Let’s examine fraud schemes involving LC and so-called PPP programs.
Letter of Credit Fraud
It is important to remember that a genuine letter of credit is never sold or offered as an investment. It is issued by banks to guarantee payment for goods, covering shipment and delivery in international trade. Payment under a letter of credit usually requires the paying bank to receive documentation confirming that the ordered goods have been shipped and are on their way to the destination. Letter of credit fraud often targets banks by submitting false documents claiming that the goods were shipped, when in reality no goods were shipped at all or the goods shipped were of lower quality.
Other letter of credit scams occur when fraudsters offer a “letter of credit” or “bank guarantee” as an investment, promising the investor huge interest rates of around 100-300 percent per year. These investment “opportunities” simply do not exist, yet fraudsters refer to them as PPP programs (private placement programs), which will be discussed below.
Tips for Preventing Letter of Credit Scams:
- If an “opportunity” seems too good to be true, it probably is.
- Do not invest in anything until you fully understand the nature of the deal. Scammers rely on complex transactions and faulty logic to “explain” their (fraudulent) investment schemes.
- Do not invest in or attempt to “buy” a “letter of credit”. Such investments simply do not exist.
- Be cautious with any investment that promises extraordinarily high returns.
- Independently verify the terms of any investment you intend to make, including checking the involved parties and the nature of the investment.
PPP Program Scams
International fraudsters have devised an investment scheme that supposedly provides extremely high returns over a relatively short period of time. In this scheme, they claim to have access to platforms with “bank guarantees” where they can buy at a discount and sell at a markup. By reselling these “bank guarantees” several times, they claim to be able to deliver exceptional investment returns. For example, if “bank guarantees worth $10 million” can be sold with a two percent profit in 10 separate cases—or “tranches”—the seller would receive a 20 percent profit. This scheme is often referred to as a “Private Placement Program” or PPP for short.
To make their schemes more enticing, fraudsters often associate themselves with “first-rate banks” (AAA-rated) or regulatory bodies that have nothing to do with guarantees, as well as various secret programs (Euroclear, Federal Reserve System, etc.). Legal documents related to these schemes frequently require the victim to sign non-disclosure agreements and non-circumvention agreements, promise a return on investment within “a year and one day,” and demand the completion of forms in accordance with the standards of the International Chamber of Commerce (ICC). In fact, the ICC has issued a warning to all potential investors that such investments simply do not exist.
The goal of these scams is usually to persuade the victim to send money to a foreign bank, where it is eventually transferred to an offshore account controlled by the scammer. From there, the victim’s money is used for the criminal’s personal expenses or laundered in an attempt to conceal it.
Bank guarantees and letters of credit are primarily used to insure payment for goods in international trade. Such guarantees are never bought and sold on any market.
Tips for Preventing PPP Scams:
- Think carefully before investing money in anything. Be wary of any scheme called a Private Placement Program that promises unusually high returns by buying and selling everything issued by “top-tier banks”.
- As with any investment, conduct proper due diligence. Independently verify the identity of the parties involved, the legitimacy of the deal, and the existence of the securities you plan to invest in.
- Be cautious of deals that require non-disclosure agreements or non-circumvention agreements designed to prevent you from independently verifying information about the investments.