The Fraud Form Number One

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The major form of fraud taking place in international trading today is documentation fraud. It is quite common in many industries that the goods are never sighted by trader or buyer until after the transaction is complete, monies paid, and goods shipped. Though this may seem odd to the uninitiated, it is a successful method of conducting trading because the seller does not receive payment until after the goods are shipped. In an ideal world, this means that the seller must prepare the goods for shipment, have them inspected by independent inspectors, and then ship them before they collect payment, which they do so presenting the documentation from the inspections and shipping company. The financial instrument which allows this to occur is called a letter of credit.
A letter of credit is a document issued by the buyer’s bank which assigns the value of the letter to the beneficiary (the seller) upon presentation of documentation which confirms that the goods have been shipped to the buyer. However, if documentation is falsified by the so called seller, and the bank makes payment on the letter of credit, then the buyer can easily be out both the cash and the goods through no fault of their own. The reason for this is explained more thoroughly in the next section, ‘Letter of Credit Fraud’.
Remember that banks deal in documents, not goods. This means that a scammer who appears to have the right documentation can often make off with the proceeds of a Bank Guarantee or Letter of Credit before the poor victim even knows what happened.

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