Banker customer relationship vis-a-vis third party victims of Fraud

Abstract

Recent times have witnessed a mounting number of elaborate fraudulent schemes through banks. This paper recognises that the banker customer relationship is based on contract to which the third party is a stranger and is generally owed no duty of care .Thus, the question to be addressed is whether banks may be civilly liable to third party victims of the fraudulent activities of the bank's customer. Chapter one provides the backdrop of the entire research, describing the nature of the relationship between banks, customers and third parties. Chapter two ascertains the basis on which banks may be liable to third parties. It establishes liability based on common law and equity rather than statute, and the difficulties encountered in establishing liability given the lack of duty of care are acknowledged. In addition, the chapter ascertains alternative non judicial mechanisms of establishing liability and their viability given the obligations of the bank to its customer. Chapter three looks at the Zambian legal regime and its provision for liability of banks and the willingness of the courts in imposing such liability. This includes a critical analysis of the Elpe Finance Ltd v Brymum Ltd and Stanbic Bank (Z) Ltd case which indicates the unwillingness of the courts. For a deeper insight of the issues being grappled with, a comparative analysis of judicial developments as practiced around the world is presented. After considering the foregoing, this paper concludes that establishing a duty of care, knowledge of the fraud on the part of the bank and the willingness of the courts to impose liability is vital in finding the bank liable. It is then recommended that if a duty of care is to be owed, third parties must expressly enter contracts with the bank; knowledge is to be imputed on the bank by a mareva by letter; and the willingness of the judges to impose liability can only be achieved by their exercise of judicial activism. Further, 'Know your customer' policies and increased accountancy professional responsibility will assist in the prevention and detection of fraud through banks.