- Anti Money Laundering
- automatic extension
- bill of lading
- Counter Terrorist Financing
- financial crime
- Financial Guarantee
- Independent Guarantee
- LC Law
- Red Flags
- Standby LC
- Trade Based Financial Crime Compliance
- tranport documents
- wrongful dishonor
Those who forget the lessons of history are condemned to repeat them. Trade finance frauds are no exception.
Solo Industries Scam: Still Top of Mind
In the IIBLP’s Dubai Trade Law & Compliance Conference held in Dubai on 15 March 2022, one of the panelists referred to the Solo Industries fraud in a panel discussion addressing the recent Singapore case, Credit Agricole Corporate & Investment Bank (CACIB), Singapore branch v. PPT Energy Trading Co.
In this case, the Singapore Court ruled that “fraud can only, by definition, encompass a beneficiary who acts dishonestly, in presenting otherwise facially compliant documents either with the knowledge that what is contained therein is false, or without belief that what is contained therein is true.” The Court determined that CACIB, as an issuing bank, could have defense to the claim under the LCs only if it could prove that the beneficiary (PPT) was a party in the scheme to defraud CACIB which its own client, the Applicant (Zenrock Commodities Trading Pte Ltd.) had perpetrated.
The reference to Solo Industries took me down memory lane when I was heading trade finance operations of a bank in Dubai in the mid-1990s and was receiving several high value LCs in favour of Solo Industries issued by my bank’s correspondent banks and its overseas branches in India, Europe, and USA.
My bank’s role was to simply act as an advising bank and since the LCs were “freely negotiable” (a term used in UCP500) and were not required to be confirmed, no documents under the LCs were ever presented to us. Wondering as to the disposition of the documents and sensing a possible discounting opportunity from Solo Industries, I called Madhav Patel, Director of Solo Industries, requesting him to route some business through my bank. He simply replied, “not interested”. It seemed that he was getting far better pricing from other banks in Dubai than what he thought my bank could possibly quote at the time in 1995.
I could certainly match or improve on his pricing expectation, but I had a strange hunch to drop the discussions. It was as if my intuition was telling me that something was not quite right which my rational mind could not yet explain. A few days later, Patel came down to my bank to see me. Having built his reputation over 20 years, Patel was quite well known in Dubai banking circles and was considered a highly respected, sought after businessman among the trade finance banks. For instance, I was told that an AED 100m (USD 27.2m) facility was approved for Solo Industries by one bank in Dubai in less than a week. This would be my first and last meeting with Patel.
We exchanged business cards (see below). He looked suave, well-mannered, and sophisticated in his soft and gentle speaking style. At the time, no one thought in their wildest imagination that Madhav Patel’s company was presenting fake or falsified documents covering nonexistent cargoes under LCs and that the company was perpetrating massive multi-hundred million dollar LC frauds which would eventually cause unprecedented losses to banks and cost several corporate bankers and relationship managers their jobs.
In UAE alone, 26 banks lost close to USD 500m and a few other banks in the Gulf region, Europe, and Far East collectively losing another few hundreds of millions of US dollars. Such was the extent of the fraud that one multinational bankdelayed its 1999 balance sheet that year to reflect and book its losses arising from the frauds. Another multinational bank decided to exit from the Gulf region. One branch of a bank in the Middle East reportedly lost an amount exceeding its local country capital brought in to support its UAE operations.
Patel became UAE’s most wanted criminal and was also wanted by Interpol and police in India, Bahrain, France, Switzerland, Belgium, and UK. By 1999 after I had already moved to Bahrain, I read in local newspapers about the Solo Industries fraud and realised how true my hunch was. I was lucky. But did banks in the region learn their lesson...
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This issue will be discussed at the upcoming New York Trade Finance Compliance Conference in-person/online on October 20th, 2022.
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