Most cases of fraud, not only in the sugar business, are only successful
because the buyer allows it to happen. Often this comes down to pure greed
on the part of the buyer. Fraudsters are always on the look-out for the
buyers who think they are the smartest, because they are the ones most
likely to be attracted to a 'bargain offer', by words like 'unbelievable
but true', or 'cancelled order, ship on the high seas'. If you want to
join the ranks of the conned, then:
1. LOOK FOR THE CHEAPEST PRICE
2. PAY BY 'STANDBY LETTER OF CREDIT'
3. PAY BY "PRIME BANK GUARANTEE"
4. ISSUE A LETTER OF CREDIT BEFORE THE PERFORMANCE
BOND IS OPEN
5. DON'T BOTHER TO ASK YOUR BANK TO GET PROOF OF
PRODUCT FROM THE SELLER'S BANK.
6. DON'T BOTHER MEETING THE SELLER
7. DON'T SHOW YOUR LAWYER OR ATTORNEY THE CONTRACT.
8. DON'T ASK YOUR BANK FOR ADVICE.
PRICES: Sugar refineries are in business
to make money, and do not need to sell their product below the market price.
Much sugar is sold world wide through trading companies who buy from refiners
and sell through financial markets such as the UK LIFFE and the USA CSCE.
These prices are public knowledge and are published in newspapers, on teletext,
and on the Internet. To be added to these prices are the distribution,
handling, shipping and insurance costs, as well as the profit margins of
the parties involved in the whole process. Any of the large, well know
refiners, producers or traders such as UK's Tate and Lyle or members of
the "RSA" (Refined Sugar Association) will happily quote a price to a buyer
who is financially able. As at the 7th of June 1998 the London futures
price for whites was at USD262, and an average price CIF is in the USD300-315
range, for ICUMSA 45, the normal high quality product we take in our tea
or coffee.
Apart from this visible market, there are also refiners who sell directly
to trading companies, who are able to sell at lower prices simply because
they have lower overheads, contract to take a large amount in a given period,
and work on lower margins than the stock exchange quoted majors. However,
the price difference between the two markets ('primary' and 'secondary')
is not as large as a casual browser of the Internet BBS sites would think,
perhaps 20 -30 USD per tonne at most, depending on the size of the contract
and delivery point.
The Standby Letter of Credit - Uses and Abuses
A Standby Letter of Credit is sometimes used in place of a bank guarantee
of payment, particularly by American banks, rarely by U.K. banks. The true
purpose of this financial instrument is to provide protection for a Seller
should the Buyer fail to pay for his goods at the agreed time. If, for
example, an exporter of computer monitors agrees to ship every month 10
containers to his customer in Australia, and the Buyer agrees to pay by
electronic means on the 10th day of the month following delivery, the Standby
L/C is put in place by the Buyer's bank, and would here probably be equal
to the amount due by the Buyer in a two month period. The terms of the
L/C will permit the Seller to make a statement to his bank confirming that
payment has not been received within the agreed time, and the issuing bank
must pay the sums due to the Seller.
The security to be provided by the Buyer to his bank is agreed between
them, and can be between 2 and 3 months worth of the amount of goods expected
to be shipped and purchased.
Banks would only in very very exceptional circumstances ask for
a guarantee of payment from their clients covering one full year!!
A more usual payment instrument is the Revolving Letter of Credit.
This is used particularly in the sugar business when a Buyer wishes to
fix a price valid for say one year, and the Seller makes a commitment to
supply at that fixed price. Because the Seller has in turn made a commitment
either to his own refineries or to the supplying refineries to purchase
for one year, the Buyer has to ask his bank to guarantee that the L/C will
in fact revolve every month / shipment until the end of the contract. The
costs and the securities required for this commitment by the Buyer's bank
are a matter for negotiation for the Buyer and his bank. The guarantee
given by the bank is however part of the L/C text, and is NOT A BANK GUARANTEE,
i.e. is not a separate negotiable instrument, and cannot be discounted
in any way. The Seller is not interested in what this guarantee costs the
Buyer, since it has no effect on him whatsoever.
'Fully Funded L/C'
This is another one of these fantasy names which belong in the same
category as the above.
I don't know what it is meant to mean, and nor does my bank ................
A free trip to Scotland for the first person to fax me one !!
THE CROOKS, 'SLC', 'PBG'......
Scenario (1): Seller offers sugar at USD250 CIF for 100,000 tonnes over
8 months. Seller asks for a 'SLC' or 'PBG' covering the whole amount, claims
it has to be that way in case Buyer defaults. Seller offers to post his
Performance Bond before the L/C is opened, and it is to become effective
after the 'SLC' or 'PBG' has been irrevocably issued. Buyer issues SLC,
Seller uses the security of the 'SLC' which is now open in his favour,
and does in fact activate the P/B. Buyer goes to shady bank in off-shore
haven, and sells (discounts) the SLC for 70% or more of it's value. No
sugar is supplied. After eight months bank presents SLC to Buyer's
bank and receives payment. Buyer loses his money and tries to find Seller
who has long since gone off to the Seychelles or other country with no
extradition treaty.
Scenario (2): As above, except Buyer's bank makes payment conditional
on sight of Bills of lading, or other documents - Seller produces forged
documents and claims for the first vessel, say 25,000 tonnes (USD6,250,000).
Buyer has to pay his bank, tries to find seller as above....
Scenario (3): Greed again - the story for the sophisticated Buyer:
Seller tells Buyer he will use the SLC to invest in a HIGH YIELD PROGRAMME
(sorry, program !), and will make so much money that he can sell the sugar
for, yes, special offer, USD 85 per metric tonne CIF ASWP !!
Wow! Who could resist? Yes sir, to any port in the world, from Murmansk
to Taipei to Luanda.
The rest of the story as above......
Now of course any half intelligent person who has the money to open
an irrevocable bank guarantee with no conditions attached for 8 months
will not bother with sugar if he can make so much from a 'program'. If
'programs' exist, why doesn't he pop down to his local bank and ask? Or
call up the Federal Reserve and ask them? AH, but it is secret Sir, and
you have to be in the sugar business to take part - or some such story.
A fool and his money are easy parted, as they say.
So a word for sugar Buyers:
1. NEVER sign a contract where payment is by irrevocable 'SLC'
or 'PBG'
2. NEVER put your money down first, i.e. the Seller should put
down his P/B first.
3. ALWAYS ask your bank to get confirmation with bank responsibility
from the Seller's
bank that the seller is genuine and can supply the
sugar.
4. ALWAYS get your lawyer / attorney to check everything before
signing.
5. ALWAYS inform yourself as to the real current costs by asking
friends and
competitors, or even reading the newspaper.
CANE
SUGAR TRUST CO LTD
FRAUD
- WARNING FROM THE ICC