Two very different kinds of problems
In trade finance, the usual fraud involves a beneficiary presenting bills of lading, invoices, or inspection certificates that are forged or describe goods that were never shipped. The issuing bank's obligation is generally independent of the underlying contract, so the bank looks at documents rather than the deal, but the law recognizes a narrow fraud exception. The second kind of problem is an investment or financing scheme built around standby letters of credit, often described as leased, monetized, or traded instruments promising unusual returns. Regulators have long warned that those offerings are commonly fraudulent, and the money paid in fees is often difficult to recover.
Acting before payment is made
If you are an applicant and believe a presentation is fraudulent, timing is critical. Courts may, in limited situations, enjoin a bank from honoring a draw, but the standard is high and judges are cautious about interfering with the independence of the letter of credit. The evidence usually needs to show material fraud, not just a contract dispute or poor quality goods. Gather the letter of credit, the underlying contract, shipping and inspection documents, and communications with the beneficiary and banks, and notify your bank of your concerns in writing.
Questions for a first discussion
We look at the governing rules, whether the letter incorporates international banking practices, which courts have jurisdiction, and whether an emergency application is realistic. For people who paid fees in a standby letter scheme, we discuss reporting to regulators and law enforcement, tracing payments, and whether intermediaries or advisers may bear responsibility. In both settings, we try to give a clear-eyed view of the chances of stopping payment or recovering funds before you invest in litigation.
