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.