Background:
We are in the business of monetizing financial instruments such as Standby Letters of Credit (SBLC) and can monetize some leased instruments. Since we deal in an industry fraught with scoundrels attempting to separate you from your money, we must have knowledge of our clients’ objectives and provide our banks with complete transparency of all parties and documents involved! As a result of the 'Know Your Clients' requirements, so we have seen just about every scam imaginable. Over the years we have met many individuals who have either been scammed, as I was many years ago, or who are attempting to lease an instrument and are in the process of losing money to a very sophisticated fraudulent Provider. We estimate that we have saved some of these people over Ten Million USD in the process!
Objective:
Hopefully, this Article will assist those who are seeking to rent or lease a financial instrument in making a solid business decision and to not lose their funds to one of these schemes! In our estimation, about 98% of all leased instrument Providers are fraudulent. What is a leased or rented financial instrument such as a Standby Letter of Credit (SBLC)? A 'properly issued' leased instrument has the exact same properties of a purchased instrument except they must be returned at term. They are fully cash backed, assignable, transferable, etc. At the end of this article is a sample of acceptable SBLC 'unconditional' verbiage. 'Conditional' verbiage is that which is used in connection with a third-party transaction such as a commodity-based buy sell transaction which we cannot monetize.
As a result of being involved with Clients who are attempting to lease an instrument, we have become extremely educated to most all the schemes. The problem typically stems from those who are simply uneducated as to these schemes and the Providers that they speak with make the process sound very logical and convincing. Below are two of the most common examples.
"There is a small administration fee that must be paid and you will receive a Full Corporate Undertaking Guarantee to Refund if we do not perform and it will be signed by a bank officer!"
No legitimate bank officer will ever sign a third-party agreement such as this. If anyone offers such a document, it will not be valid and you will lose your money.
"We do not charge an upfront fee. All we do is 'bank to bank' so once the MT799 or MT760 is sent, we will provide you a copy and then payment is due!"
These Providers will provide a copy of the Swift document complete with an Answer Back from the receiving bank. Of course, upon presentation of these documents they will request payment. Once your payment is made, then they will argue that the receiving is not being honest and using the instrument and it is not their fault!! The reality is that the Swift was fabricated and never sent to the receiving bank...your funds are gone!
Ironically, the reason behind these fraudulent schemes is because most valid Providers do charge a fee of some sort to 'issue' an instrument so it becomes impossible for most clients to decipher who is valid and who is not and most will simply state "no fees" and never encounter a valid provider. Valid Providers must assemble the cash funds and pay to issue a MT799/760 and do not do this work for free so typically a nominal fee is required.
When a client approaches us and request for us to monetize a leased instrument then we have a simple process to validate the authenticity of the Lessor. Since we are one of a very few who will monetize a leased instrument, we must have a copy of the lease agreement (DOA) to provide to the receiving bank. Once received we can normally advise the Client as to the pitfalls or the potential for a scam. However, in all cases we require the Applicant or Lessor at the issuing bank to have their banker to send to the Applicant an RWA email with a copy to our compliance email address. We verify that the email was sent from the email servers at the issuing bank and if valid we proceed and provide the Client with our DOA to monetize. Valid Providers will simply do as requested but the others will state "Oh, our banker could never do that, etc, etc." Within the last few weeks of the writing of this article, we have received four emails from the issuing bankers of prospective Clients...one was supposed to come from Deutsche Bank, Frankfurt but came from Vietnam; another from BNP Paribas in France but came from the Czech Republic; the other two came from the issuing bank. Since so many of these lease offerings are not valid, we never engage our banker at the receiving bank until we have confirmed validity. Banks are known to close accounts when anyone is involved in any fraudulent activity, and this includes our accounts. If we provide our banker with a copy of a Swift supposedly sent to our account or a banker email and it is not received, then their assumption is this is attempted fraud and we are not doing our job of 'Know Your Clients'.
