The Importance of Sound Banking Procedures and Reviews by Multiple Sets of Eyes

TASA ID: 2717

A recent case in the Eastern District of Pennsylvania; O’Neill, Bragg & Staffin PC v. Bank of America Corp, showed that customers and bankers need to have sound procedures in place or suffer the consequences. 

The internet is full of landmines and scams. In this situation, a hacker obtained the email of the O’Neill Bragg president and sent an email to the VP in charge of banking to wire $580,000 to the Bank of China.  The VP didn’t question the email and completed the required wire transfer procedures for Bank Of America (BOA), O’Neill Bragg’s bank.  The Bank wired the funds thereafter.

About an hour after the wire was sent and confirmed, it was discovered by O’Neill Bragg that the president’s email was fraudulent.  The firm requested a stop order of the payment, but it was too late.

Subsequently, the firm sued BOA. U.S. District Judge Harvey Bartle dismissed the lawsuit with the finding that the Bank did not breach its agreement or violate any laws. While the loss was unfortunate, the real culprit was not the bank. The Judge found that O’Neill Bragg must bear the loss. 

So, what can we learn from this? Firstly, bank customers need to stay on top of their accounts. Accounts need to be reconciled and reviewed. Procedures need to be in place to require multiple people for banking procedures.  A bank account procedure may be initiated by one person, but another person needs to review the procedure and sign off.  Paper approval procedures may be more appropriate than emails. 

From the banker’s point of view, it is important to have sound documents and; likewise, to follow procedures.  A phone call to the customer to confirm wires over a certain amount would be a sound procedure and might have prompted the VP to rethink the fake email he received from the “president.” 

For small firms, multiple approvals, paper signatures and phone confirmations might save you from a nightmare. 

TASA Article Disclaimer

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

This article may not be duplicated, altered, distributed, saved, incorporated into another document or website, or otherwise modified without the permission of TASA and the author (TASA ID#: 2717). Contact marketing@tasanet.com for any questions.


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