You made a wire payment based on the instructions you received. Unfortunately, the instructions were fraudulent and the payment never reached the vendor. Can you be required to pay again if you made a payment based on fraudulent wire instructions?
Wire and ACH payments are preferred to paper checks, credit cards, and other forms of payment. These types of payments offer immediate funds with few or no fees, but they can come with risks such as wire fraud.
Wire fraud is becoming more and more prevalent in business transactions. Fraudulent wire instructions can lead to the hijacking of your or your client’s funds.
Paying Again After Fraudulent Wire Instructions
What happens if you or your customer become victims of wire fraud and the payment goes to someone other than the intended beneficiary? Do you or the client have to make the payment again?
Currently, there aren’t any laws that answer this question. The Courts look to similar fact patterns previously decided when establishing whether a payor will need to make payment again.
The key factor New York courts use to determine liability is who was in the “best position to prevent the fraud.”
Here’s how the court’s standard works in the real world:
A scammer fraudulently impersonates a vendor’s email address and sends false wire transfer instructions to redirect the payment from the intended recipient to the scammer. The payor then pays based on these “new” wire transfer instructions. Later, the payee asks about the status of the payment because they never received the payment.
The court makes a fact-based determination of whether the payor has to pay again. For example, if the payor had an established relationship with the payee, the intended recipient of the funds, and received the new wire instructions from the payee. An email from a known party requesting funds be sent to a different account at a different bank than previous transfers could be a red flag of fraud.
If you think you received fraudulent instructions, you should call the vendor or client directly at their known telephone number to confirm the legitimacy of the wire and new account information. You’ll also want to check the sender’s email to confirm the email address and domain are an exact match to the payee’s. People will impersonate email addresses by changing one or two characters. Often an “I” in an email address can be replaced with a lowercase “l” or the “.com” replaced with “.cam.” The court will want to see that you did your due diligence. If you don’t the court may find that you were in a position to prevent the fraud, and you will have to pay again.
This isn’t to say that you should have known you were being scammed. It merely shows that you were in a position to discover the fraud and the vendor was not.
Other times, the intended recipient’s network is the source of the infiltration, and the vendor knows of the intrusion. The knowledge of the hacking or infiltration raises an issue as to who was in the best position to discover the fraud. The knowledge of the hacking or infiltration should have caused the payee to contact the payor (and others) to warn of the fraud and instruct the payor not to pay the wrong bank. That said, the payor also should have called the payee to verify the wire instructions. Had a call been made, the fraud would have been discovered.
If you have a debt collection matter you need assistance with, contact Frank, Frank, Goldstein and Nager. We have the experience that pays.
