- Issuance of a Fake SBLC / or Fake SWIFT Message (Fake MT760)
- Criminals or intermediaries create a counterfeit version of an SBLC and use it to deceive the seller.
- Issuance of an SBLC from a Low-Credit or ‘Pseudo-Bank’ Lacking Payment Ability
- A weak or non-credible bank appears to provide a guarantee but in practice lacks the necessary liquidity/credit.
- Malicious Use of the “On-Demand / Payable at Sight” Wording
- The buyer or an accomplice causes the bank to pay by submitting an ambiguous demand letter without a real justification.
- Demand for Payment Using Fictitious Documents
- The beneficiary presents non-genuine documents (e.g., fake invoice, fabricated non-payment notice) and draws on the SBLC.
- Forged Signatures / Alteration of Documents or Fake Amendments (Amendment Fraud)
- Forgery of signatures or SWIFT amendments that change the terms in the beneficiary’s favor.
- Fake Back-to-Back or Monetization Schemes
- Using the SBLC as collateral in non-credible networks that disburse funds incompletely or fraudulently; or through fictitious SPVs.
- Intra-Bank or Inter-Bank Collusion
- In rare cases, internal individuals or banking intermediaries collude to issue/confirm a fake SBLC or improper payment.
- Malicious Automatic Extension (Auto-Roll Fraud)
- Repeated, unclear extensions to maintain a fake guarantee until the perpetrators can exit with profits.
2 — Consequences / Risks Arising from Abuse
- Illegal withdrawal of large sums from the issuing bank, or the beneficiary receiving funds that are difficult to recover.
- Financial and reputational loss for the Applicant and loss of trust between trading parties.
- Complex legal disputes between banks and high legal/arbitration costs.
- Risk of exposure to financial crimes/sanctions if a network from an unsuitable third country is involved.
3 — General Prevention Principles (Golden Rules)
- Never accept an SBLC without official SWIFT confirmation. A mere PDF or fax is insufficient.
- Always request the genuine MT760/MT767 from the issuing bank or via the advising/confirming bank.
- Request confirmation from a reputable bank (Confirming Bank) — especially if the issuing bank is in a high-risk jurisdiction.
- Define the SBLC text very precisely and restrictively (clear demand documents – avoid generalizations).
- Segregation of duties and triple-party agreements (tripartite document) between the issuing bank, beneficiary’s bank, and seller in case of Monetization.
- Implement strict KYC/AML for all parties and intermediaries before accepting the SBLC.
- Use of escrow or a third-party trustee to safeguard funds in sensitive transactions.
4 — Practical Solutions and Operational Controls (for the Beneficiary)
a) Authentication and Verification of Credibility
- Request an MT760 or referenced SWIFT message; check the Sender BIC and Reference; contact the Relationship Manager at the issuing bank directly (not just the message sender).
- Research the issuing bank’s credit rating (S&P, Moody’s, Fitch) and if the credit is low: request a confirmed SBLC from a reputable third-party bank.
- Formal inquiry from the advising/confirming bank: via phone and in writing (secure channel), followed by a SWIFT check.
b) Look For / Request These Clauses in the SBLC Text
- “Unconditional, irrevocable, on-demand payable at sight upon presentation of Beneficiary’s demand letter.” (If you want a strong guarantee)
- Precise definition of demand documents — for example: “original signed demand letter on company letterhead + copy of unpaid invoice No. X dated Y + statement of account from Issuing Bank confirming non-payment” — but note: the fewer and simpler the documents, the easier the collection, but the higher the forgery risk.
- Stipulate the method of communication and exact bank addresses and that “payment shall be made within X banking days upon receipt of compliant demand”.
- Request a confirming bank: “This SBLC must be confirmed by a bank acceptable to the Beneficiary”.
c) Operational Mechanisms
- Use of an escrow agent: in large transactions, hold funds or the SBLC with a broker/escrow account until genuine documents are presented.
- Request additional security (counter-guarantee) from the applicant, such as a property collateral or local BG, so that recovery is faster in case of fraud.
- Demand a full SWIFT trail for any drawdown request; if the message chain is incomplete, stop the payment.
