Bank Roll and Bank Debenture Schemes
For some years now the "Roll Programme", "Bank Paper" and similar pie in the sky schemes have been floating around. We see at least two or three a month and each one is touted as "the one that works" and the touter has personal knowledge of someone who has benefited from investment - if that's the right word - in such a programme.
The process is always involved in much mystery and is so secret that mere mortals and bankers cannot be made privy to the system - otherwise everybody will be doing it and ruin the whole financial structure of society! Returns are promised to be phenomenal and are such that the numbers become mind boggling. One would-be client of ours wished to deposit the proceeds of his trading (when successful) with a major bank here. We had to point out that they would probably be reluctant to accept the deposit since it exceeded their own capital! Such is the naivete of participants in the programmes.
Buzz words are "Federal Reserve", "Blocked Fund Letters", "Irrevocable Letter of Credit", "Prime Banks", "Guaranteed" (in the history of mankind there has never been any way to "guarantee" an investment) and similar financial mumbo jumbo. The promoters are always touchingly reticent about revealing the banks involved - it is a little difficult to track down the Federal Reserve to make enquiries - and the process is so secret that even they probably don't know.
If so many people had not lost their money and, in some cases, much more, it would be laughable. If you are ever approached with such a plan, please do not get involved but send us the details. The authorities are getting far more aggressive about prosecuting such fraud and we shall be pleased to pass the information along. The following is an excerpt from an advisory issued by the SEC.
SO-CALLED "PRIME" BANK AND SIMILAR FINANCIAL INSTRUMENTS.
The Securities and Exchange Commission is alerting investors to the recent rise in possibly fraudulent schemes involving the issuance, trading or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments.
These instruments typically take the form of notes, debentures, letters of credit, and guarantees. Also typical in the offer of these instruments is the promise or guarantee of unrealistic rates of return, for example, a 150 percent annualized rate of "profits." Common targets of these schemes include both institutional and individual investors, who may also be induced to participate in possible "Ponzi" schemes involving the pooling of investors' funds to purchase "prime" bank financial instruments.
On October 21, 1993, federal financial institution supervisory agencies issued an Interagency Advisory to their regulated financial institutions. The Interagency Advisory warned of the use of schemes involving "prime" bank financial instruments and noted that:
* Individuals have been improperly using the names of large, well-known domestic and foreign banks, the World Bank, and central banks in connection with their "Prime Bank" schemes.
* The named institutions "had no knowledge about the unauthorized use of their names or the issuance or anything akin to 'Prime Bank'-type financial instruments."
* The staffs of the federal supervisory agencies are unaware of the legitimate use of any financial instrument called a "Prime Bank" note, guarantee, letter of credit, debenture, or similar type of financial instrument.
* Financial institutions should watch for the attempted use of traditional types of financial instruments that are referred to in an unconventional manner, "such as a letter of credit referencing forms allegedly produced or approved by the International Chamber of Commerce."
As to this latter point, the Interagency Advisory referred to examples of "bogus schemes involving the supposed issuance of an 'ICC 3034' or an 'ICC 3039' letter of credit by a domestic or foreign bank."
Most of these schemes involve incredibly complex and thus obscure mechanisms. In the eyes of an unsophisticated investor, this complexity may make a questionable investment appear worthwhile.
The SEC warns investors and those who may advise them, particularly broker-dealers and investment advisors, of this possible hallmark of fraud and reminds them of a basic rule for avoiding securities fraud, "If it looks too good to be true, it probably is!"
The SEC requests that those with information regarding the offer or sale of "prime" bank or similar financial instruments provide that information to one of the SEC offices . When information is sent to one of the regional or district offices, it should be sent to the attention of the Assistant Regional Administrator (Enforcement).
http://www.sec.gov/consumer/cyberfr.htm
The Prime Bank Instrument Raises Its (Ugly) Head Again
May 8, 1998 - The Vancouver Sun newspaper ran a story about a couple who lost $70,000 Canadian in a prime bank instrument program. Their's is not an isolated case.
Selling the sizzle is what these fraudsters are good at, and the good ones ply their trade with all the finesse and confidence of Wall Street promoters. The prime bank note or bank roll program has been around for years, but like the Nigerian Scam, it continues to catch new victims. According to the International Chamber of Commerce's commercial crime bureau, it involves $10 million US daily in North America alone.
The Sun story explained how Bob and Robin Blanchard borrowed the money to invest in the program in 1995 after signing a non-disclosure statement to prevent them from talking about the deal with anyone, including lawyers, financial advisors because they were joining " a priviledged group getting in on a very exclusive investment" which relies on secrecy.
What makes gives the scam it's allure is the idea that those who partake are joining an elite group of investors with access to extremely valuable and highly confidential information. Although there are a number of variations, the principle is the same. The big banks around the world lend each other money by issuing notes with face values of $100 million or more. These notes can be re-sold number of times at a discount (profit) to other lenders so that the original issuer can reap a handsome profit in a relatively short time. The figure commonly bandied about is 30% per month. The term of the notes vary from 30 days to a year or more.
Small investors must pool their money to build it up to a minimum $10 to $100 million so brokers get involved. Often a tax haven country is used to add to the intrigue and no tax need be paid by the shrewd investor, or at least that is what they are told.
To make the story more believeable, the names of large, well-known international banks like Barclays, Lloyds Bank and Chase Manhatten are used. To the scrupulous investor there are some danger signals that should tip you off.
1) You are told as an investor and not a principle (you don't have $10 million US) you have no personal security. The broker will tell you that there is no need to worry because every penny is secured by an LC (Letter of Credit) or other guaranteed bank certificate.
