As part of a bank’s financial crime compliance program, it is increasingly common to screen and halt the processing of a payment order for compliance investigation where reference is made to a potential, but unconfirmed, target of United States economic sanctions. This essay discusses challenges under Article 4A of the Uniform Commercial Code concerning the timing of such an investigation and the creation of potential liability where a bank wrongly accepts by execution a previously halted payment order received from a sender following five funds transfer business days after the relevant execution date or payment date of that order. In Part II, this paper presents a brief overview of the use of funds transfers in the United States and reviews the application of Article 4A of the Uniform Commercial Code, including rejection, acceptance, cancellation, and amendment of a payment order. In Part III, the paper overviews United States economic sanctions, the implementation by banks of technology designed to identify and halt the processing of a payment order referencing a potential sanctions target, and the timeframe that may be required to investigate a halted payment order. In Part IV, the paper reviews application of Article 4A’s automatic cancellation and “money back guarantee” provisions where a payment order under its purview is wrongly effected and loss allocation between funds transfer parties for such events. Part V describes possible contractual and legislative changes to address the balance of Article 4A’s automatic cancellation of an unaccepted payment order after five funds transfer business days, sanctions compliance efforts undertaken by banks, and the policy goal of completing funds transfers efficiently.
Michael Zytnick & Alaina Gimbert,
Considering Sanctions Compliance in Light of UCC 4A,
Mich. Bus. & Entrepreneurial L. Rev.
Available at: https://repository.law.umich.edu/mbelr/vol10/iss2/4