- Request a fraud exception clause in the main contract: if the beneficiary draws using forged documents, the right to draw under the SBLC is voided and an obligation for immediate repayment is established.
d) Actions Following a Suspicious Demand/Payment
- Immediately initiate a SWIFT recall/payment investigation; notify the issuing bank and the advising bank.
- File a legal complaint and pursue criminal/civil legal action in relevant jurisdictions; inter-bank coordination to recover funds.
- Use expedited arbitration and request provisional measures / interim injunction from a court/arbitral authority to prevent the transfer of funds.
5 — Practical Solutions (for the Applicant / Buyer) to Prevent Abuse While Maintaining Protection
- If you are the applicant and want to use an SBLC without being exposed to the threat of fraud:
- Negotiate a conditional SBLC (with specific and clear documents) so the bank pays only based on specified, compliant documents.
- Use a reputable confirming bank so the seller feels assured; you can also provide a local bank guarantee or deposit to reduce the confirmation cost.
- Stipulate limitations on demands (e.g., no multiple on-demand draws without proof) to prevent repeated drawings.
- Maintain SWIFT records and correspondence in a secure space.
6 — Banking and Technical Controls That Banks Should Implement
- Two-step issuance and advice (issuance vs. advising); meaning an independent authentication bank reviews and confirms the message.
- Check fees/VOL and match KYC and source of funds; block issuance if anything is inconsistent.
- Complete lifecycle recording of the SBLC in the system (audit trail) and allow amendments only with a multi-signature workflow.
- Internal anti-fraud systems to detect fake formats in text and SWIFT messages.
- Requesting confirmation from the client’s reputable bank as a condition for issuance or advisory.
7 — Sample Contractual/Protective Clauses (for inclusion in the main contract or SBLC text)
(a) “Issuance of SBLC: The Buyer is obliged to provide, within 10 days of the contract date, an irrevocable SBLC, conditional or unconditional [specify], issued by a bank with a minimum credit rating of A-/A3 in favor of the Seller. The SBLC must be sent via SWIFT MT760 and be verifiable by a reputable advising bank.”
(b) “Demand Documents: Drawing under the SBLC is only permissible upon presentation of: (i) an official demand letter signed by the Beneficiary, (ii) a copy of the original invoice, and (iii) an independent certificate from an inspector accepted by both parties (Independent Certifier) indicating failure to perform the obligation.”
(c) “Protection Against Forgery: Any draw request resulting in payment must have a complete SWIFT reference (MT760 + MT799 trail) and official telephone confirmation from the Relationship Manager of the Issuing Bank; otherwise, payment will be suspended.”
(d) “In case forgery/fraud by the Beneficiary is proven, the Issuing Bank is obliged to return the amount to the Applicant’s account, and the Beneficiary shall bear full legal responsibility and compensation for damages.”
8 — Quick Operational Checklist for the Seller (Beneficiary) — Before Accepting an SBLC
- Request a genuine MT760 and check the Sender BIC.
- Direct inquiry to the issuing bank through official channels.
- Check the bank’s credit rating, and if needed, request a confirming bank.
- Have a banking/legal lawyer review the SBLC text.
- Agree on demand documents and the extension mechanism prior to issuance.
- Establish an escrow/tripartite agreement for large transactions.
- Set up monitoring of the SWIFT trail and contact the advising bank for any change/amendment.
9 — Quick Warning Indicators (Red Flags)
- PDF file of the SBLC without a SWIFT/MT760 message or with an unclear SWIFT reference.
- Unknown issuing bank, with a new or suspicious BIC.
- Amendments under time pressure and without an official SWIFT channel.
- Demand for payment with very generic documents (“we demand payment because buyer failed”) without supporting evidence.
- Request for Monetization or Back-to-Back from unknown intermediaries promising immediate liquidity.
- Frequent extensions without a commercial rationale or technical reason.
10 — Executive Summary (Summary of Recommendations)
- Identify; Verify; Document; Restrict — four key steps.
- Insist on MT760 + confirmation from a reputable bank.
- Write the SBLC text precisely and document-focused (avoid ambiguous phrases).
- Use escrow and tripartite agreements in large transactions.
- In case of a suspicious payment, immediately take legal and inter-bank action and preserve the SWIFT network message as evidence.
- Training the legal/financial team and establishing direct channels with relationship managers at banks is the biggest deterrent to fraud.
D. Nader Salek
www.Ghlolo.com
