Allocation of Loss Caused by Business Email Compromise Scam in the Relationship between Creditor and Debtor of a Monetary Obligation

Abstract

In this paper, the author examines the private law consequences of business email compromise scam (fraud) in the relationship between a creditor and a debtor of a monetary obligation. The situation involves a business entity (the debtor of the monetary obligation from the underlying transaction) receiving an email that appears to originate from the creditor but is actually sent by a third party – a fraudster – requesting urgent payment according to new instructions, typically to a foreign bank account. The first part of the paper serves as an introduction and provides explanations of the characteristics, causes, and types of such fraud. It then offers a legal-dogmatic analysis of the allocation of loss between the debtor, as the fraud victim, and the creditor of the monetary obligation. The author examines: attributing the will in a fraudulent email to the creditor, fulfilling the contract by paying as instructed in the fraudulent email, and the debtor’s right to seek damages from the creditor for making the email appear authentic. The final part of the paper includes an overview of domestic court practices on this issue. Based on theoretical and practical analyses, the author concludes that the loss from fraud due to the compromise of a business email will, as a rule, be borne by the debtor.