🔴 Attention please!! Standby Letter of Credit SBLC Funding Scam! (2024)

Reference No.: FE201S032 I Date: Wed, Apr 03, 2024 I Editor: Mr.Sinan Can

🔵 One: What is SBLC

✅ SBLC (Standby Letters of Credit)

📜 Standby letter of credit, also known as guaranteed letter of credit, refers to a letter of credit issued not for the purpose of repaying the price of a commodity transaction, but for the purpose of loan financing or guaranteeing debt repayment.

📜 Standby letters of credit were first popular in the United States. Because American law does not allow banks to issue letters of guarantee, banks used standby letters of credit to replace letters of guarantee. Later, they gradually developed into a credit instrument that provides performance guarantees for international contracts. Its uses are very wide, such as Bidding for international contracting projects, international leasing, advance payments, credit sales, and international financing.

📜 In the 1993 text of the Uniform Customs and Practice for Documentary Credits, the International Chamber of Commerce clearly stipulates that the provisions of this practice apply to standby letters of credit, that is, standby letters of credit are included in the scope of letters of credit.

🔵 Two: Properties of SBLC

✅ 1. Irrevocability.

💧💧Unless otherwise provided in the standby, or with the consent of the other party, the issuer may not modify or cancel its obligations under the standby.

✅ 2. Independence.

💧💧The performance of the issuer's obligations under the standby does not depend on:

💧💧💧①The issuer has the right and ability to obtain repayment from the applicant.

💧💧💧②The beneficiary’s right to receive payment from the applicant.

💧💧💧③ Reference to any reimbursem*nt agreement or underlying transaction in the standby.

💧💧💧④ Whether the issuer understands the performance or default of any reimbursem*nt agreement or underlying transaction.

✅ 3. Follow orders.

💧💧The issuer's obligations depend on the presentation of the documents and a superficial examination of the requested documents.

✅ 4. Mandatory.

💧💧A standby is binding upon issuance and remains binding on the issuing bank regardless of whether the applicant authorized its issuance, whether the issuer charged a fee, or whether the beneficiary received or acted in reliance on the standby or amendment. It is mandatory.

🔵 Three: First understand the types of SBLC

✅ 1. Performance Guarantee Standby Letter of Credit

(PERFORMANCE STANDBY)

💧💧 To support the performance of an obligation other than the payment of money, including compensation for losses resulting from the applicant’s breach of contract in the underlying transaction.

✅ 2. Advance payment guarantee standby letter of credit

(ADVANCE PAYMENT STANDBY)

💧💧 It is used to guarantee the obligations and responsibilities of the applicant for the advance payment to the beneficiary.

💧💧 This kind of standby letter of credit is usually used for the project advance payment of 10%-25% of the total contract price paid by the owner to the contractor in international engineering contracting projects, as well as the advance payment paid by the importer to the exporter in import and export trade.

✅ 3. counter guarantee standby letter of credit

(COUNTER STANDBY)

💧💧 Also known as a folio standby letter of credit, it supports another standby letter of credit or other commitments issued by the beneficiary of the counter-guaranteed standby letter of credit.

✅ 4. Financing guarantee standby letter of credit

(FINANCIAL STANDBY)

💧💧 Any supporting documentation supporting payment obligations, including obligations to repay borrowed money. The standby letter of credit used by foreign-invested enterprises to pledge RMB loans is a financing guarantee standby letter of credit.

✅ 5. Tender standby letter of credit

(TENDER BOND STANDBY)

💧💧 It is used to guarantee that the applicant will perform the contractual obligations and responsibilities after winning the bid. If the bidder fails to perform the contract, the issuer must perform compensation obligations to the beneficiary according to the provisions of the standby letter of credit. The amount of the bid standby letter of credit is generally 1%-5% of the insured quotation (the specific proportion depends on the provisions of the bidding documents).

✅ 6． direct debit standby letter of credit

(DIRECT PAYMENT STANDBY)

💧💧 Used to guarantee payment when due, especially the payment of principal and interest when there is no default. It has broken through the traditional guarantee nature of standby letters of credit and is mainly used to guarantee the company's obligation to pay principal and interest when it is due when issuing bonds or entering into debt contracts.

