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ICC’s Financial Investigation Bureau (FIB) is advising the investment community to be on the look out for a variety of false Bank Guarantees. Two recent high-profile cases have highlighted the importance of carefully reviewing financial documents for specific terms used by fraud perpetrators.

The first of these recent cases involved financing to develop a new plant in Iran. The financing was offered against the issuance of a Bank Guarantee employing the terms ‘blocked for one year and one day’ and ‘agreement in accordance with ICC rules on non-circumvention and non-disclosure’. FIB Assistant Director Jon Merrett stated: “The ICC publishes a wide variety of publications, but our organization has never published any rules on non-circumvention and non-disclosure agreements for these kind of contracts.” Mr Merrett noted that fraudulent financial documents often utilize phrases that begin with ‘one year’ and are then followed by another period of time such as an ‘extra day, week or month(s)’.In the second case, a number of Eastern European banks were offered the
opportunity to invest in various daring business projects. The approach
suggested using interest free loans that would be balanced against a
Letter of Intent and a ‘divisible, assignable and transferable’ Bank
Guarantee. Mr Merrett clarified: “In most cases, guarantees are not
negotiable, assignable or transferable, unless expressly stated in the
covering contract. The only way to make them divisible is by tearing
them into small pieces.”The ICC’s financial watchdog, FIB offers members advice concerning any
financial documents they are unsure of. In many cases, a quick
investigation will determine the authenticity of the parties offering a
particular deal, and ascertain whether they have been involved in any
similar frauds under different guises. Mr Merrett explained: “For
example, the gentlemen behind the company in the Iranian case were
linked to several other companies trading from different locations. In
previous instances, they had been found guilty, and convicted, of
numerous variations on the same fraud.”Individuals and organizations
requiring reference materials for the prevention of financial fraud
should obtain a copy of FIB’s ‘Preventing Financial Instrument Fraud’.
This publication contains a comprehensive listing of common red flag
terms used by fraudsters, and shows how these phrases are used in a
variety of fake financial documents.To find out the latest in
financial fraud, attend FIB’s annual conference on the subject. The
conference takes place in London on October 12-13, 2004.