China Construction Bank (CCB) was the lifeline for the Vesttoo fraud in which the collapsed insurance fintech participated in fraudulent activities using fake letters of credit (L/Cs) in insurance-linked securities transactions, according to a lawsuit filed in the Supreme Court of New York by White Rock Insurance.

White Rock says in its filing that it was misled into entering into reinsurance transactions in the belief that they were guaranteed by genuine L/Cs issued by CCB. The insurer subsequently discovered it had been duped into a fraud when CCB refused to honour the L/Cs and they were exposed as fraudulent.

Lion's share of fraudulent L/Cs

"Without CCB, the Vesttoo fraud could not have occurred," according to White Rock's filing, which says "the lion's share" of fraudulent L/Cs were issued by or out of CCB or associated financial institutions.

"Specifically, L/Cs issued by or out of CCB represented more than US$2.8 billion of collateral CCB now refuses to honour. It was not that Vesttoo simply used CCB's logo on a forged document and White Rock took its word for it," the filing says.

Banker complicit

Rather, White Rock says a CCB banker, Chun-Yin Lam, represented to White Rock, its auditors, and other market participants that the L/Cs were authentic.

Lam, transmitted and then verified the L/Cs to White Rock, always using an official CCB email account and often using CCB's New York branch to issue the L/Cs. He also held meetings at a CCB office and used an authentic CCB telephone number.

By giving Lam access to its email domain, offices, and telephone system and then breaching its duty to supervise him, CCB bestowed its full faith on him, according to White Rock's filing. It says that by so doing, CCB caused White Rock and others to justifiably rely on Lam's representations to their detriment.

Tenure tracked fraud

Tellingly, according to official government records, Lam's tenure with CCB closely tracked the fraud, and he ceased to be a licensed professional affiliated with CCB in July 2023 - the exact same time the Vesttoo fraud was revealed, the filing concludes.

The fraud, estimated at around US$4 billion, has triggered legal actions and a review of the use of L/Cs in the reinsurance industry.

The complaint filed by White Rock against CCB and associated financial institutions can be found here.

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