14/04/2026
Fraudulent wire and other banking transactions and who bears the loss?
We’ve been hearing more about companies losing large sums of money to wire transfer fraud. In many cases, the fraud starts with something simple like an email that appears to come from a vendor or company executive asking that payment instructions be updated. An employee follows the instructions and wires the funds and then finds out that the email was fraudulent and the money is gone. Can’t the bank just reverse the wire?
Unfortunately not. Most commercial wire transfers are governed by Article 4A of the Uniform Commercial Code (UCC). These rules were designed to allow banks to quickly process large transfers. The downside is that once a wire is completed it is often final.
The question of who bears the loss usually depends on whether the payment order was authorized and the bank’s security procedures were “commercially reasonable.”
If your employee actually sends the wire (even if they were tricked by a fraudulent email) the transfer may still be considered authorized. In that situation the loss often falls on the business rather than the bank. See Studco Bldg. Sys. US, LLC v. 1st Advantage Fed. Credit Union, 133 F.4th 264 (4th Cir.)(2025)(holding that, where a payment order was induced by a fraudulent email, a beneficiary bank was not liable under UCC § 4A-207 for relying on the account number provided absent actual knowledge of the fraud).
Even when a transfer is technically unauthorized, banks can avoid liability if they used commercially reasonable security procedures that the customer agreed to, such as authentication codes, dual approval requirements, or call-back verification. If the bank followed those procedures in good faith courts often place the loss on the customer.
While the most common fraud method involves business email compromise, with new technology, fraud techniques are evolving. Criminals can now engage in schemes involving AI-generated voice authorization and deepfake payment instructions.
The best protection is prevention. Businesses that regularly send wire transfers should consider requiring two-person approval, verifying new payment instructions by phone using a known number, and training employees to recognize suspicious emails.
With wire transfers, the same speed that makes them convenient can make fraud losses difficult to recover. Taking a few extra steps before sending funds can prevent a very expensive mistake down the road.
Another common fraud is stealing a check you have written and sent. Once stolen the thief changes the Payee or amount or both, deposits the money and absconds. In this situation you can generally get your bank to reverse the debit to your account, though you may need to act reasonably promptly. If the party you sent the check to doesn't let you know the check hasn't been received you will naturally think it was received by the intended party. This is even more the case when the Payee is not changed. I issued a check payable to XYZ Corp. That check was stolen in transit [US mail] and deposited into an account in another state in the name of XYZ Corp. The bank reversed the debit.
In another case a check was stolen in transit, the named Payee and amount was changed [amount changed from $38 to $3800]. In that case the bank reversed the debit.
In case you haven't noticed your bank has probably become quite the pest when it comes to cashing checks, sending wires or ACH, typically requiring written instructions along with recorded verbal consent. Live with it, your bank is trying to protect you and itself, and caution is definitely needed.
Business email compromise schemes are driving billions in fraudulent wire transfers and the first 72 hours after a fraud event determine whether your client recovers funds or loses them permanently. What you do with bank recalls, evidence preservation, and litigation positioning in that window defines the outcome."
You really can't appreciate how serious and annoying this can be until you've experienced it. Confirm your wire instructions in writing and verbally; careful sending checks and be diligent reviewing your monthly bank statements, or even more often if you have a secure on line banking account. Report issues to your bank first, to your lawyer next, then finally your IT guy to add some protection, you'll need it.
