Stand By Letters of Credit (SBLC’s)

Value
conversion depends on many factors, some fixed, some floating such as:

• Type of Letter of Credit varies and includes
  (SBLC, ILC, LC, Pay Order, etc.)


• It is Usually viewed as a SBLC is the
  Better Bank Instrument


• SBLCs are issued on a Bank-to-Bank Basis
  only


• The Issuing Bank Rating as well as location
  (branch) of Bank


• Who is issuing the instrument - individual,
  company, government, etc.


• Instrument Must Be in US Dollars only


• Bank Policy


• Market Conditions


• Client Anticipation of Return


• Place Transaction Occurs
  
  

What is done with ‘Cash’ after conversion
- this is becoming a paramount issue with banks converting the instrument,
the preferred and acceptable method is to deposit a portion of the redeemed
funds with the honoring bank, usually not less than 20% for a period of
not less than six (6) months.

Hints   

• These types of Bank Instruments can be
  issued to individuals, corporations, trust, pension funds, endowments,
  non profit organizations, or to any payable entity.


• Individuals who hold such an instrument
  may have problems with 3rd party transactions or banks.


• LC, ILC, or SBLC are often times issued
  for the sale and purchase of tangible assets.


• It is often easier to raise a 'Credit
  Line' than convert the instrument to CASH!


• Fluctuating World Market Conditions set
  the pace and determine the trading value, if any.


• Usually most every instrument can be converted,
  however, some are just Not desirable Trading Instruments on the current
  World Market.


• Certain Required "Documentation'
  is needed for this type of transaction.

U.S. Certificate of Deposits (CD’s)

Certificate of Deposits (CD’s) - outside
of USA, these are usually referred to

as ‘Fixed Deposits’ - Raise a ‘Credit Line’ against them or ‘Cash’ them
out right.

The
'Value Conversion' depends on many factors, some fixed, some floating
such as

• Type of CD (time, maturity date, ownership,
  value, etc.)


• Issuing Bank Rating as well as location
  (branch) of  U.S. Bank


• Physical Location of the Original CD
  - Safety Deposit Box, Corporate Office Safe, Home, etc.


• If an Agent, Security House, or Third
  Party Bank is Holding the CD’s


• CD's Must be Clean and Clear - No Encumbrances
  or Liens


• Market Conditions


• Bank Policy


• Currency Fluctuation, if wanted converted
  to other than US dollars


• Client Anticipation of Return


• Place Transaction Occurs

What is done with "Cash" after conversion

This is becoming a paramount issue with banks converting the instrument,
the preferred and acceptable method is to deposit a portion of the redeemed
funds with the honoring bank, usually not less than 20% for a period of
not less than six (6) months.

Hints

• Most CD's are usually issued to individuals.   


• CD's may be held by a trust, foundation,
  endowment, corporation, or nonprofit entity.    


• It is often easier to raise a 'Credit
  Line' than convert the instrument to CASH!    


• Fluctuating World Market Conditions set
  the pace and determine the trading value, if any.    


• Usually most every instrument can be converted,
  however, some are just Not desirable Trading Instruments on the current
  World Market.    


• Certain Required "Documentation'
  is needed for this type of transaction.

Documentary and Standby Letters of Credit

Effective January 1, 1999, banks may incorporate, by reference, the International Standby Practices, referred to as ISP 98, into their standby letters of credit.1 In doing so, banks will supplement and vary Article 5 of the Uniform Commercial Code ("UCC"),2 which governs letters of credit in most of the United States, and replace, as to such credits, the Uniform Customs and Practices ("UCP"),3 a statement of practices published by the International Chamber of Commerce ("ICC") that is nearly universally incorporated by reference into letters of credit. The purpose of this article is to describe when ISP 98 applies and how certain of its rules follow or vary from the UCC and the UCP.

Documentary and Standby Letters of Credit
Letter of credit law and practice, until quite recently, has evolved with the use of letters of credit in commercial sale of goods transactions. Stated simplistically, letters of credit have enabled sellers, unwilling to rely simply upon the promise of the buyers to pay for goods once the goods are loaded on board a vessel destined to the buyer’s country, to be assured that they can obtain payment once those goods are so loaded. A seller may present the agreed shipping documents to, and thereby obtain payment from, a bank whose undertaking to make such payment would be primary and independent of the contract between the seller and his buyer.

