The Prime Bank Instrument Raises Its (Ugly) Head Again

May 8, 1998 - The Vancouver Sun newspaper ran a story about a couple who lost $70,000 Canadian in a prime bank instrument program. Their's is not an isolated case.

Selling the sizzle is what these fraudsters are good at, and the good ones ply their trade with all the finesse and confidence of Wall Street promoters. The prime bank note or bank roll program has been around for years, but like the Nigerian Scam, it continues to catch new victims. According to the International Chamber of Commerce's commercial crime bureau, it involves $10 million US daily in North America alone.

The Sun story explained how Bob and Robin Blanchard borrowed the money to invest in the program in 1995 after signing a non-disclosure statement to prevent them from talking about the deal with anyone, including lawyers, financial advisors because they were joining " a priviledged group getting in on a very exclusive investment" which relies on secrecy.

What makes gives the scam it's allure is the idea that those who partake are joining an elite group of investors with access to extremely valuable and highly confidential information. Although there are a number of variations, the principle is the same. The big banks around the world lend each other money by issuing notes with face values of $100 million or more. These notes can be re-sold number of times at a discount (profit) to other lenders so that the original issuer can reap a handsome profit in a relatively short time. The figure commonly bandied about is 30% per month. The term of the notes vary from 30 days to a year or more.

Small investors must pool their money to build it up to a minimum $10 to $100 million so brokers get involved. Often a tax haven country is used to add to the intrigue and no tax need be paid by the shrewd investor, or at least that is what they are told.

To make the story more believeable, the names of large, well-known international banks like Barclays, Lloyds Bank and Chase Manhatten are used.

To the scrupulous investor there are some danger signals that should tip you off.

1. You are told as an investor and not a principle (you don't have $10 million US) you have no personal security. The broker will tell you that there is no need to worry because every penny is secured by an LC (Letter of Credit) or other guaranteed bank certificate.

2. You are told not to phone the bank who's name you are given because they cannot acknowledge the existence of such an arrangement unless you are the principle.

3. There is a high degree of trust necessary. The broker will tell you that he has no interest in stealing your money because he makes enough from the deal already, and besides, he wants to have you participate in the next program so you and he can get rich together.

4. You are told not to seek professional advice because the information is reserved only for those who participate in the program. Strangely few if any lawyers or professional advisors are invited into the program.

Often exotic sounding banking terms are bandied around that are confusing to all but the professional banker or investor. This is done to intentionally confuse and intimidate the victim so that they feel too self-conscious to ask questions. You might even be shown what appear to be high quality documents purporting to be from genuine lending institutions but there is no way to check their authenticity. Usually they are either worthless or forged.

The sad part is that the victim may not fully appreciate their true fate until years later. The brokers will keep the dream alive by saying that the profits have been re-invested and may even attempt to lure the victim into another scheme before they realize what they are into.