For those who have an interest, we know a valid provider who requires a deposit and has agreed to have an attorney hold the deposit as escrow. The trigger point for the release of these funds is for us to receive a copy of the banker email sent to our banker with a copy to us. Our banker will never respond until we have validated the email. Our attempt is to provide comfort to the Client that all is valid and credible. We have made arrangements with this Provider that we will deduct and pay the lease cost of the instrument from the monetized LTV to be paid to the Client as agreed in our DOA.
If at some point this becomes of interest to you then please let us know and we will be glad to assist. For additional information, please visit www.shailinternationalgroup.com
Sample MT760 SBLC verbiage...
FOR THE VALUE RECEIVED, WE ___________ BANK, WITH ADDRESS AT: ________________, HEREBY IRREVOCABLY AND UNCONDITIONALLY, WITHOUT PROTEST OR NOTIFICATION PROMISE AND GUARANTEE TO PAY ON TIME, IN FULL AND WITHOUT DELAY, AGAINST THIS STANDBY LETTER OF CREDIT IN FAVOUR OF XXXXXXXXXXXX THE BEARER OR HOLDER THEREOF, AT MATURITY, THE SUM OF XXXXX MILLION US DOLLARS/EURO ($XX,000,000.00) IN THE LAWFUL CURRENCY OF THE UNITED STATES/EUROPEAN UNION.
WE CONFIRM WITH FULL BANKING RESPONSIBILITY THAT THE FUNDS THAT ARE BACKING THIS STANDBY LETTER OF CREDIT ARE AND WILL BE FREE AND UNENCUMBERED READY FOR WITHDRAWAL AS CASH AT ANY TIME AS THIS STANDBY LETTER OF CREDIT IS PRESENTED AND CALLED UPON. SUCH PAYMENT WILL BE UPON PRESENTATION AND SURRENDER OF THIS STANDBY LETTER OF CREDIT AT THE OFFICE OF __________BANK, WITHOUT SETOFF AND FREE AND CLEAR OF ANY DEDUCTIONS, CHARGES, FEE OR WITHHOLDING OF ANY NATURE NOW OR HEREAFTER IMPOSED, LEVIED, COLLECTED, WITHHELD OR ASSESSED BY THE GOVERNMENT OF THE ISSUING OR PAYING BANK OR ANY POLITICAL SUBDIVISION OR AUTHORITY THEREOF OR THEREIN.
THIS STANDBY LETTER OF CREDIT SHALL BE GOVERNED AND BE CONSTRUED IN ACCORDANCE WITH THE UNIFORM RULES FOR DEMAND GUARANTEE (URDG), AS SET FORTH BY THE INTERNATIONAL CHAMBER OF COMMERCE, PARIS, FRANCE ICC PUBLICATION #600. THIS CASH BACKED STANDBY LETTER OF CREDIT IS TRANSFERABLE, ASSIGNABLE AND DIVISIBLE WITHOUT PRESENTATION TO US
Understanding the Process of Monetizing a Financial Instrument
Do banks provide ‘non-recourse’ loans? Is it safe to send a SBLC to be monetized? What is a standard LTV? Why did the previous Provider not perform? Many questions like this exist and we will try to provide some answers for you in this article!
While we must assume a certain knowledge level of our readers, we will simply state that certain types of SBLCs are financial instruments that can be utilized by a qualified and capable Account Holders. For purposes of this article, we will focus on a MT760 sent using standard ICC 600 verbiage (SBLC). These qualified Account Holders must meet certain requirements of their banks and can receive these Instruments via the Brussels Swift System and provide the Sender a non-recourse loan or, in essence, a loan that self-cancels and does not have to be repaid.
Banks do not provide non-recourse loans but qualified Account Holders may, so the question is “how is this possible!” A valid Monetizer/Account Holders will already have an extensive active credit line and upon receipt of an instrument, can immediately make a non-recourse loan to a client. The Account Holder then simply applies to the bank for additional credit lines to support the new asset which they will typically hold of a year. Their bank will provide them a ‘full recourse’ loan which must be repaid along with recovering the non-recourse loan given to the client. This is accomplished by placing the funds in various trade programs.
We hear from many that sent a MT760 to a Monetizer but that they did not perform. There are many possible reasons for this such as that it was a scam from the start to receive and use the instrument and not pay the client or possibly the Receiver was hopeful of obtaining a line of credit but their bank did not cooperate or they obtained the loan but could not properly enter a proper trade program to recover and pay the Client, etc.
