Complaint about transferring money to scammers rejected

Brendan Burgess

From reading this summary, it sounds as if the bank warned the company not to do what they did. They did it anyway and then complained about the bank when they were scammed.

Role of bank in the transfer of money to an
alleged fraudulent account
Pharma Inc., a company offering pharmaceutical
services had a number of patents in place but
in order to exploit these patents, it required the
sourcing of major external investment of at least
€25million. To raise this money the directors of
Pharma Inc. organised a bank loan which would
be paid directly to a third party financial services
company as a security deposit for an investment
of €25million.
However, following this, no investment was
forthcoming from the third party and the security
deposit that was funded by the bank loan was
never recovered. The parties to whom the
money was paid are currently subject of a police
investigation and it is alleged that fraudulent
activity took place. The events have been highly
damaging for Pharma Inc. and it has not traded
since these events. Prior to this event, over
€13million had been invested into the company
and it planned to create up to 150 jobs.
The complaint the Financial Services and Pensions
Ombudsman considered did not concern the
alleged fraud but rather the assertion by Pharma
Inc. that the bank in question failed to exercise
sufficient due diligence in the transfer of money
to the third party. The complainant states that
the bank was unequivocally involved in the detail
of the transaction and prepared and presented
a payment instruction for the company that
ignored the escrow related protections included in
documents in the bank’s possession.
On the other hand, the bank states that it outlined
to the company that it had a number of concerns
on the structure of the proposed transaction and
queried a number of issues. Given its concerns,
the bank outlined an alternative, safer form of
payment by suggesting a bank guarantee by way
of a letter of credit type facility from the bank’s
trade finance department. According to the bank,
this would have provided greater protection as
the guarantee would only have been paid on
confirmation that the third party financial services
company had complied with their part of the
transaction by raising the investment.
However, this alternative payment option was not
acceptable to the third party and Pharma Inc.
sought that the funds be paid upfront through a
bank loan. The bank then wrote to the company
setting out the loan offer with special conditions,
which reflected its concerns, including written
confirmation from the company that they had
received independent legal and financial advice
on the transaction. The directors of Pharma Inc.
signed their acceptance of these conditions and
the money was transferred.
The Ombudsman found that it was clear that
the bank was concerned that the transferred
money was apparently going to be in the third
party financial services company’s control. The
stipulation in the agreement that an escrow
account be created would, if properly set up, have
provided protections for the company. However,
the bank’s suggested solution did not have the
agreement of the third party. The Ombudsman
found the bank’s condition that the company take
legal and financial advice on the agreement to be
The complainant pointed out that while all the
relevant account details from the third party
financial services company were included, the
actual name of the account was missing. However,
the Ombudsman found that the complainant does
not highlight how its inclusion would have changed
the outcome.
The Ombudsman came to the conclusion that the
bank had fulfilled its obligations and did not uphold
the complaint.