The letter of credit (or credit) is part of a three-party relationship in a commercial transaction: (1) the contract between the parties (applicant and beneficiary) pursuant to which one party (the applicant) is obligated to obtain the credit for the benefit of the other (the beneficiary), (2) the contract between the applicant and the person whom the applicant asks to issue the credit (the issuer), usually a bank or other financial institution, and (3) the undertaking by the issuer in favor of the beneficiary, to honor a presentation by payment or delivery of an item of value. The undertaking of the issuer in the letter of credit, however, is primary and must be honored without any claim, counter claim, setoff or defense that the issuer or the applicant may have against the beneficiary. This ‘independence’ of the letter of credit from the transaction between the applicant and the beneficiary is its special feature.

A letter of credit will be either a documentary or standby credit. Common to all credits is that the issuer undertakes to pay or give an item of value against a specific document or documents which accompany the request for payment. Such payment can be at the time of presentation, known as at sight, or at a later time, known as deferred payment. The issuer can give an item of value, such as a bill of exchange drawn on the bank, also payable at sight or at a later time. The documentary credit specifies the documents that must accompany the presentation, such as an invoice, bill of lading and insurance certificate. With a standby credit the presentation required by the undertaking may be the request for payment itself, with or without other documents. Frequently, a standby credit is given to support an obligation of the applicant: the beneficiary can obtain payment under the standby credit by presenting a simple demand, as specified in the credit, to the issuer. Standby credits are also used to support an obligation by the applicant to make an advance payment; they are used as bid bonds to support the bidder’s duty to execute a contract; they are used a credit support in loan transactions to ensure repayment by the borrower; and they may be used as a method of obtaining direct payment under a contract. Standby credits, as in the preceding examples, are performance, financial or direct pay undertakings.

As both documentary and standby credits are undertakings to pay against the presentation of one or more documents, the distinction between them is nowhere precisely stated and probably unnecessary to state. The UCP states that it applies to both types of credit without defining them (the definition was unnecessary). Similarly, the UCC, which applies to both, has no need to distinguish the two. ISP 98 states that it applies to standby letters of credit without defining them. In practice, the parties will determine whether a credit is a standby by choosing to incorporate ISP 98 or not. If they do, it will be subject to the special rules in ISP 98 applicable to standby credits; if not, they will presumably choose the UCP and the credit will be subject to that regime, which was developed principally for documentary credits.

Typical suggestion for a Due Diligence Checklist

1. CORPORATE ORGANIZATION
   
   
   
   1. Articles of Incorporation
      
   2. Bylaws
      
   3. Recent Changes in Corporate Structure
      
   4. Shareholder List
      
      
      
      1. Show Number of Outstanding Shares
         and Percent Owned
         
      2. Stock Option or Share Appreciation
         Rights Plans
      
      
      
      
   5. Parent, Subsidiaries and Affiliates
      
   6. Shareholder’s Agreements
      
   7. Minutes of the Board of Directors
   
   
   
   
   
   
   
2. BUSINESS INFORMATION
   
   
   
   1. Product Offering
      
   2. Depreciation Method
      
   3. Patents
      
   4. Management Information System
   
   
   
   
   
   
   
3. MARKETING
   
   
   
   1. Pricing Strategy
      
   2. Patents
      
   3. Distribution Channels
      
   4. Promotion Tactics
      
   5. Customer Base
      
      
      
      1. Top Ten Customers By Product
         Line - Showing Volume
         
      2. Market Share By Product Line
      
      
      
      
   
   
   
   
   
   
   
4. BUSINESS PLAN
   
   
   
   1. Most Recent Five Year Business Plan
      
   2. Prior Business Plan
   
   
   
   
   
   
   
5. FINANCIAL STATEMENTS
   
   
   
   1. 5 Years of Historical Audited Statements
      
      
      
      1. Income Statement
         
      
      
   
   



 

Sec Interpretation: Use of Electronic Media

Online Private Offerings under Regulation D
Broad use of the Internet for exempt securities offerings under Regulation D is problematic because of the requirement that these offerings not involve a general solicitation or advertising. When we first considered whether exempt offerings could be conducted over the Internet, we concluded that an issuer's unrestricted, and therefore publicly available, Internet web site would not be consistent with the restriction on general solicitation and advertising. Specifically, the 1995 Release included an example indicating that an issuer's use of an Internet web site in connection with a purported private offering would constitute a "general solicitation" and therefore disqualify the offering as "private."