✅ 7. Insurance standby letter of credit

(INSURANCE STANDBY)

💧💧 Support the applicant's insurance or reinsurance obligations.

✅ 8. commercial standby letter of credit

(COMMERCIAL STANDBY)

💧💧 It means guaranteeing the applicant's payment obligation for goods or services if payment cannot be made by other means.

🔵 Four: SBLC’s scam

📣 (1) Import standby letter of credit fraud

Import standby letter of credit fraud is when fraudsters use temptation and deception to defraud bank financing, goods from actual suppliers, or deposits from importers.

They use the pretext of providing hot-selling goods to import companies to induce the buyer's bank to open an irrevocable standby letter of credit.

🔹 Common frauds involving import standby letters of credit have the following characteristics:

🔹🔹 1. Fraudsters lure buyer companies to apply for standby letters of credit from banks. The most common reason is to provide goods in short supply or other preferential terms.

🔹🔹 2. The payment period of a standby letter of credit is usually limited to one year forward and is based on the contract signed by the buyer and seller.

🔹🔹 3. Generally, fraudsters will provide a so-called standby letter of credit standard format and require the buyer to instruct the bank to open it according to it, and the letter of credit also specifically stipulates that the beneficiary be designated by him.

🔹🔹 4. Scammers aim to defraud huge amounts of money, so the amount of the standby letter of credit is generally larger.

🔹🔹 5. The defrauded parties include not only domestic import companies and banks, but also actual foreign suppliers, etc.

📣 (2) Export standby letter of credit fraud

It means that fraudsters, under the guise of normal trade and in the name of providing export payment guarantee to us, deliberately add certain "trap clauses" in the standby letter of credit that are very unfavorable to the exporter or restrict the exporter's initiative. Playing tricks in an attempt to defraud exporters of export goods or performance fees.

🔹 This type of fraud often has the following characteristics:

🔹🔹 1. The standby letter of credit issued contains unfavorable clauses or trap clauses for the seller, which restricts the exporter’s initiative.

🔹🔹 2. The applicant requires the beneficiary to pay a certain percentage of the contract amount or the issuance amount as a performance fee to its designated representative.

🔹🔹 3. Fraudsters open valid letters of credit through banks in the name of providing payment guarantees to exporters.

🔹🔹 4. The applicant colluded with the issuing bank to refuse to pay the export payment by any means, leaving the exporter with both goods and payment.

📣 (3) Investment and financing standby letter of credit fraud

Investment and financing standby letter of credit fraud is mainly caused by fraudsters using the name of "international consortium" to help local governments introduce foreign investment as an excuse to induce domestic banks to issue effective letters of credit, so as to defraud abroad, or pretend to be "foreign-funded enterprises" Under the guise of cooperative investment, they forged standby letters of credit from foreign banks as a financing guarantee in an attempt to defraud our bank's financing or loans.

✅ Potential scams typically appear to have the following characteristics:

⚠ ⚠ 1. Fraudsters claim to have the support of an "international consortium" behind them, which can introduce large amounts of funds into the country, or appear as "foreign-funded enterprises" to seek cooperative investment partners.

⚠ ⚠ 2. Fraudsters use their clever tongue to induce domestic banks to issue standing letters of credit under the pretext of attracting investment, or use joint ventures as an excuse to use any means to counterfeit standby letters of credit from foreign banks with huge amounts in order to obtain huge profits.

⚠ ⚠ 3. The fraudsters offer small profits, do everything possible to build relationships and trust acquaintances, and try to facilitate the matter through local government officials, while they themselves are controlling and directing behind the scenes.

⚠ ⚠ 4. Fraudsters sometimes use forged standby letters of credit issued by foreign banks as collateral, or use standby letters of credit issued by local banks to defraud local banks for loans or financing.

💧💧 5. The victims include domestic enterprises, local government officials and banks.

📚 Links to other articles on the subject are below. 🔻🔻

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