Fake letters of credit (L/Cs) were used to perpetrate a massive US$4 billion fraud involving an insurance fintech, Vesttoo, an Israeli tech publication, CTech, has alleged.

Banks that provided L/Cs to the Israel-based company may now find themselves embroiled in investigations into the alleged fraud.

Chinese bank's unwitting role

"The allegedly fake L/Cs provided by investors to insurers for reinsurance transactions on the Vesttoo platform are believed to total a sum of around US$4 billion," according to CTech's publisher, Calcalist.

It says the L/Cs were allegedly forged so that they appeared to have been issued by a leading Chinese bank while the bank appears to have been unaware of the situation.

Fake L/C revealed

The fraud reportedly came to light when one of the L/Cs was found to be fake, leading to a comprehensive review of all L/Cs used as collateral by the insurance fintech.

Vesttoo has said it has brought in third-party experts for an audit after discovering "inconsistencies" in the modelling of its transactions.

The company headquartered in Tel Aviv has said that it works with a range of collateral, including cash and investment-grade bonds as well as L/Cs.

Company operations

The Vesttoo platform connects insurance companies and reinsurers to capital markets so that insurers can transfer some of their risk to capital market players via various financial instruments.

The company employs 150 people, mostly in Israel, but also in offices in Dubai, Hong Kong, Tokyo, Seoul, New York and London. Several senior executives have left their posts in the wake of the fraud allegations.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.