As a result of the above many clients demand to see the cash or active credit lines for them to be paid which no one will ever provide. As Monetizers we realize the importance of providing this comfort to a ‘qualified’ Client so when it is appropriate, we provide the issuing banker for the Applicant sending the MT760 to send an email to the receiving banker prior to sending the MT799/760. An example of the email verbiage is at the end of this article. To follow up the email, then a MT799/999 pre-advice many be sent and the receiving bank will respond in-kind with a RWA to receive and fund per the terms and conditions of the DOA. In this manner, both parties should be satisfied that the other will perform!
Many clients focus on the LTV for understandable reasons but this approach typically leads to the problems mentioned above. The main concern should be on the Monetizer who will pay and have mutually agreeable terms. We are part of a worldwide foundation and have receiving accounts at multiple banks so we can receive an instrument from most any ‘rated’ bank and can accept an instrument for as little as $5 Million. The LTV will vary depending upon the amount, the bank and jurisdiction but we typically provide a LTV (non-recourse loan) from a top major bank between 60% and 70%.
For other financial instruments such as MTNs, SBLCs on Euroclear, etc., then we can assist with the monetization of these instruments also but there is a different delivery mechanism which will be discussed in a later article.
For additional information, visit us at www.shailinternationalgroup.com
Sample Text of Pre-Advice Sent via Email and/or Swift MT999/799 From Issuing Bank
WE, _________________________, HEREBY CONFIRM WITH FULL BANK RESPONSIBILITY, PURSUANT TO THE REQUEST AND ON BEHALF OF OUR CLIENT ___________________ WITH ACCOUNT NUMBER _____________________ THAT WE ARE READY, WILLING AND ABLE TO ISSUE AN UNCONDITIONAL, DIVISIBLE, AND ASSIGNABLE, CASH BACKED STANDBY LETTER OF CREDIT (SBLC) OF ICC 500/600 FORMAT, TO THE BENEFICIARY _______________, IN THE AMOUNT OF TWO HUNDRED MILLION USD ($200,000,000.00) WITH MATURITY DATE OF ONE YEAR AND ONE DAY FROM THE DATE OF ISSUANCE AND IT SHALL BE TRANSMITTED VIA SWIFT MT760 WITHIN 72 BANK HOURS UPON THE RECEIPT OF YOUR ACKNOWLEDGEMENT OF ACCEPTANCE.
Sample Text of Pre-Advice Response Sent via Email and/or Swift MT999/799 From Receiving Bank (FINAL VERBIAGE AS PER ISSUING BANK STANDARD FORMAT)
AT THE REQUEST OF OUR CLIENT: EMPEROR MANAGEMENT PTE LTD, WE, XXXXXXXXXXX LOCATED AT XXXXXXX, HEREBY IRREVOCABLY CONFIRM THAT WE ARE PREPARED TO UNDERTAKE THE FOLLOWING:
1. TO RECEIVE, VIA SWIFT MT760 INTO OUR CLIENT’S ACCOUNT, xxxxxxx MANAGEMENT PTE LTD, ACCOUNT NUMBER XXXXXXXXXXX, A CASH-BACKED, ASSIGNABLE, TRANSFERABLE, DIVISIBLE AND UNCONDITIONAL STANDBY LETTER OF CREDIT (SBLC) IN THE TOTAL AMOUNT OF US$200,000,000.00 (TWO hundred MILLLION UNITED STATES DOLLARS) WITH MATURITY DATE OF ONE YEAR AND ONE DAY FROM ISSUANCE DATE; AND,
2. TO FUND THE SWIFT MT760 SBLC, UNDER THE PROCEDURE, TERMS, AND CONDITIONS OF THE DEED OF AGREEMENT PER TRANSACTION CODE: xxxxxx
WE HEREBY CONFIRM THAT ANY FUNDS TO BE TRANSFERRED AS PAYMENT ARE GOOD, CLEAN AND CLEARED FUNDS DERIVED FROM A LEGAL SOURCE.