Allocation of Loss Due to Fraudulent Wholesale Wire Transfers: Is There a Negligence Action Against a Beneficiary’s Bank After Article 4A of the Uniform Commercial Code?

This Note argues that where a bank reasonably should have known of a fraud but still pays out a wire transfer to an unauthorized recipient, common law negligence should provide a basis for recovery despite the absence of an explicit Code provision imposing liability on the bank. Part I examines the UCC’s language itself and analyzes possible cases, under 4A and under articles 3 and 4 by analogy, and discusses the applicability of these other parts of the UCC to wire transfers. Part II examines how extra-Code regulatory systems and the common law would determine wire transfer liability. Part II then discusses how article 4A incorporates banking regulations apart from its provisions and whether 4A displaced the common law negligence action which existed prior to the new article or UCC section 1-103 incorporates it. Part III analyzes explicit and implicit UCC policies, both in general and with respect to wire transfers in particular. Finally, this Part evaluates negligence in light of these policies and considers whether holding the negligent bank liable will promote a more efficient wire transfer system from a societal perspective. This Note concludes that article 4A should not displace negligence as a cause of action, because a negligence claim will prevent inequity and promote efficiency without unduly frustrating Code policies.