ICC Digital Library Forum

We post this query for many purposes:

1 Over the year we notice that the UCP 500 section in the Discussion Forum is always very busy whilst other sections are very quiet. So we would like to create some activities in other sections, such as this one. We are often told by the commentators in World Cup 2002 games that if the left side is heavily guarded, we should kick the ball to the far “right” (double meanings) side to make use of the spaces available to enable an easier and more effective attack.

2 We would like to serve members some refreshments after watching the “Game of the Century” (Brazil v. England) on 21st June 2002. For those from Korea, Spain Turkey and Senegal, they may join after 22nd. Good luck to Korea and Senegal! We always support the “weaker” teams.

3 This issue of detection of fraudulent transport documents is very important from the case reported in DC Pro on 20th June “Metal Frauds Larger Than Solo” in which the RBG Resources in London has scored USD 1 billion with bogus BsL and DCs, involving many large banks of course. The detection part is always the Achilles’ heel for some bankers.

4 Before we share our own experiences here, we would like to hear personal experiences from members on this important topic. Please focus on EFFECTIVE WAYS TO DETECT FRAUDULENT DOCUMENTS. So “know your customers” type of classic opinions are not required here as it relates more to PREVENTION OF FRAUDS which is not the question asked here.

www.tolee.com

Brief personal thoughts, without responsibility, from the samba party are:

1. Bankers do not have an ‘active’ duty to detect fraud, in the underlying transaction or documents presented, and any ‘active’ steps to detect fraud taken by a banker are purely for the banker’s, and not the applicant’s, benefit. Articles 4 and 15, among other things, refer.

2. Where a credit is secured through the charging of cash or other (verified) assets, the question of fraud is essentially a matter for the applicant and not the banker, as the banker is not looking to the underlying goods as security. Generally (I recognise there can be exceptions), if the applicant is defrauded it is his, and not the banker’s, problem.

3. Where the banker is looking to the underlying goods as security then clearly fraud is a very relevant consideration. Possible ways of seeking to detect fraud would seem to include credit staff having a knowledge of shipping and relevant trade practices (don’t get too excited T.O.), obtaining status reports and other data (e.g. Dun & Bradstreet reports and registrar of companies information) on the beneficiary, and referral to Lloyd’s List and the ICC Commercial Crime Bureau/International Maritime Bureau.

It is always easy to be wise after the event (although would have preferred the England team to have been wise before the event) but, as far as I am aware, most b/l's in the Allied Deals fiasco were 'received for shipment' only. After Solo, such b/l's should have stuck out like a sore thumb.
Having spent the last 15 years handling commodity l/c's I have a certain 'feel' for documents but this sort of experience is now in short supply in the market.

Phil,

See you on 11 July at the ICC UK Banking Seminar?

Jeremy

Jeremy, I'll be there so see you on the 11th

Phil

When are we going to get the (non-footballing) thoughts of Chairman Lee?

Jeremy,

CHINESE WAY TO GET SUCCESSFUL FASTER

I am only the Managing Director of T. O. Lee Consultants Limited. My wife, Patricia, is the Chairman, or Chairperson/Chair, to be politically correct.

Why? Because according to some Chinese thoughts, particularly in the Guangdong Province, where my ancestors are from, those who listen to their wives would get successful faster. At least they would not gamble, have sex or drugs (which are the three main elements for bankruptcy. The risk is unlimited in dollar terms as well as legal liabilities and health hazards). And have a free counsellor for a fair and honest second opinion, as well as having someone to watch over everything they do.

To tell you the truth, I am a big spender with too many good hobbies to spend money on, gourmet food, classical music, opera, hi fi, photography, lenses collection, motor cars, sight seeing, letter of credit and other good things in life. If not due to my wife's intervention, I would not have built up the asset I now have.

A REASONABLE TIME OF 7 BANKING DAYS FOR INPUTS FROM MEMBERS

You are getting impatient for my thoughts on detection of fraudulent documents. Well, my thoughts may not be your cup of tea as you insist that bankers do not need to know the trade practices of other trades.

However, I also realise that during the World Cup 2002 period, a majority of us, if not everybody, are focused at and busy with the exciting games and would not have time to share their experience here. So we would wait for a reasonable time of 7 banking days after 30 June 2002 for their inputs. After that time we will share our own experience here.

