International Banking Law - Coursework Example

INTERNATIONAL BANKING LAW A telex is a message which has a number to indicate the authenti of the banking transaction. The authentication codes of the telex are computed based on a test key procedures. A tested telex message is a type a telex message which is coded and is applied in the inter-bank transactions for purposes of safety and veracity of content. Formerly, the tested telex messages were widely used for the confirmation of payment details, but currently it has overtaken by the usage of SWIFT messages1. SWIFT refers to the Society for Worldwide Interbank Financial Telecommunication. SWIFT avails a network that enhances receipt and conveyance of banking transactions in a protected, consistent and a dependable manner2. The international banking law recognizes the application of both tested telex and SWIFT with equal measure. Both tested telex and SWIFT are forms of remitting funds across financial institutions electronically. When a sending bank sends a tested telex to the receiving bank, the sending bank must own the duty of care in ensuring that the tested telex sent to the receiving bank is authenticated in nature. The failure by the sending bank to ensure reasonable duty and care amounts to a breach of contract that makes the sending bank liable for the damages caused as a result of non-authenticity of the tested telex sent. Consequently, the receiving bank is entitled by law to place total reliance on the tested telex unless; The receiving bank had realized that the tested telex was far from being considered genuine or; The receiving bank abstained strategically from investigating the authenticity of the tested telex for fear of determining the truth3. The transfer of funds using tested telex is regulated by the contractual agreements that exists between two parties, one issuing the card and another party holding the issued card. Generally, under these contractual agreements, the issuer (issuing bank) is held liable for losses suffered by the holder resulting from the failure of the electronic transmission systems or failure of equipment; and grant an exemption to the holders (receiving bank) for its usage of the unauthorized card (unauthorized tested telex). However, the issuing bank is not held liable failure to provide an authenticated tested telex due to; Mechanical failure or problems associated with transmission or; When the transmission was terminated by certain variables not controllable by the issuing bank4. To address this legal concern, analysis of the cases related to this nature is paramount. Standard Bank London Ltd v Bank of Tokyo Ltd [1995] Facts. The bank of Tokyo located in Kuala Lumpur made arrangements for transmission of three tested telex to Standard bank in London. The three tested telex possessed a secret code for confirmation and authentication of the authority of the three documents valued at US $ 19.8 m. Secret code was also to confirm that the Tokyo bank had accepted to be liable and responsible under the terms of credit. The evidence of this case was presented to imply that banks apply the electronic fund transfer with confidence and also in order to avoid any kind of arguments regarding authority. Consequently, the application of the systems in this case were effected fraudulently5. The bank of Tokyo’s main argument: The bank of Tokyo argued that they were capable of establishing the proof that a fraudster must have been involved in the activities at their department. This implies that Standard bank was only meant to depend upon the authority of the three tested telex. It added that the test to establish inadequate apparent authority was of lower standards. Interestingly, the judge, Waller J disagreed with this argument citing that the matter in question was not reliance on authority6. Decision by Waller J: In the final hearing of the case, the bank of Tokyo was held liable because of negligent misrepresentation. This is because the tested telex could have not been sent devoid of negligence on their part. He argued that the question of whether or not the Standard bank had a duty to investigate the circumstances surrounding the authenticity of the three tested telexes, depended on the nature of each case. Tested telexes have codes whose secrecy falls between the sender and the recipient. This feature permits the recipient to place acceptance without the hanging question that the telex was transmitted upon authorization by the sender. The transmission of the three tested telexes was done other banks, since the Tokyo bank had no way of authenticating its telexes directly between itself and the Standard bank7. While transmitting tested telexes, the banks often expect the banks receiving documents to take action even when they are not given further information. Therefore, this implies