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Liability of a Bank in a Case of Financial Crime Committed by a Third Party

Liability of a Bank in a Case of Financial Crime Committed by a Third Party

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We are a law firm that is dedicated to recovering assets for victims of financial crime when the assets or scammers are located in Bulgaria. Nowadays, a growing number of people become victims of a sophisticated ongoing criminal fraud scheme involving an unknown number of organised participants from different countries. The fraudsters aim to deceive the victims to transfer significant amounts of money to the fraudster’s bank accounts in Bulgaria. Then, the scammers usually move the received sum to a bank account in a country outside the European Union.  However, these transfers are in breach of Bulgarian and international anti-money laundering law.

As an example of such scam, one of our clients, a very big company, became a victim of the fraud described above. Our client was deceived to transfer substantial amounts of money to the scammer’s bank account in Bulgaria. The fraudsters represented themselves as a partner with whom our client had a long-term business relationship. However, our client wrote the real name of its partner and the fraudster’s bank account in the payment order. In just a few days, after our client understood about the scam, it requested from its bank to cancel the transfer. Despite the rapid reaction from its bank, the payee’s bank did not block the funds or return them to our client. Instead, the payee’s bank allowed significant amounts of money to be transferred from the scammer’s account to third parties.

Can a bank be held liable in such cases for the damages suffered by the victim representing the amount of money that could not be recovered? 

The payee’s bank, as a payment service provider, is obliged to comply with the Bulgarian and European laws, including but not limited to: Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds, Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, Law on Measures against Money Laundering, etc. 

According to Bulgarian law, everyone is obliged to remedy the damage it has wrongfully caused to another. One who has assigned any work to another person shall be liable for any damage caused by him/ her in relation to the performance of that work. Such liability has a warranty function. It does not arise from the fault of the person who assigned the work, but occurs when the person charged to carry out a particular work causes a damage in connection with the performance of the work assigned to him. 

Тhe bank, through its employees, should fulfil its obligations for each money transfer especially in case of a suspicion of fraud, money laundering and/ or terrorist financing, namely:

  • the bank has to pay attention to the information written in the payment order and in case of some mismatch it should undertake the respective actions following the Bulgarian and European laws;
  • the bank should implement effective procedures to detect that substantial information on the payee (its real name) is missing as well as procedures for verification of the name and the IBAN;  
  • the bank should implement effective risk-based procedures for determining whether to execute, reject or suspend a transfer of funds lacking the required complete payer and payee information and for taking the appropriate follow-up action. Where the payment service provider of the payee becomes aware, when receiving transfers of funds, that some information is missing or incomplete it shall reject the transfer or ask for the required information on the payer and the payee before or after crediting the payee's payment account or making the funds available to the payee, on a risk-sensitive basis;

We consider that the banks have to execute their obligations very carefully especially in case of a suspicion of money laundering and/ or terrorist financing and if they do not, they should be liable for nonfulfillment of the respective Bulgarian and European laws.  Should the payee’s bank treat the transfer of our client with the required attention considering the signs for fraud and imposed AML measures, it should have undertaken the respective actions and prevent the damages to our client.

We believe that claiming responsibility of the bank of the payee may create precedent in Bulgaria as there are not such court cases.

By Plamena Banabakova, Attorney-At-Law, Mikov & Attorneys

Bulgaria Knowledge Partner

Schoenherr is a leading full-service law firm providing local and international companies stellar advice that is straight to the point. With 15 offices and 4 country desks Schoenherr has a firm footprint in Central and Eastern Europe. Our lawyers are recognised leaders in their specialised areas and have a track record of getting deals done with a can-do, solution-oriented approach. Quality, flexibility, innovation and practical problem-solving in complex commercial mandates are at the core of our philosophy.

Firm's website: www.schoenherr.eu

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