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International Trade Fraud Protection


We post this information here to educate our customers to be aware of fraudulent transactions that happen all the time, and be extra cautious when conducting a trade. We have heard of many horror stories, especially in the middle east where buyers issued L/C, and the sellers never deliver. There are just too many fraudulent sellers in the market place today. Anyone with a internet connection an claim to be a seller or a buyer.

How to find out if the seller is real ?? Do due diligence on the source of supply, check out the seller with the local chamber of commerce, buy an air ticket to visit the factory, talk to the owner, talk to the local SGS office, get bank-to-bank proof of product as soon as the LC is issued, issue only only non-operative LC that will be activated by the POP and PBG, check with Lloyds Register of Shipping when the seller said the goods is being loaded. Many of these actions requires some expenditure, but these are money worth spending to safeguard your own interest !!.

Sugar Frauds : Warning by International Chamber of Commerce


On 25th July 1991, a Bulgarian buyer paid US$3.8 million for 13,100 tonnes of Brazilian sugar by letter of credit. The payment was released by international banks on the basis of the usual documents which proved that the sugar was loaded on 17th July in the port of Santos on the m.v. Giovanna bound for Varna, Bulgaria. Neither the ship nor the sugar existed and the criminals have never been brought to justice.

In August 1992 a Paris bank released US$2.89 million under a letter of credit on the basis of documents stating that 10,000 tonnes of white refined sugar had been loaded on the m.v. Vladimir Ilyich in Panama, bound for Kalingrad, Russia. The documents were forgeries and the money has never been recovered.



There is nothing peculiar about sugar which lends itself to fraud: it is simply one of many commodities and trades which are used in similar fraudulent routines. Recent developments in international markets have increased the vulnerability of the sugar trade, thus raising the profile of frauds.


These developments include:

  1. the general liberalization of the international trade in sugar

  2. reduced supervision of payments as a consequence of reductions in currency and foreign exchange controls

  3. the explosive growth in the number of independent nations (e.g. the former USSR), creating numerous new trade routes, international banks, currencies and governments. These are frequently characterized by inexperienced management and inadequate regulation. When the exotic is commonplace, criminals are less visible.

  4. the advance in communications which enables criminals to operate by remote control and construct a web of fraud transcending boundaries with ease.

Frauds almost always have the general character of legitimate transactions of exchange, but with the crucial difference that while the honest party provides genuine value, the fraudster provides little or none. All frauds require the same basic ingredients. There must be substance or pretext to entice the victim, whether it be counterfeit goods, or forged documents proving title. There must also be a victim. Occasionally, the victim may be the market as a whole (e.g. the debasement of currencies by a government printing paper notes), but more usually the victim is an individual or business entity. The fraudster then needs a mechanism to obtain something of value in return for his fraudulent exchange. Finally, he needs to evade arrest for his crime.

Creating the Substance


Diamonds can be faked and old master paintings can be forged, but commodities are easily measured and tested and are rarely of sufficient value to attract forgers. With sugar, the fraudulent transaction is almost invariably based on a consignment which does not physically exist. Although surprising at first glance, this potential arises because bureaucracies everywhere have engendered a belief in the authority of paperwork. Just as worthless paper money is accepted as having value, so pieces of paper are accepted as having value, so pieces of paper are accepted as proof that a consignment of sugar exists. The ordinary man does not go to his central bank to check his wealth in gold - he relies on a statement of account on a bit of paper. By the same token, sugar documentation is taken on trust. It is only necessary to forge documents showing the existence of a consignment and to find someone to buy it.

Finding the Victim


Victims of fraud are almost always attracted by expectations of exceptional profit. They succumb more to their own greed than anything else. A deal which is too good to be true probably isn't true - yet people around the world queue up every day for all manner of schemes which could not logically be genuine. Sugar is openly traded on all the world's major commodity exchanges and its price is exactly established. There are several long-standing international sugar traders of the highest repute. Offers to sell sugar at less than the ruling market price makes no commercial sense - unless the real motive is fraud. This has been a standard ploy since time immemorial: to make the victim believe that he has access to a phenomenal deal; so good that he wants to keep it secret.


This enables the fraudulent seller to conceal detailed information about the origins and location of the sugar. The buyer thinks he is on to something no-one else knows about, which will make him a quick profit, and doesn't care too much about the origins of the sugar or why it is cheap, so long as it is genuine - and the documents appear to protect him on this point. To allay suspicions a fraudulent seller will often offer various assurances which seem to give protection, or at least to vindicate his character. He may lodge a performance bond equal to, say. 2% of the value. He is then risking 2% in the hands of an honest buyer in order to swindle him of the remaining 98%. He may provide various attestations from banks as to his financial worth (of no legal value or protection). He may offer to supply secret information about the exact location and origins of the sugar in return for, say, 10% part payment, either as a means of consolidating the deal or simply to abscond with the part payment. Provision of unnecessary quasi-official documentation is another tactic; any bit of paper which seems to confirm the existence of the sugar provides further re-assurance.

Extracting Payment


Victims are usually surprised and even outraged when they discover that the international banking system provided absolutely no protection against payments made on the basis of fraudulent documents. They fail to understand the rules of international payments systems and the division of responsibility between themselves and the banking system.

The common sugar fraud utilizes the normal international trading practice of payment via irrevocable letter of credit. The buyer first arranges for his bank to issue a letter of credit. This is a legal undertaking by the bank, not the buyer, to make payment when certain specified documentation is provided which "proves" the sugar exists and is in transit to the buyer or at some agreed location - documents the fraudster of course intends to forge.

Further Action


The best long-term defense is to ensure that fraudulent stories are well-publicised. Any information should be given to the International Chamber of Commerce, which has taken the initiative in gathering intelligence and advising those at risk.

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