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Bank guarantee fraud: truth vs. scam

From The Dictionary of Financial Scam Terms©

An easy-to-understand guide to financial terms used by swindlers   

Bank Guarantee:  

Bank Guarantee is a real ScamSpeak™ term if ever there was one.  Even though it has found its way into common usage in the financial news section of many newspapers, it is nonetheless a favorite term used by con artists.

The only financial entity legally allowed to issue a document called a Bank Guarantee is THE WORLD BANK.  It is used to describe the instrument The World Bank (The Bank) issues to guarantee loans made by other banks to The Bank's creditworthy customer, and this is how it works:

ABC company has agreed to work with Outer Slobovia to build a dam and irrigation system in the country's hinterlands.  Neither ABC nor Outer Slobovia has the money for the project, and the amount required is too much for any one bank to lend.

Therefore, independently or as a joint venture, ABC and O. Slobovia approach The World Bank.

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After completing pages and pages of application forms, and after putting in place all the requirements of The World Bank regarding the project (such as insurances, environmental surveys, yearly projected costs, projected return, and a whole mess of details to cover every aspect of the project), The Bank takes several months to review the application.  

If and when The Bank feels that the project is loan-worthy and that ABC and O. Slobovia have or will have the ability to pay back the loan, The Bank arranges with a group of other banks to lend the money, and guarantees to each of these banks that it will pay back the loan in the event of a default by ABC, O. Slobovia, or both.  That is a Bank Guarantee, with initial capital letters.

Other banks, such as Chase Manhattan, Credit Suisse, or Deutsche Bank also guarantee loans in the same manner; however I have yet to hear that their loan guarantees have been officially titled Bank Guarantees.

Other than for the above description, "bank guarantee" is loosely used to signify any one of several financial instruments used in trade finance.  These include LETTERS OF CREDIT in their various roles, DEMAND GUARANTEES, and PERFORMANCE BONDS.

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The term is also loosely used to describe an AVAL, which is a PROMISSORY NOTE that has been date-stamped and signed by a bank for its creditworthy customer.  One might call a CERTIFIED CHECK an aval.

The Scam: Financial con artists persuade you that there is a wonderful, secret opportunity available in trading so-called PRIME BANK GUARANTEES, or PBG's.  They use the term as if it were a unique financial instrument, and attach all sorts of quick wealth accumulation to the myth.

The truth of the matter is that the buying and selling of trade finance instruments is a highly specialized field, relegated only to experienced FORFAITERS and the forfaiting department of international banks.  Forfaiting requires an intimate working knowledge of international politics, law, and economy.

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