Banks, Businesses, Viruses and the UCC

Wednesday, February 24, 2010

Cross-Posted from Robert "RSnake" Hansen's blog at

There’s an interesting post over at Krebs On Security talking about some poor company that is going bankrupt because TD Bank allegedly will not give them their money back after it was stolen out of their account. Now, I wish I could say this concept is totally foreign to me, but unfortunately this isn’t the first time I’ve heard this story. I’m under NDAs not to describe the people involved, or the bank involved, but the important details are nearly identical to this story. Why is this happening?

There is a little known code call the UCC (Uniform Commercial Code) that essentially says that if you are a business and you want to do wire transfers you are essentially to be treated as a bank. You are probably wincing right now, because it’s just as stupid as it sounds. Note that this is not true for consumers - but even if your business consists of even one person, you still are treated as a bank. As such, if your company has money wired out of it’s account, the bank isn’t to be held liable - or at least that’s been their argument. This is happening all the time, so why aren’t we hearing about it all the time? Well that leads me to the worst part of this story.

The banks have essentially two options if a company takes them to court. They can win the case, or they can lose the case. If they win, that leaves the company in question free to say and do whatever they want (as is the case with TD Bank above). If they loose the case, it essentially creates precedence and can open the bank to class action lawsuits to overturn the UCC. Either way, it’s a bad day for the bank. So they opt for the third choice which is to delay the inevitable. They make these poor businesses wait for sometimes years before they will begrudgingly settle for somewhere shy of the full amount. Sometimes companies just give up, and sometimes they take the money and sign the NDAs. Either way, that’s a much better outcome than letting something get litigated. So yes, those poor companies are getting the run around, and we don’t get to hear about it because at the end of the day they are all signing NDAs.

So, if you run a company, be prepared for the worst when it comes to how the bank is going to treat you if someone steals your money. There don’t appear to be any safeguards other than individual contracts you might be able to get your bank to sign and agree to. However, if anyone happens to work for a bank, and can guarantee that money held there will be treated just like physical cash (and reimbursed just like if it is stolen out of the vault), I’m sure companies would flock to you - I know a lot of small businesses that would like to know that their money is safe, and right now, it just isn’t with TD Bank and their ilk. In the meantime, I sort of hope some lawyer is salivating at the prospect of a class action suit.

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Anthony M. Freed I think the lawyers are still waiting to see how the FTC, SEC, SarbOx regs and other more traditionally "financial" bodies to weigh in on all of these network security issues. Then they they pounce!