c), the originator has the right to recover.

(2) If the originator is not a bank and is not obligated to pay its payment order, the originator’s bank has the right to recover.”)