Questionable Incoming Wires and What to Do About Them
One topic we continue to hear about is the prevalence of questionable wires coming into customers’ accounts at the bank. Whether it’s part of the classic “Nigerian Prince” scam—where a fraudulent wire temporarily hits the customer’s account in exchange for a smaller payout from the customer’s own funds—or a con artist is wooing an unsuspecting elder from afar, these suspect transactions seem to be showing up more and more. A common question we receive is, “How can I stop these kinds of shady wires, or put a freeze on them, before they cause the customer (and by extension the bank) a whole lot of pain?” While the answer to that question is not straightforward, a solution may be simpler than one realizes.
Article 4-A of the UCC generally only requires domestic (not international) wires to be considered final once they are “accepted”[1]by the receiving bank; beyond that, there is not any prohibition we’re aware of on a receiving bank freezing or sending back wired funds, even if they are not recalled by the sending bank first. Nevertheless, a receiving bank should be aware that there may be some risk with freezing and/or sending back wire funds without some sort of investigation into the circumstances beforehand. First of all, for incoming domestic wires, there’s Regulation CC—wired funds are generally are required to be made available to checking account customers “not later than the business day after” the wire is received (not necessarily “accepted” under the UCC!) by the incoming bank. Granted, it’s always possible to place an exception hold on the wired funds with proper notice to the customer, but the bank should make sure to do at least a rudimentary investigation before placing such a hold in order to substantiate that it is reasonable. Secondly, beyond the outer time limits stated in Regulation CC, an institution’s own funds availability policy may provide for an even quicker turnaround time for incoming wired funds to be made available, such as the same day the funds are received. An institution would want to check with their availability policy to make sure there is nothing in there that would legally obligate them to provide wired funds more promptly. Thirdly, even if neither Regulation CC nor the bank’s funds availability policy come into play (like for international wires), there are reputation risk and fairness issues to consider. Especially in service areas with a large international population, it may be seen as an unfair banking practice to, say, place a ‘writ large’ freeze or hold on all incoming international wires no matter what.
Ultimately, though, beyond the Regulation CC, funds availability policy, and reputation risk/fairness issues noted above, we know of no restriction on a bank placing a hold/freeze or returning incoming wired funds before “accepting” them. In fact, in light of things like Office of Foreign Assets Control (OFAC) monitoring requirements under the Bank Secrecy Act (BSA), it may be desirable for an institution to hold or return an incoming wire it’s not sure about, especially if that institution isn’t used to receiving incoming wires as a regular part of their business. In the end, it will come down to an overall risk determination in light of the bank’s practices. But having checks in place on incoming wires—especially international wires coming in from other countries—generally is not prohibited and may even be recommended, as internet-related wire scams continue to increase in popularity.
For more about Regulation CC, go to C/A’s Online Bank Resources for Reg CC or download the Online Bank Training video for Reg CC.
[1]“Acceptance” is generally defined in §4A-209(b) of the U.C.C. as the earlier of: (1) when the bank actually pays the beneficiary or notifies them of the payment, (2) when the bank actually receives final settlement of the funds through Fedwire or whatever wire process that is used; or (3) the next business day following the payment date of the order if the sender’s account actually has the funds to cover the order.
Written by C/A Staff