How do you know if an L/C is fraudulent or not? by Ian Lydiatt
Aug 10, 2015
When you deal with companies who may not be local - or are in other countries, it can be very difficult to quickly determine - in less than 5 minutes - if the Letter of Credit is real or not.
Because I was put in this position a few times, and through our Royal Canadian Mounted Police ("RCMP"), Commercial Crime Department, I was fortunate enough to have been given a heads up once for this one company we were asked to deal with. The RCMP told me the company was fraudulent, and they tried to warn a few others who were being tempted and I just happened to be one of them. I had called the RCMP because one of our sales representatives on a visit overheard a conversation of two workers there talking about a recent visit by the RCMP. The sales rep was not supposed to hear the conversation so listened and reported it to me. I also had to be sure the company didn't know I was checking them out because of the potential fraud element.
However, you may not always know this, and your customers can get very upset with you if you ask for confirmation fees through your own bank, just to confirm it is authentic. That costs monies and may be seen as 'pouring cold water' on a sale according to your sales department, besides the embarrassment, extra time and extra costs. Okay then, how do you do this?!
Really simply, by using your local phone directory and get a hold of the bank number in the country and location as showing on the Letter of Credit. Use the number your local telephone directory service gives you – not the phone number on the L/C!! Once connected, ask to talk with one of the signing officers showing on the Letter of Credit. If they say they don’t work here – you have your answer telling you the L/C is not authentic! Once you get a hold of them, at least you know the Letter of Credit is real or not. If the bank asks why you are calling, tell them, "It is company policy to independently check all Letters of Credit this way, and all you were doing is this verification without any other information release required!"
I would also assume you and your company have a Credit and Collections Policy that determines if the bank rating fits your approval criteria. That is to be sure you aren't given a Letter of Credit by a small corner bank. Another part of this process that is very important is to verify that the bank name on the rating matches exactly the same as what is on the Letter of Credit to be sure it is not given to you by an unrated subsidiary!
Good luck with your approvals and remember to watch out for potential fraud as the kindest people can sometimes be the worst ones, so calling through your phone directory service is quick, painless, virtually costless - and above all, without harm!