Recourse for Bank Fraud Victims: What Are Your Legal Options?

Having acted for businesses and high-net-worth individuals in claims involving banking fraud and disputes we understand that bank fraud can cause significant financial disruption, particularly where payments are processed without proper authority or under fraudulent pretences. 

We specialise in navigating these complex disputes, offering bespoke legal strategies for businesses and individuals seeking restitution. This article outlines the avenues available to victims of bank fraud, including potential claims against employees, fraudulent individuals and banks under the evolving Quincecare duty and new statutory protections.

My bank has completed payments from my account which have turned out to fraudulent, what recourse do I have?

Firstly, it is important to report the fraud to the police and the bank’s fraud department (assuming they didn’t flag the issue to you) as a matter of utmost urgency. If the bank don’t act promptly it may be possible to take action against the bank to recover some or all of the money lost.

Thereafter, any further recourse / steps will depend on the particular circumstances and in particular whether:

• The payments were requested / authorised dishonestly by an agent on your behalf (such as a director or employee of a corporate entity or someone with a power of attorney); or
• You have authorised the payment yourself.

What can I do in circumstances where my employee has been knowingly defrauding my business?

This is an issue often referred to as insider fraud. Where payments are made through an agent e.g. employees of companies or charities, trustees of trusts and those acting under a power of attorney there may be recourse against:

• The agent (i.e. employee in this circumstance); and/or
• The bank.

What action can I take against the employee?

Action against the employee can be criminal and/or civil. The police will deal with any criminal proceedings, but you can also pursue a civil case in addition to the criminal proceedings.

If there is a clear paper trail as to where or to whom the money has been sent and the fraud has been spotted promptly, you could apply for an urgent freezing injunction against the assets of the employee / other recipient without their knowledge.

This does what it says on the tin, it freezes the assets, stopping the other party from being able to disseminate the proceeds of the fraud (if it has not already been disseminated) and thus increasing the chances of recovery.

In conjunction with the freezing injunction a claim for civil fraud can be made. There are many different kinds of civil fraud and which is most appropriate will depend on the specific circumstances. Generally, however, a claim for civil fraud is a claim by a defrauded person to recover losses caused by the fraudulent actions of others.

What action can I take against the bank?

If the fraud was committed by an agent, even if they are an authorised signatory for the account, action may be possible against the bank. Banks usually owes a duty of care (known as the ‘Quincecare duty’) to its corporate customers to exercise reasonable skill and care in ascertaining and acting in accordance with its customer’s instructions.

In some circumstances the bank may be required to make inquiries to verify the employee’s authority, the bank should then make inquiries to confirm whether you have authorised the transaction. If the bank makes the payment without making those inquiries, it will breach its duty to its customer and be liable for the sum transferred out of the customer’s account.

What can I do in circumstances where I have authorised a fraudulent payment?

Where you have authorised a fraudulent payment there may be recourse against: the fraudster; and/or the bank in limited circumstances.

Actions against a third party fraudster will be the same as the action to be taken against an employee. Whether civil action is taken against a fraudster will depend on the specific circumstances; it is likely to be very difficult to identify the fraudster and pursue the claim.

The position against banks where the payment has actually been authorised by the customer (not using an agent) (sometimes known as Authorised Push Payment fraud) is very different to the position described above.

The Supreme Court case of Philipp v Barclays Bank UK PLC confirmed that the Quincecare duty does not apply to circumstances where the customer has unequivocally authorised the bank to make the payment.

In Philipp v Barclays Bank UK PLC fraudsters tricked Mrs Philipp into sending 2 payments to them in the United Arab Emirates totalling £700,000.00.

The Supreme Court was asked to consider whether a bank owed its customer a duty not to carry out a payment instruction if the bank has reasonable grounds for believing the customer is being defrauded.

The Supreme Court decided that no such duty exists. Banks have a strict duty to complete customer’s payment instructions promptly even if it has reasonable grounds for believing a customer is being defrauded where the customer personally gave a clear payment instruction to the bank. Due to the fact that there was no question of a lack of authority or clarity in the instructions, the bank had a duty to execute the transaction.

There may still be scope for pursuing the bank, for instance in circumstances where a confused or known vulnerable customer provides instructions which appear unequivocal or being made under duress, but any such action will be case specific. Also if a bank reacts too slowly to report of the fraud there may still be a claim against the bank.

Moving forwards, the Government has begun to put into place legislation which will provide recourse against the banks for defrauded customers in limited circumstances. Section 72 of The Financial Services and Markets Act 2023 provides for a mandatory reimbursement scheme.

The key features of this scheme include mandatory reimbursement in eligible cases which will see shared liability for the paying and receiving bank/financial institution, with a maximum reimbursement value of £415,000 and a 13-month time limit from the last fraudulent payment to bring a claim.

It is notable that this particular legislation will not apply to international transactions (and so would not have helped Mrs Philipp).

What we learned from our experiences

We have successfully represented a number of victims of banking fraud.

In a recent case, an employee who was an authorised signatory for the bank account was making transactions to himself without our client’s knowledge or approval and therefore he had no actual authority to make those payments. The payments went undetected over a relatively long period of time and were all made to the same account (being the employee’s personal account) but were labelled with fake names and references.

We have obtained judgment against the employee in a civil fraud claim and have taken steps to enforce the judgment against his assets.

Unfortunately, the employee did not have sufficient assets to fully re-imburse our client. We then issued a claim against a leading high street bank for breaches of its contractual duties and its Quincecare duty because the circumstances of the payments were suggestive of dishonesty which should have led to the bank making further inquiries into the payments.

Contact our banking fraud solicitors

If you have a dispute relating to a bank, financial institution or any other financial or fraudulent matter, our  are highly experienced team provide bespoke advice and strategies to protect your interests. To contact our team please complete the enquiry form below and one of our solicitors will contact you directly.