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Managing. The risk of Payment System - Turner P.

Turner P. Managing. The risk of Payment System - John Wiley & Sons, 2003. - 253 p.
ISBN 0-471-32848-0
Download (direct link): managingtherisksofpayment2003.pdf
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• Is not entrusted with duties to act for the customer relating to payment orders or the security procedure, or
• Has not obtained access to transmitting facilities of the customer or information facilitating a breach of the security procedure from a source controlled by the customer.
If the customer can prove that the wrongdoer was an interloper, then under the exception to the basic rule, the bank is liable for the loss resulting from the fraud.
Notes for Negotiators of Funds-Transfer Agreements
When negotiating funds-transfer agreements with the bank, the following are two key points to remember.
First, the standard forms of agreements used by banks often contain provisions that would impose liability on the customer when the bank would otherwise be liable under U.C.C. Article
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Liability for Fraudulent Funds Transfers
4A. For example, an agreement might provide as follows: “The bank will not be liable for its acceptance of any payment order under this Agreement unless the bank’s conduct has constituted gross negligence or willful misconduct” or “The bank will not be liable for having accepted any payment order the bank reasonably believes to have been that of the customer.” U.C.C. Article 4A forbids the use of such provisions. Although they may be unenforceable, the customer should resist them.
Second, it is generally not in the best interests of the customer to decline a security procedure offered by the bank in favor of a procedure that the customer believes to be less cumbersome or one that is less expensive. The customer should be wary of provisions in the agreement that seem to state that the customer has agreed to use a security procedure that may not be commercially reasonable when the customer has not knowingly done so.
Liability for Misdescription of the Beneficiary
The originator may describe the beneficiary by both name and account number. For example, the originator may instruct the bank to pay John Doe, account number 12345 at Big Bank. If John Doe’s account number is actually 12340, the rules for errors apply. See the discussion under “Rules for Errors” in Chapter 5.
Interest
Article 4A provides that when interest is due from the bank to the customer, the rate applicable is the Federal Funds Rate as published by the Federal Reserve Bank of New York. If the bank refunds the amount of the payment order because the transfer was not completed, and the failure to complete the transfer was not due to any fault of the bank, the rate of compensation is reduced by the applicable reserve requirement of the bank. If the bank is liable for interest compensation because it has failed to give notice of its rejection of a payment order, the customer’s right to compensation is terminated five days after the execution date of the order.
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Wire Transfers
The customer may seek to alter these provisions in the funds-transfer agreement. For example, to the extent that the reason for awarding interest is restitution to the customer for the use of the customer’s funds, the customer may argue that the rate it pays for overnight funds is a more appropriate rate than the Federal Funds Rate.
NEXT LINK IN THE FUNDS-TRANSFER CHAIN: SENDING AND RECEIVING BANKS
Now the next link in the funds-transfer chain is considered—the relationship between banks and how it affects the risks of the originating company and its intended beneficiary company.
If the originator’s bank executes the originator’s payment order, the bank sends its own payment order to another bank, either an intermediary bank or the beneficiary’s bank. In this second link, the originator’s bank is a sender and the bank that accepts the payment order of the originator’s bank is a receiving bank.
Most of the rules that apply to the originator’s bank as a sender in this second link are stated in Article 4A to be applicable to the “sender” and not solely to the originator’s bank. As a result, the rules that govern the rights and obligations of the originator as a sender generally apply as well to the originator’s bank as a sender. Similarly, the rules that apply to the originator’s bank as the receiving bank in the first link generally apply as well to the receiving bank in the second link.
For example, just as the originator’s bank has full freedom to decline to accept the originator’s payment order, the second bank in the funds-transfer chain is also free to decline to accept the payment order of the originator’s bank.57 Just as the originator’s bank accepts the originator’s payment order by executing it, that is, by issuing its own payment order to the next bank in the funds-transfer chain, so does an intermediary bank accept the payment order of the originator’s bank by similarly executing it.58
The intermediary bank that accepts the payment order of the originator’s bank is obliged to comply with the sender’s payment
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Next Link in the Funds-Transfer Chain
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