SWIFT and Fraudulent International Business Transactions: A Case Study
The Issue
In a sale and purchase agreement (Agreement) with a total value of over $100,000 concerns about the authenticity of the transaction were raised when the initial SWIFT transmission for the transaction failed to be received by the sellers’ bank.
Alarm Bells
In regular circumstances, the recipient bank would automatically receive SWIFT messages through the SWIFT network and manual intervention should not be necessary. However, upon being informed that the transaction had not been received by the sellers, the buyer prompted to request sensitive information from the recipient’s bank through third parties not previously disclosed to the sellers. Such correspondence instigated further alarm to the sellers, prompting investigation into the buyer.
The buyer claimed that under a clause in the party’s contract, both parties were required to carry out an inquiry into why the SWIFT payment had not been received.
The buyer directed that they had carried out their inquiry, such as providing confirmation of the SWIFT from their bank and a tracer delivery report. The confirmation from their bank declared that the buyer was backed by good, clean funds.
The buyer asserted that the sellers were required to organise a response to this inquiry and failure to do so would be in breach of their Agreement. In doing so they requested a PIN number from an officer of the sellers’ bank under the pretext of facilitating direct communication with the bank. The request was made by another senior member of the buyer’s team who had at the time however, not been disclosed to the other parties.
The sellers found such a request alarming. Manual logins and checks were typically discouraged due to the increased risk of error and raised significant security and privacy concerns. It was imperative that such PIN numbers requested by the buyer remained confidential and were not disclosed to third parties.
In addition to this, the sellers argued that the involvement of a third party not associated with the Agreement was a violation of that Agreement. Following further investigation, the sellers became aware that the buyer only reported an annual revenue of €40,000, continuing to indicate the possibility of unauthorised third parties being required in funding the transaction. Without such third-party funding, it was likely that the transaction would have failed due the buyer having insufficient funds.
Counterfeit Documents
After further inspection, it was confirmed by the compliance department from the buyer’s bank that the transaction the seller had been provided a copy of was counterfeit.
That transaction was never received by the sellers’ bank . Any attempt for manual intervention, especially requests for confidential information such as PIN numbers, constituted a major breach of contract. Despite this, the buyers continued to assert that their actions were necessary and claimed that it was instead the sellers who in breach of the Agreement. The sellers ultimately decided to pursue legal action against the buyers.
Comment
This case demonstrates how it is vital to ensure that sufficient due diligence is carried out in order to establish the authenticity of the other party when entering into an agreement, especially one of such magnitude.
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