The U.S. Department of the Treasury’s Office of Foreign Assets Control promulgated an order restricting U.S. financial institutions from participating in transactions involving specified Russian banks. Here, the beneficiary was expecting two wire transfers. However, the beneficiary’s bank was initially a subsidiary of a prohibited bank. Although the prohibited bank sold the beneficiary’s bank to an unrestricted bank, the beneficiary’s bank failed to change its identifier code. Later, the intermediary bank received the wire transfers and subjected them to a screening process because the identifier code indicated this transfer was prohibited. Next, the intermediary bank reported that the funds would be sent back to the originator yet held the funds for over four months and screened them again. During this time, the intermediary bank was largely unresponsive to the concerns of both the beneficiary and the originator. The beneficiary then filed suit against the intermediary bank, alleging fraudulent misrepresentation, fraudulent concealment, conversion, intentional interference with a beneficial business relationship, and unjust enrichment claims. The intermediary bank filed a motion to dismiss.
In Ekopel D.O.O. v. Citibank, N.A., No. 22-2554 (JDB), 2024 WL 519648, 2024 U.S. Dist. LEXIS 22952 (D.D.C. Feb. 9, 2024) (opinion not yet released for publication), the court granted the intermediary bank’s motion to dismiss. First, the court rejected the intermediary bank's argument that it was immune from this suit due to its actions being in good faith with applicable sanction regulations. The court rejected this argument because the intermediary bank provided insufficient evidence to prove the defense. The court explained that the intermediary bank’s compliance with the sanction regulation does not affirmatively establish good faith. Second, the court accepted the intermediary bank’s argument that the Uniform Commercial Code precluded some of the beneficiary’s claims. The court stated that U.C.C. § 4-A-402 “creates obligations only between the parties to each link in the transfer chain…not as to all parties involved in the funds transfer generally.” Further, the court noted the U.C.C. precludes common-law claims inconsistent with the liabilities in Article 4-A. The court held the beneficiary’s claims for conversion and unjust enrichment fell within the U.C.C.’s purview because they related directly to the transfer and were therefore precluded. Third, the court held the beneficiary failed to state the remainder of its claims. The beneficiary’s fraudulent misrepresentation claim failed because its allegation that the intermediary bank falsely informed it that the funds had been released is a generalized statement that does not satisfy the requirement to plead fraud with specificity. The fraudulent concealment claim failed because the beneficiary could not plead fraudulent misrepresentation, an element of the claim. In addition, the beneficiary could not provide the court with any regulation that imposes a fiduciary duty on the intermediary bank. Finally, the court explained the beneficiary’s claim for tortious interference failed because the beneficiary did not allege that the intermediary bank intended to interfere with the beneficiary’s business relationship. Ultimately, the court fully granted the intermediary bank’s motion to dismiss.
By Cole Palmer [email protected]
Edited By Ashley Boyce [email protected]
Edited By Joshua Shetler [email protected]