1 Wire-transfer system not for the fainthearted 1.Each party in the system responsible for their own error. 2.Parties in the system after an error is committed is not obligated to discover or correct the error. Errors by the Originator 1.What if the internet system or telephone system the originator uses to send the the first payment order causes delivery of an erroneous payment order to the Originator’s Bank. Who bears the loss ERROR IN WIRE TRANSFERS

2 Beneficiary 4A-103(a)(2) Beneficiary’s Bank 4A- 103(a)(3) Originator Internet service Duplicated payment order Two Payment Orders Transmitted to Originator’s Bank Originator’s Bank 4A-104(d) Terms of Payment order transmitted to the system controls 4A-206(a) ERROR IN WIRE TRANSFERS Delivery to Beneficiary Contrary to Intent of Originator.

3 Beneficiary 4A-103(a)(2) Beneficiary’s Bank Originator correctly Identifies name of beneficiary But has incorrect account number Pay Susan Sandberg # (Sally May) Originator’s ERROR IN WIRE TRANSFERS 4A-207(b) Reg J, (b) Payment made to Wrong beneficiary (Sally May) May Originator Recover from Beneficiary’s Bank?

4 Beneficiary 4A-103(a)(2) UMB Bank Originator correctly Identifies name of beneficiary’s Bank, but has incorrect routing number Beneficiary’s Bank Commerce Bank Routing # (UMB Bank) Originator’s ERROR IN WIRE TRANSFERS 4A-208(b) Reg J, (a) Payment made to Wrong beneficiary (Sally May) How may the Originator’s Bank avoid any liability? Routed to UMB Bank May Originator Recover from UMB Bank?

5 Beneficiary 4A-103(a)(2) UMB Bank Originator payment order For $1,500,000 Beneficiary & its Bank Correctly identified Originator’s ERRORS IN THE SYSTEM SENDING EXCESSIVE FUNDS 4A-303(a) In Correct Payment Amount Made to To Beneficiary What rights does the Originator have for excessive payment order? Executes two payment Orders or send larger amount Than required by originator What is originator liability where duplicate payment orders issue? 4A-402(d) refund

6 Beneficiary 4A-103(a)(2) UMB Bank Originator payment order For $1,500,000 Beneficiary & its Bank Correctly identified Originator’s ERRORS IN THE SYSTEM SENDING INADEQUATE FUNDS 4A-402(c) 4A-303(b) Payment made for $1,000,000 Executes payment Order for 1,000,000 What is originator’s liability when inadequate payment orders issue? 4A-305(c) consequential? What is originator’s rights For default on the underlying Obligation? 4A-305(a) interest 4A-305(b) expenses

7 Beneficiary 4A-103(a)(2) UMB Bank Originator payment order For $1,500,000 Beneficiary & its Bank Correctly identified Originator’s ERRORS IN THE SYSTEM BANK STATEMENT RULE 4A-304; 90 day rule 4A- 304; no interest penalty Payment made for $1,000,000 Executes payment Order for 1,000,000 What is originator’s obligations under the bank statement rule? Does 4A preclude originator’s Claim originator’s bank? 4A-505

8 Beneficiary 4A-103(a)(2) UMB Bank Originator correctly Identifies name of beneficiary’s Bank, but has incorrect routing number Beneficiary’s Bank Commerce Bank Routing # (UMB Bank) Originator’s RECOVERING FROM RECIPIENT 4A-211(c )(2) 4A-303(a) Duplicate payment orders If duplicate payment orders issued and paid by beneficiary’s bank, may bank recover from beneficiary?

9 Wire-transfer system Attractive Target for Fraud 1.Large sums of money involved in the system. 2.Largely an automated system. Banks Have Responded In Several Ways 1.Implementing security procedures to increase difficulty of carrying out thefts. 2.Fedwire procedures for on-line transfers includes identification code and confidential password for access to the system. 3.Off-line Fedwire transaction include a “four-party call-back” procedure. Many banks will use similar procedure with their customers (senders). 4.Some bank use a less sophisticated “listen-back” security procedure in which an employee of the bank listens to a taped copy of the originator’s payment order. 5.Some Banks use a “contractual overdraft limits” to prevent fraud. FRAUD, SYSTEM FAILURE & INT’L WIRE-TRANSFERS

10 Beneficiary 4A-103(a)(2) Beneficiary’s Bank Originator Unauthorized payment Order sent 4A-202(a) Originator’s Bank 4A-104(d) SECURITY PROCEDURE LIMITING BANKS LIABILITY Security procedures Between Bank & customer Under 4A-202(b) May Originator’s bank limit liability its to customers for unauthorized payment orders? What limitations are placed On originator’s banks to limit Passing risk back to customer? 1.Commercial reasonableness? 4A-202(b) 2.If bank must follow procedure 4A-202(b) 3.Consumer to pass liability to bank information did not come from consumer. 4A-203(a)(2)