that the receiving bank always needs the sending bank to; Verify that the individual signing the transmitted documents is a lawful signatory. Determine if the signatory is accredited to append a signature on that particular document8. Avail sufficient evidence to show the recipient that it is the sending bank which authorized the sending of telex9. The Evidential Weight: From the above case, it is evident that both the third parties who are trusted and present certifying documents of certification and the persons puzzling the admissibility forms of communications related to electronic signatures; will have to evaluate the integrity (inadequacy of integrity) of their personal systems as the need may be. The weight of evidence to be accorded to the evidence regarding the electronic signatures is squarely based on the extent of control that parties to the chain can exercise over their controlled and safe surroundings. The authenticity of the tested telex is dependent on the electronic signature made by the issuer. The legal position of whether of a bank which seeks to enforce a fraudulent tested telex against the sending bank can be determined by analyzing the case of Standard Bank London Ltd v Bank of Tokyo Ltd [1995]. The decision regarding this case was issued on 31st March 1995 by Waller J. this decision was based on a tested telex concerning two banks, which is slightly distant from the facsimile concept of transmission which delivered upon by Laddie J in the sense that a tested telex has a provision for separate technique for authentication of the content of the transmission10. Moreover, the two cases revealed that much weight was placed on the factual premise that a document transmitted by either facsimile or tested telex can be regarded by the receiving bank as authentic and reliable on the condition that there receiving bank did not have the knowledge of any information that could have indicated that the document was could not be trusted. Similarly, we can also refer to the decision made by Tay Yong Kwang JC in 2003 in Singapore. In the case of Industrial & Commercial Bank Limited v. Banco Ambrosiano Veneto S.P.A. [2000]. SGHC 188, the court held that an information sent through SWIFT (Society for Worldwide Interbank Financial Telecommunication) had an authentication code had a binding legal effect on the sender bank based on the contents of such information, and that in cases where the recipient bank further checks on the standing credits or any other related checks, the earlier decision remains intact11. When we critically analyze the above decisions for Waller J. and Laddie J., there is a clear path towards the common stand that the recipient has a responsibility of ensuring that it considers all possible situations surrounding the authenticity of any document sent before it can take any action upon the authority. Thus, based on the fact that the decisions made were regarding electronic transmissions, it therefore seems that such demands are necessary in the electronic signatures in law, especially when the documents are transmitted electronically12. In conclusion, the legal position of a receiving bank who seeks to enforce a fraudulent tested telex against the sending bank; is that the sending bank may be held liable though the burden of proof lies with the complainant13. Bibliography list Alghamdi, Abdulhadi M. 2011. Law of e-commerce: e-contracts, e-business. Bloomington, IN: Authorhouse. Mason, Stephen. 2012. Electronic signatures in law. Cambridge: Cambridge University Press. Bertrams, Roeland I. V. F. 2004. Bank guarantees in international trade: the law and practice of independent (first demand) guarantees and standby letters of credit in civil law and common law jurisdictions. Paris [u.a.]: ICC Publ. [u.a]. ODonovan, James. 2005. Lender liability. London: Sweet & Maxwell. Warne, David. 2005. Banking litigation. London: Sweet & Maxwell. Mullineux, A. W., and Victor Murinde. 2003. Handbook of international banking. Cheltenham, UK: Edward Elgar. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=472033. Campbell, Dennis. 2000. International banking law & regulation. Dobbs Ferry, NY: Oceana Publications. Walker, George Alexander. 2001. International banking regulation: law, policy and practice. London: Lacovino, Livia. 2006. Recordkeeping, ethics and law: regulatory models, participant relationships and responsibilities in the online world. Dordrecht: Springer. Accuity (Firm). 2005. The bank directory. Skokie, IL.: Accuity. Thomson Financial Publishing. 2000. Thomson bank directory. Skokie, IL: Thomson Financial Pub. Delta, George B., and Jeffrey H. Matsuura. 2009. Law of the Internet. [Frederick, MD]: Aspen Publishers. Wegenek, Robert, Ged ONeill, and Jonathan Moore. 2002. E-commerce: a guide to the law of electronic business. London: Butterworths. Read More