Trade finance

Warning: SBLC leasing and “monetization” offers are a common fraud.

A genuine standby letter of credit is a bank’s promise for its own customer. The offers that invite you to lease one, or to “monetize” one for a profit, are a familiar fraud.

Signed trade documents, a fountain pen and an ink pot on a wooden desk. — Trade documents on a desk.

What a real standby letter of credit is.

A bank issues a standby letter of credit at the request of its own customer. The letter backs that customer’s specific obligation: if the customer does not perform, the bank pays the person named in the letter, up to the amount stated. The wording is usually governed by ISP98, the International Standby Practices, or by UCP 600, the rules for documentary credits. It belongs to that customer and that obligation.

It is not an asset that a third party can rent, lease, or “monetize” for a profit. A bank does not issue one to a stranger in exchange for a fee. The FBI’s Internet Crime Complaint Center has said that standby letters of credit are not themselves investment vehicles, and that they are not traded or bought and sold. The ICC’s Financial Investigation Bureau has said they are not a mechanism for borrowing money.

SWIFT MT760 is only a message format. Banks use it to send guarantees and standby letters of credit to one another. A person who mentions MT760 is naming a form of message, not proving that a bank has issued anything. The FBI has warned that forged MT760 messages are used to make a false standby look genuine.

Red flags.

One of these does not prove a fraud by itself. Several of them together are the pattern the warnings describe.

An offer you did not ask for.
An upfront fee, or a fee described as “due diligence,” before any bank has done anything.
A promise of a high return, a guaranteed return, or a “private placement trading program.”
Secrecy, or a demand that you sign a non-disclosure agreement before you can see how the deal works.
A request for bank login details, or for account numbers and other account information.
An instrument said to come “from a top 25 bank,” offered for lease.
Pressure, and a deadline that will not wait for you to check the facts.
A refusal to let the instrument be verified from bank to bank.

If someone contacts you.

Stop. Do not pay.
If an instrument needs to be checked, ask your own bank’s trade finance desk to do it. Do not send the check through a person or a “verifier” named by the caller.
Keep the records: emails, messages, documents, and any account of what you were asked to pay.
In the United States, you can report it to the FBI’s Internet Crime Complaint Center at ic3.gov, the Federal Trade Commission at reportfraud.ftc.gov, the Securities and Exchange Commission at sec.gov/tcr, or FINRA at finra.org/investors/need-help.
Outside the United States, contact your local police or the financial authority where you live.

Sources

U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, “Investor Alert: “Prime Bank” Investments Are Scams.”
5 February 2015. Names standby letters of credit among the terms used in these schemes, and describes secrecy, non-disclosure agreements, and guaranteed high returns as warning signs.
https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-57
U.S. Securities and Exchange Commission, “How Prime Bank Frauds Work.”
Says the instruments and the markets described in these pitches do not exist, and lists standby letters of credit, bank guarantees, and high-yield programs among the names to treat with caution.
https://www.sec.gov/divisions/enforce/primebank/howtheywork.shtml
Federal Reserve Bank of New York, “Investment Scheme Advisory Alert, Circular No. 10858.”
19 June 1996. Reprints the Federal Reserve Board’s advisory, issued with the Office of the Comptroller of the Currency and other federal banking agencies. The Board says it does not authorize or oversee “prime bank” investment programs, and the 1993 interagency text warns about standby letters of credit presented in an unconventional way.
https://www.newyorkfed.org/banking/circulars/10858.html
ICC Commercial Crime Services, Financial Investigation Bureau, “FIB fraud warning prevents huge losses.”
Describes a loan offer that used a standby letter of credit as collateral, asked for an upfront fee and a non-disclosure contract, and asked for bank-account details. The Bureau’s publication states that standby letters of credit are not mechanisms for borrowing money.
https://icc-ccs.org/fib-fraud-warning-prevents-huge-losses/
FBI Internet Crime Complaint Center, “FBI Warns of Fraud Actors Scamming Investors Through Fictitious Standby Letters of Credit.”
18 March 2019. Says standby letters of credit are not investment vehicles and are not traded or bought and sold, and that counterfeit SWIFT MT760 messages are used to make the offer look real. Lists “monetize,” advance fees, and non-disclosure agreements among the common features.
https://www.ic3.gov/PSA/2019/PSA190318
U.S. Department of the Treasury, TreasuryDirect, “Prime Bank Instrument Fraud.”
Lists standby letters of credit among the names used in these schemes, and lists “top 10, 25, or 50 banks,” private placement programs, and excessive secrecy among the warning signs. The SEC alert above points readers to Treasury’s prime-bank page.
https://www.treasurydirect.gov/laws-and-regulations/fraud/prime-bank-fraud/