2) You are told not to phone the bank who's name you are given because they cannot acknowledge the existence of such an arrangement unless you are the principle.
3) There is a high degree of trust necessary. The broker will tell you that he has no interest in stealing your money because he makes enough from the deal already, and besides, he wants to have you participate in the next program so you and he can get rich together.
4) You are told not to seek professional advice because the information is reserved only for those who participate in the program. Strangely few if any lawyers or professional advisors are invited into the program.Often exotic sounding banking terms are bandied around that are confusing to all but the professional banker or investor. This is done to intentionally confuse and intimidate the victim so that they feel too self-conscious to ask questions. You might even be shown what appear to be high quality documents purporting to be from genuine lending institutions but there is no way to check their authenticity. Usually they are either worthless or forged.
The sad part is that the victim may not fully appreciate their true fate until years later. The brokers will keep the dream alive by saying that the profits have been re-invested and may even attempt to lure the victim into another scheme before they realize what they are into.
Prime Bank Instruments. Bank Debenture Programs
(From International Trade and Investment's page)
London, February 29--The International Chamber of Commerce today launched a worldwide campaign to alert investors, banks, and other providers of financial services to frauds in so-called Prime Bank Instruments, which it said have reached epidemic proportions.
The ICC's Commercial Crime Bureau believes that the millions of dollars in losses from fraud reported every year represent only a fraction of the total. In an updated special report published today, the CCB estimates that probably less than 10% of these frauds worldwide are even notified to law enforcement agencies. The report goes on to list telltale danger signals that can keep investors out of trouble.
The fraud itself is easily described, but there are hundreds of variations. It is based on impressive-looking documents purporting to have been issued by well-known banks. Victims are told that these instruments are available only to a limited number of investors, are risk-free, and can be sold quickly for a huge profit. In fact, they are peddled illegally and without financial backing by an institution or an individual who has no intention of honoring any financial undertaking.
In its report, "Prime Bank Instrument Frauds - The Fraud of the Century," the CCB - one of three units of ICC Commercial Crime Services - says that, despite the many warnings financial institutions have issued, frauds continue unabated and victims remain as gullible as ever. Terminology is being changed to muddy the waters and confuse investors. Often terms that actually exist in financial markets are quoted, but even then the frauds can easily be detected.
In a written statement presented at a London press conference, the President of the ICC, Rahmi Koc, said: "The ICC is raising the alarm about a crime which flourishes particularly strongly in today's global markets, with their voracious appetite for capital. The ease and speed with which documents and vast sums of money can be exchanged electronically makes vigilance all the more necessary."
The CCB report said the key to successful frauds was credibility. This credibility can be provided unwittingly by banks and brokerage houses who have failed to make adequate checks. Fraudsters also gain credibility by using law firms to assist them to open bank accounts, invariably starting with small sums with the promise of big money to come.
Case histories in the report demonstrate how people are all too easily taken in by bluster, bluff, name-dropping and pretentious language. Many of the frauds gain bogus authenticity by quoting renowned institutions. Eric Ellen, Executive Director of Commercial Crime Services, told journalists: "Nothing is sacred. The U.S. Federal Reserve, the IMF, the World Bank, the Bank of England and even the Queen of England - all have been cited in fraudulent documents to win the confidence of victims."
The ICC itself is often falsely quoted on phoney documents. Because the Paris-based world business organization devises many of the rules and mechanisms under which international trade is conducted, fraudsters make use of bogus instruments which refer to ICC rules and procedures.
ICC officials report that hardly a day passes without a call from an anguished investor who is slowly beginning to realize that he has lost a huge sum on a fraudulent scheme. The CCB report says: "Prime Bank Instrument frauds exist because of the simple myth created by the fraudsters. The myth suggests that a lucrative trade in Prime Bank Instruments has been going on for as long as anyone can remember, and that banks and governmental organizations are involved."
In his prepared statement for the press conference, the ICC President said that, as the organization that represents world business, the ICC is vitally interested in preserving the trust which lies at the heart of all business relationships. Mr. Koc, who heads Turkey's biggest industrial conglomerate, said: "International business cannot afford to tolerate any erosion of confidence in legitimate banking or trading instruments."
Mr. Koc was prevented from coming to London for urgent personal reasons. His statement was presented by Jean-Charles Rouher, Secretary General of the ICC.
Review copies of the CCB report may be obtained from the ICC Communications Division in Paris or ICC Commercial Crime Services.
For further information, please contact: The ICC Communications Division or ICC Commercial Crime Services in London, Tel: (44) (0) 181 591 30 00; Fax: (44) (0) 181 594 28 33
or in the United States: S. Isabella Chung, Manager, Legal Affairs/Intellectual Property at the United States Council for International Business, Tel: (212) 354-4839, Fax: (212) 575-0327
The International Chamber of Commerce (ICC) has 7,000 member companies and associations in more than 130 countries. It serves world business by promoting trade and investment and the free market system. ICC Commercial Services is a specialized division of the ICC, charged with combatting crimes affecting business. It comprises the Commercial Crimes Bureau, the International Maritime Bureau, and the Counterfeiting Intelligence Bureau.
The USCIB is the American affiliate of the International Chamber of Commerce, the Business and Industry Advisory Committee (BIAC) to the OECD, and the International Organisation of Employers (IOE). As such, it officially represents U.S. business positions in the main intergovernmental bodies, and vis-B-vis foreign business communities and their governments.
For more information contact:
USCIB at 212-354-4480 or info@uscib.org
All Contents 1996-1998 U.S. Council for International Business. All Rights Reserved.
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