When Alexander Nachaj needed to transfer the down payment on a house, he didn’t worry too much about it – he just walked to his local bank branch to send it to the notary.
As he tells it, Nachaj made sure to ask the cashier at the TD Bank branch to double-check the numbers, because he had to sign a form releasing them from any liability on the $18,000 deposit. The cashier then sent the money.
And then he disappeared.
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And so began the man’s odyssey from Saint-Hyacinthe, Quebec into Canada’s wire transfer system. The vast majority of the time, it successfully sends money securely and accurately, but as Nachaj discovered, it’s far from foolproof.
What went wrong in Nachaj’s case is unclear as TD declined to discuss details of the case, but he says he went unanswered for many weeks on where the money went. .
“It’s mind-boggling that in our time a transfer can vanish into thin air for so long without anyone taking responsibility or even knowing what happened,” he said. .
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In the meantime, Nachaj was faced with losing his house in a boiling market, so he had to prepare another down payment with the help of his family, and then send that money also by wire transfer.
“It was like walking a tightrope or something, it was the scariest thing I’ve ever had to endure, because what if it happened again?”
The second payment has been made. That was good, because part of the challenge with wire transfers is that they’re usually designed to be irreversible, so the recipient can confidently use the money right away.
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“As soon as there are mistakes, we’re in really big trouble,” said Werner Antweiler, international finance expert at the University of British Columbia’s Sauder School of Business.
“Bank transfers are problematic because once they’re in the system they can’t be recalled and that’s the nature of the beast.”
It’s unclear how often wire transfers go wrong, but they rank among the top five banking product complaints to the Ombudsman for Banking Services and Investments with around 30 cases last year, and among the top 10 first among all complaints lodged with the rival ADR Chambers Banking Ombuds Office.
Although the numbers are quite small, the amounts involved are often significant. Most complaints also fail to reach external mediators, including that of Nachaj, where a few months later the bank’s internal investigation led to the return of his original wire transfer.
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TD spokeswoman Caroline Phemius said in an email that when a transfer is lost, it works with its customers to try to recover the funds.
“When there is a discrepancy in a wire transfer, we take it very seriously because we appreciate the trust our customers place in us.”
The risks around a bank transfer and the impossibility of verifying in advance that it is going to the right place are enough for many notaries to avoid using them if possible.
“I don’t encourage our members to wire money, just because if it goes wrong, they’ll hold us accountable,” said Daniel Boisvert, president of the BC Notaries Association.
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Boisvert said a more verifiable system would be great, but in the meantime his staff still visits the bank up to three or four times a day to deposit physical bank drafts. And while he thinks big deals like buying a house are best done in person, there are alternatives such as coordinating with an attorney in another city who can accept the bank draft.
The other big reason Boisvert avoids wire transfers is outright fraud. The Canadian Center for Cyber Security has warned in recent years of an increase in criminals intercepting emails and inserting their own account details, to which the unsuspecting customer then sends the money.
“It’s just terrifying for me, and for other notaries, I’m sure it’s just terrifying,” Boisvert said.
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Solutions are emerging to at least reduce the risk of error and fraud. The UK rolled out a system in 2020 called Confirmation of Payee, where the sender checks that the name and account number are aligned before confirming payment. And SWIFT, which operates the system that underpins many international wire transfers, earlier this year began offering payment pre-validation that verifies the validity of the recipient’s account before sending money.
Canada could also improve the reliability of telegraphic transfer payments by joining the system of international bank account numbers used by more than 80 countries, as advocated by Professor Antweiler. The system provides more standardization to reduce errors and has check digits that are used to run an algorithm to catch common errors, he said.
Such a change would require buy-in from all banks, and errors still occur in the system, noted Payments Canada, which operates Canada’s electronic funds transfer system on behalf of banks and credit unions.
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Canadians sending a wire transfer should be vigilant and verify the account, branch and institution numbers needed for a wire transfer. Numbers can be verified on a voided check, while the recipient can also call their financial institution to double-check and the sender would do well to call the recipient to do the same.
But be aware that even the most vigilant systems will have shortcomings. Citigroup Inc. learned this the hard way in 2020 when, rather than sending a small interest payment on Revlon’s debt, it sent the entire US$900 million debt. He’s still fighting to get a lot of it back.
For Nachaj, he said he plans to stick with good old paper checks and bank drafts the next time he needs to move money.
“Don’t do wire transfers unless you have to, just because I don’t feel like I trust that part of the system very much right now.”
This report from The Canadian Press was first published on August 25, 2022.
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