Fraudsters frequently seek to attract the payment of advance fees using fictitious bank financial instruments for many millions of dollars. In this article, ICC Commercial Crime Bureau Assistant Director Jon Merrett reproduces the exact wording used on a certificate of deposit in a recent case involving the proposed transfer of US$26 million and the US$217,000 advance fee paid to known fraudsters to procure it, before explaining in detail how to spot it was a fake.

Certificate of deposit fraud uncovered

The CD reads: "For the value received, We, the General Management of (name of bank) hereby confirm irrevocably and unconditionally that (names of victims) have deposited in our bank in the above referred deposit account value in the amount of USD$ 26,000,000,00 (TWENTY SIX MILLION UNITED STATES DOLLARS) and that this deposit is free of any liens, encumbrances, fights of third party and non-criminal origin, obtained from legal sources.

We further confirm that this deposit remains irrevocably blocked and under our control for ONE (01) year and THREE (3) months beginning (date) and ending at the close of business on the (date).

The deposit can be removed only by the depositors named above or with a written authorization by the Depositors assigning their rights to the above deposit to a third party.

This Certificate of deposit is free and clear of deductions for or on account of any Taxes, Imposts, Levies or Duties of any nature, present or future imposed.

This Certificate of deposit is subject to the Uniform Customs and practice (U.C.P.) for Documentary Credit, International Chamber of Commerce (I.C.C.), Publication Number 400 (1983 Revision) and/or (I.C.C., U.C.P.) Publication Number 500, latest revision thereof, whichever is applicable."

This is a classic example of a false document that uses all the usual wording. It bears the classic hallmarks of a financial instrument fraud; high yields, 'red flag' phrases, suing for damages for non-compliance, highly complex transaction, etc. The document is not even a certificate of deposit as defined by the Dictionary of Banking, and here's why:

The document does not bear the rate of interest it will attract

Supporting documents in this case give this to be '6% per trading for 4 tradings weekly minimum', an entirely unrealistic projection. Also, there is no definitive explanation as to how the trading of this Certificate could accrue interest at such a high yield.

The phrase 'non criminal origin'

This is used on many occasions in fictitious transactions. No banks would use this phrase because it could not validate such a statement, and the risks are too great if it were later proved that the funds were derived from crime.

The statement 'funds are blocked'

The Comptroller of the Currency, Administrator of National Banks in the United States issued a warning on 'Blocked Funds Deposits' in March 1995, which are not known to exist in the legitimate banking community.

The time period format used

The term, one year and then either an extra day, week month or months, is a characteristic of many fictitious transactions. Fraudsters use it to establish how much the prospective victim knows about financial transactions, as in legitimate business the time period relates to a specific period, i.e. 1 year, 2 years etc. A fraudster will tell his victim that the extra time period enables him to spread the transaction over more than one year, thus taking advantage of double the amount of personal allowances.

The statement regarding UCP is incorrect

Used to add credibility to the process, the rules referred to involve documentary credits only and define the mechanics, i.e. customs and practice, of this payment process. They have nothing to do with certificates of deposit. In addition, UCP 400 is now out of date and superseded by UCP 500.

Other 'red flags'

Documents such as the above are always accompanied by others that spell out the detail of the contract in more detail and these can also include 'red flag' terms and phrases that provide further evidence that all is not correct. Examples include:

Reference to ICC Publication 458, Uniform Rules for Demand Guarantees

The correct title is 'ICC Uniform Rules for Demand Guarantees', ICC Publication No. 458, which does not relate to medium-term notes.

A 'KTT' payment mode

This is phrase favoured by fraudsters and is not known in legitimate banking transactions.

Many frauds of this type result in the payment of an 'advance fee', either for acceptance of an application or for registration of documents. When the deal fails, usually due to a contractual obligation that it is impossible for the victim to meet, a claim for damages and loss of business/brokerage commission invariably follows.

In addition to businessmen, many lawyers have fallen victim to this type of scam, as the fraudsters are aware they will have adequate cover provided by an appropriate insurance policy.

Don't become one of them. Look out for the telltale signs and if there is any doubt, documents can be easily and quickly checked by the ICC Commercial Crime Bureau, which has a team of investigators specially trained to look out for all the differing tactics and phrases used by fraudsters in such cases.

The e-mail of ICC Commercial Crime Services (CCS) is ccs@icc-ccs.org