Standby Letters of Credit Scams

Fraud actors fabricate business and financial connections in order to sell fraudulent SBLCs. They then use these connections to access international commodities markets in an attempt to dupe victims. An SBLC is a financial instrument issued by a bank on behalf of bank customers that serves as a guarantee for borrowing money and is treated as if it were a loan. The SBLC can be used to obtain financing and must be backed up with 100 percent collateral, allowing the bank to foreclose on the entire amount in the event the SBLC is not paid back. SBLCs are typically used in commercial settings and for international commodities. While SBLCs are sometimes used to assure repayment of investments, they are not themselves investment vehicles, and they are not traded or bought and sold. Fraud actors also utilize counterfeit Society for Worldwide Interbank Financial Telecommunications (SWIFT) messages or documents, such as “MT 799” or “MT 760,” to legitimize their SBLC scam and further deceive investors. SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. Fraud actors format their SWIFT messages and documents to provide an authentic presentation to lure their victims into a false sense of security while perpetuating their schemes. Furthermore, due to the technical nature of SWIFT messages and SBLC transactions, fraud actors are able to exploit the victims’ lack of knowledge.

The Internet Crime Complaint Center (IC3) has received reports that fraudsters are creating connections within the business and financial sectors and access to global commodities markets in order to sell fake Standby Letters of Credit (SBLCs), which have caused victims to suffer sizable financial losses. Fraud actors use their alleged business relationships and easy access to big sums of money to demonstrate authenticity and attract investors. They also pretend to have links to SBLCs at reputable banks.

An SBLC is a type of financial instrument that banks issue on behalf of their customers to act as a guarantee for loans and other forms of borrowing.
A bank may seize on the entire amount if the SBLC is not repaid, and it can be used to get financing. The SBLC must be fully collateralized. SBLCs are frequently utilized for international commodities and in business contexts. Even though SBLCs are occasionally used to guarantee investment payback, they are not themselves investment vehicles and cannot be traded or bought and sold.

In order to legitimate their SBLC scam and further fool investors, fraudsters also use fake Society for Worldwide Interbank Financial Telecommunications (SWIFT) messages or papers, such as “MT 799” or “MT 760.” Financial organizations employ SWIFT, a messaging network that uses a defined set of codes to securely communicate data and instructions. In order to provide their victims a false sense of security and further their schemes, fraud actors format their SWIFT messages and documents to present an authentic presentation. Furthermore, fraudsters might take advantage of the victims’ ignorance because of the technical nature of SBLC transactions and SWIFT messaging.

What to Be on the Lookout For

Offering returns or loans that are disproportionate to the risk involved

Mimicking of legitimate financial instruments like SBLCs

“Non-recourse” or “forgivable loans,” where investors do not have to repay the loaned funds

“Blocking of funds” or “proof of funds,” typically with the use of a SWIFT MT 799 or MT 760

Being asked to pay an advanced fee prior to funding or to initiate the loan or investment

Transferring funds overseas or using foreign banks

Improper references to legitimate financial institutions without their knowledge or consent

Unnecessary secrecy or the signing of a non-disclosure agreement

Intricate explanations and excuses as to why the promised funds or returns have failed to materialize

The use of escrow accounts, including attorney escrow accounts

The term “monetize”

While not all of these components will be present in every scam, it is typical for several of them to be present. The promise of a disproportionate return or risk-free loan from a source that is unknown or unable to be precisely verified is what distinguishes it, though. All of the other elements either increase the legitimacy of the loan or investment or they tempt or divert investors from posing the probing inquiries they ought to.

Tips to Protect Yourself

If an opportunity appears too good to be true, it probably is.

Do not attempt to purchase or invest in an SBLC. Such investments do not exist.

Independently verify the terms of any investment or purchase you intend to make, including all parties involved (i.e., the bank the funds are originating from).

How to Report If You Are a Victim

If you believe you have been a victim of this scam, regardless of dollar amount, reach out and file a complaint with Grilla Capital Limited.