10 March 1995
4 April 2014
21 February 2014
4 November 2013
11 November 2013
Dutch court rules that asking clients to share their personal banking security credentials is unlawful
11 August 2014
There are a number of different types of transactions offered by fraudsters.
Trading in financial instruments
The victim may be offered the opportunity to invest in the trading of standby letters of credit (SLCs), discounted letters of credit (LCs), prime bank guarantees (PBGs) or bank debenture instruments. The deal might be based on 'rolling over' SLCs or LCs, or the release of tranches of instruments or money.
References may be made to 'cuts of paper'. Alternatively, the victim could be asked by the fraudster to invest in the issue and trading of 'master collateral commitments' (collateral trading).
While some of the expressions used can be found in genuine banking transactions, the fraudster's usage is nonsensical and is intended to confuse both the victim and his advisers. SLCs and bank guarantees cannot be traded in the manner which is suggested, nor are LCs issued at a discount.
There are also limits on the transferability of LCs. Many of the draft documents prepared by conmen do not comply with the ICC's Uniform Customs and Practice for documentary credits and cite phoney standard document formats such as 3030 and 3032. The promises of astonishing returns and requirements of confidentiality mean that many do not question the fundamental flaws which would become apparent on close examination of the proposals.
The fraudster may also suggest that the transaction is in some way unlawful and that victims may prefer to avoid making public their involvement.
It is common for victims to be told the transactions are carried out by banks in secret because they are allegedly 'off balance-sheet' items. For this reason, it is claimed, banks will not admit to their existence.
To be offered an interest-free or low interest loan which will repay itself must be the dream of many who cannot obtain finance from the usual sources. The loan will be offered by a fraudster, perhaps through an intermediary.
The promise will be that the fraudster or lender will make available a large sum of money, for example $100 million, and that they will also be able to arrange for the borrower to use part of that amount, $80 million, to purchase bank instruments. Those instruments, it will be claimed, can be bought at a discount to their face value.
In this example, the discount would be 20 per cent, so that $80 million would be paid for the bank instruments but they would be worth $100 million in 10 years time when they mature. They will then be sufficient to repay the amount of the loan, which will be due at the same time.
In the meantime, they will provide enough income to cover either part or all of the interest liability under the original loan.
Thus the difference between $100 million and $80 million of $20 million (the 'fall-out') is an interest-free or low interest loan.
While in principle a self-liquidating loan is not unlawful, in the context of the frauds discussed previously it is not possible to purchase the types of instruments referred to by fraudsters so the alleged returns will not be achieved. A more telling point is that if the fraudsters could make so much money this way, why do they need to involve a third party?
In one fraud this problem was dealt with by the claim that the interest-free loan could only be made as a result of a non-existent loophole in US arbitrage legislation and only if the interest free loan or 'fall-out' was intended for use as a bona fide, genuine commercial project loan.