Ironclad guarantees could herald return of old advance-fee scams

“I am Prince Okechuku. Please help me,” the email in my spam folder begs.

It’s one of billions of emails sent out by fraudsters daily. All you need to do to help and share in the loot of imaginary millions is to send your bank account number, email address and the name of your first pet.

These emails are basic scams invented by Nigerian fraudsters known as Yahoo Boys in that country’s parlance. The strategy is to obtain an upfront fee and then disappear.

However, these scammers are just the less suave siblings of much more effective international grifters — to be found in swanky corporate offices situated in places like Milan, Geneva and London’s Square Mile, not the Badagry District of Lagos.

KIDNAPPED

These sophisticated fraudsters do not send out emails pretending to be kidnapped princes. They advertise in glossy magazines, deliver polished PowerPoint presentations in boardrooms and are, to the easily over-awed, truly sophisticated professionals.

In the early years of this decade, these fraudsters wreaked havoc throughout East Africa, pillaging corporate treasuries and destroying the lives of senior and mid-level executives.

Unfortunately, the victims preferred to lick their wounds in private and this incredible era of advance fee scams remains relatively unknown outside a small group of forensic professionals.

This is how the scam works. A CEO of a medium-sized but ambitious state corporation plans to undertake capital intensive infrastructure projects, but does not have all of the cash to finance them. He seeks a bank loan, but needs collateral, which he doesn’t have.

BROKER

He is approached by the local agent of a broker, who leases collateral to secure loans at a fee in Europe.

A meeting is set in the broker’s swanky corporate offices in Dubai, Milan or Zurich. The broker, a Mr Hans, confirms he has a client willing to lease collateral to secure the loan. The broker issues a Collateral Leasing Offer for the CEO’s perusal and signature.

The offer is only valid for 48 hours and is subject to the CEO paying the broker’s fee, say 5 per cent of the value of the collateral offered. But since the broker is a man of honour, he doesn’t have to be paid before the collateral is released. All he needs is a bank guarantee equivalent to his fee. “Your success is my success”, he says.

AGREEMENT

The CEO issues the guarantee and signs the offer. Weeks, even months, pass and nothing is heard from Mr Hans.

The CEO attempts to cancel the bank guarantee but gets a letter from Mr Hans’ lawyers claiming that the CEO and his company are in breach of the agreement and have not fulfilled their obligations to enable the release of the collateral to the bank.

Alas, he never really read the document. Somewhere on Page 672 is a poison pill; an impossible obligation that must be performed.

The CEO is required to obtain a reverse guarantee from his bank that the collateral will be returned intact to the collateral owner even if the corporation defaults on the facility. Obviously, no bank would ever issue a loan on the strength of collateral that it a must-return to the owner regardless of whether the borrower defaults. The broker claims the guaranteed fee. On to the next victim.

MUTATIONS

This scam has many mutations, often including layers of complex obligations involving insurance companies, commercial and export-import banks, law firms, bankruptcy filings or even reverse guarantees that require someone to perform some impossible action or lose money. Ultimately someone is left holding the bag. “The broker has done nothing illegal,” is the response that comes from the police in Europe.

One hopes that recent talk of ironclad guarantees in public projects does not signal the return of these advance-fee scams.

It’s one thing to call a bunch of papers “guarantees”, and totally another one for that bunch of papers to actually be guarantees.

COURT RECORDS

Due diligence is essential — a thorough background investigation by corporate intelligence specialists to determine and ascertain parties’ past and present identities, histories and reputations through sentiment analysis, financials, international court records, informal discreet enquiries and independent reference checks. This is what intelligence agencies like the NIS (National Intelligence Services) exist to do.

Mr Kuria is a risk consultant specialising in detection, prevention and disruption of complex transnational financial crime. [email protected]