If Brazil wins on 30th June 2002, we will share more. If Brazil loses, which is unlikely, we may not have the mood to write anything until our wounds are fully recovered.

www.tolee.com

[edited 6/28/02 2:35:32 PM]

T.O. Lee,
This is an interesting subject indeed. Fraud is not limited to LC’s only but we are aware of other instruments too like prime bank instruments, e.g. standby LC’s or bank guarantees, advance fee frauds (a specialty of Nigerian fraudsters), RWA (Ready, Willing and Able) schemes and the latest seen are some emails generated by Senegalese tricksters pretending to be businessmen who are in the process of installing modern refineries for crude oil process and seeking project financing!!

You have initially talked about detection but you have added fraud prevention too.

Prevention
Besides the classic rule of having a KYC (know-your customer) policy in the bank or knowing your counter-party, i.e. the buyer knowing the seller, e.g. asking for credit checkings and performing site visits, an inspection to be carried by a third party (a reputable inspection agency) at an added cost of course, is of benefit since he’ll be minimizing the risk of having most of the documents issued by the seller. In the end it is the buyer who is in most of the cases victimized.

Detection
As far as the bank is concerned, fraud awareness should be made part of staff training. However, a document checker needs to have a special talent, a sixth sense in order to be able to detect fraud in the LC documents. Not an easy affair I would say, although good experience could certainly help to ring a bell in case of need. Some of the issues arise with charter frauds, thus, charter party B/L’s can become really problematic and have to be handled with extreme caution.

For the buyer, if the documents presented are fraudulent, the damage is done and he should kiss goodbye his goods!!

Question
I have a heard of a statement made by a lawyer stationed overseas that a seasoned banker who smells fraud in a letter of credit can stop payment. Is this correct?

Dimitri

PERSONAL HUNCHES AND INSTINCTS CANNOT HELP

So far on the topic of detection of fraudulent documents, members are talking about their hunches or enviable personal instincts. These hunches or instincts cannot be transferred to or acquired by other members, therefore not helpful at all from exchange of information and experience point of view.

"When I see a fraudulent BL, my sixth sense tells me that it is" sort of message does not help others at all. Such messages would only make others sad and blame their parents: “Why shouldn’t I born with the same sixth sense?”

Would members change their directions and talk about something, which can be transferred, acquired and applied by other members?

PLEASE GIVE US SOMETHING WE CAN LEARN AND APPLY IN OUR DAILY WORK

I have no hunch other than guessing the results of World Cup 2002 (although so far I did nicely in guessing the results of the matches on 29th and 30th June 2002). In detection of fraudulent documents, a lot of hard work is needed.

As an expert in fraudulent BL, I cannot tell the Judge that the reason why I consider a BL fraudulent is because my sixth sense told me. Similarly, I cannot tell the participants to my fraudulent BL detection workshop that I use my personal instinct to smell a BL. Otherwise they would ask for full refund as I would be out-performed by a dog, such as those trained by the Anti Drugs Squard.

For Dimitri

To answer the question from you, when your lawyer friend sees the same seasoned banker again, would you tell him to ask the seasoned banker this question for us:

"Could I borrow your nose for a couple of days?"

T. O. Lee
www.tolee.com

[edited 7/1/02 4:05:06 AM]

Dimitri,

A few personal comments:

You say ‘fraud awareness should be made part of staff training’. Where a bank is issuing a credit against the security of the goods then I agree it makes prudential sense for credits staff to be ‘fraud aware’. However, I would mention that I personally do not regard it as a banker’s job to protect its customers against their own failure to carry out proper checks and do not see any ‘fraud awareness’ as having this aim. To me, if customers (applicants) lose money through their own incompetence/stupidity/laziness/greed etc they have only themselves to blame.

Regarding ‘smelling fraud’, in order not to effect settlement the position under English law is, in summary, that the banker must be presented with a good arguable documented case by the applicant that there is fraud or, if the banker wishes to invoke the ‘fraud exception’ for its own reasons, be able to demonstrate the same to a court (in any subsequent legal action by the beneficiary against the bank).

Jeremy