KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com ****************************** Fraudulent wire and other banking transactions and who bears the loss April 11, 2026 **************************** Fraudulent wire and other banking transactions and who bears the loss **************************** Ken, 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? Anonymous ************************** Response *************************** 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. many of you likely have your own horror story; feel free to share. ****************************** STANDARD FORMS Alarm / Security / Fire and related Agreements. click here: www.alarmcontracts.com *************************** CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304. *********************** ALARM ARTICLES: You can always read our Articles on our website at ww.kirschenbaumesq.com/page/alarm-articles updated daily ******************** THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily ************************* Wondering how much your alarm company is worth? Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth ****************************** Getting on our Email List / Email Articles archived: Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. You can read articles and order alarm contracts on our web site www.alarmcontracts.com ************************** Ken Kirschenbaum,Esq Kirschenbaum & Kirschenbaum PC Attorneys at Law 200 Garden City Plaza Garden City, NY 11530 516 747 6700 x 301 ken@kirschenbaumesq.com www.KirschenbaumEsq.com
