Topic: Article 4A – Uniform Commercial Code
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We have a customer that has been wiring money from an overseas bank to his account at our bank. The total amount of money involved is over $50,000, but all the individual transactions have been below $10,000. We do not believe this is a “mule” situation as the funds remain in the customer’s account after they have been wired. We know that we can reject wires and file a suspicious activity report (SAR), but is there any way for us to verify that the wires are legitimate without talking to the customer? We have attempted to call him, but his phone does not accept voicemail. Further, neither the customer nor the bank he is wiring funds from come up as a positive OFAC hit. For now, we have placed a temporary hold on his account.
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We are not aware of any guidance outlining steps that a bank can take to verify the legitimacy of a customer’s wire transfers. If you cannot reach your customer by phone, you can try contacting them by mail or email if you have their address or email address on file. You also could try reaching…
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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?
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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…
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Are you aware of any guidance or standards on how banks should handle frequent wire transfers from personal accounts? We have several clients that have included their personal accounts on our business wire transfer agreement and are wiring funds regularly even though our agreement is for business purposes only. We would like to know if there any alternatives other than having these customers come in and sign for each wire in person. Or does Regulation E trump any agreements on file because these wires are coming out of consumer accounts? We use a wire transfer system known as Wire Exchange (soon to be known as Payments Exchange), not Fedwire.
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We believe that Article 4A of the Illinois Uniform Commercial Code (UCC) would protect you from liability for sending unauthorized wires on behalf of non-business customers if you have previously agreed to verify their identities through a commercially reasonable security procedure (other than signing for each one in-person). While requiring in-person signatures would help ensure…
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An international bank has wired funds to one of our customers. We believe that the wire was fraudulent and that the customer could possibly be a party to the fraud. If the international bank decides to recall the wire, may we send back the funds without the customer’s permission if the customer insists that the wire was not fraudulent? We currently have the funds frozen.
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In certain narrow circumstances described below, we believe that you may send the funds back to the originating bank without the customer’s permission — but there is no guarantee that you will be able to recover the funds from your customer after refunding the originating bank. Under the Uniform Commercial Code (UCC), once your bank…
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Does the UCC acknowledge “FDO” as a substitute for “for deposit only?” We are seeing customers use “FDO” in lieu of “for deposit only” when endorsing checks, and we would like to know if this shortened version of a restrictive endorsement is acceptable.
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We believe that your bank should treat a check endorsed as “FDO” as endorsed with the words “for deposit only.” You may choose to return a check with the restrictive endorsement “FDO” as lacking a proper endorsement if you are directed to deposit the check into an account other than the endorser’s, as you would…
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Can we accept an electronic signature for a wire transfer request made by a business?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. Yes, we believe you may accept an electronic signature on a wire transfer request if…
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A former business customer has a loan that has been charged off. An ACH credit transaction came in this morning to the customer’s old business checking account, which is now closed. Can we use the ACH payment to offset the charged off loan? Or do we have to return the payment? The transaction was a corporate credit entry (“CCD”). The business customer’s checking account was closed at our request as part of the workout regarding the overdue loan. The business customer has been dissolved and no longer exists.
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement and your loan agreement likely both provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has funds on deposit, precluding a right of…
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We received a Fedwire transfer request and paid the funds into our customer’s account. The next day, we learned from the originating bank that it very likely was a fraudulent transaction (related to an email scam), where someone impersonated the originator to initiate the transfer. The originating bank has requested that we return the funds, and we froze our customer’s account before he could withdraw the funds. We have confirmed the identity of the originator and originating bank and obtained a copy of the originator’s police report. Do we need any other documentation before returning the funds?
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No other documentation is required. The process of returning the wired funds is not governed by any laws or regulations related to Fedwire transfers. We recommend reviewing your account agreement with the customer to ensure that you are within your rights in freezing and removing funds from the customer’s account (which is likely in this…