Subsequently, the Divisions of Corporation Finance and Market Regulation issued interpretive guidance to a registered broker-dealer and its affiliate, IPONET, that planned to invite previously unknown prospective investors to complete a questionnaire posted on the affiliate's Internet web site "as a means of building a customer base and database of accredited and sophisticated investors" for the broker-dealer. A password-restricted web page permitting access to private offerings would become available to a prospective investor only after the affiliated broker-dealer determined that the investor was "accredited" or "sophisticated" within the meaning of Regulation D. Additionally, a prospective investor could purchase securities only in offerings that were posted on the restricted web site after the investor had been qualified by the affiliated broker-dealer as an accredited or sophisticated investor and had opened an account with the broker-dealer. The Divisions' interpretive letter was based on an important and well-known principle established over a decade ago: a general solicitation is not present when there is a pre-existing, substantive relationship between an issuer, or its broker-dealer, and the offerees.

We understand that some entities have engaged in practices that deviate substantially from the facts in the IPONET interpretive letter. Specifically, third-party service providers who are neither registered broker-dealers nor affiliated with registered broker-dealers have established web sites that generally invite prospective investors to qualify as accredited or sophisticated as a prelude to participation, on an access-restricted basis, in limited or private offerings transmitted on those web sites.

Frauds, Phonies and Scams

The Bureau of the Public Debt and the rest of the United States Department of the Treasury (collectively, "we" or "us") are aware of a number of fraudulent schemes (we like to call them "scams") that involve what are claimed to be securities issued or backed by us or any other part of the United States Government. These scams have been directed at banks, charities, companies, and even individuals, by individuals or organizations seeking payment on the fraudulent securities. These pages will alert you to these scams and help you protect yourself from being taken in. If you want to search for a particular term or scam, you can use our site's search engine by clicking on the find button on the left bar. However, we recommend that you look at all of these pages in order, particularly the first page, "How Marketable Treasury Securities Really Work." The better you understand our securities, the less likely it is that you'll be taken in.

Information on Financial Scandals

This page contains links to important sources of information on financial scandals, corruption and fraud, miscellaneous articles on this topic, organisations providing advice and useful sources for further research.

General Sources on Corruption or Alleged Financial Wrong-Doing



Offshore Business News & Research OBNR provides offshore business information on companies and individuals operating in countries where independent and accurate information is often difficult to obtain. Since the launch of its investigative newsletters in February, 1997, the company has exposed numerous frauds in the Bermuda-Caribbean region.

Crimenet Links to Crime, Law Enforcement and Espionage Sites Although it is not specifically devoted to financial crimes this site might be of interest to people who wish to follow up related topics.

Research Committee on Political Finance and Corruption Part of the International Political Science Association.

Business and Financial Ethics Internet Resource Center The Centre is a library of on-line information concerning business and financial ethics sponsored by the Stuart School of Business at the Illinois Institute of Technology.

The Independent Banking Advisory Service IBAS exists to give advice to people who are having problems with banks in Britain.

National Association of Bank/Insurance Customers An independent self help group for all private and commercial users of UK bank and insurance services.

National Westminster Bank Fraud A web site created by Umang Malhotra to publicise his disputes with the National Westminster Bank.

Corruption et criminalité économique A large selection of links from the Strategic Road site which also covers many related topics. There are also details of books in French on corruption.

J. Orlin Grabbe's Home Page Grabbe is a prolific writer on the subject of shady financial dealings and related topics.

Shmuel Vaknin's Macedonian Experience Site Vaknin is an Israeli economist. His site has several articles on financial scandals, including one on the typology of financial scandals. Although many of Vaknin's articles deal with the Macedonian economy he claims that the Macedonian economic experience is so generic and so widespread, so varied and so concentrated - that it really served as an ideal laboratory.

Stock Detective Stock Detective ventures into dens of dubious dealings to uncover the truth for all investors.

TheTruthseeker.com An Interactive Online Magazine and E-mail service site with a mission to expose the underbelly of Wall Street.

Mario's Cyberspace Station A website covering espionage, political wrong-doing, and corruption. It is the creation of Mario Profaca, a Croatian journalist. Among the pages are ones on scandalous money and dirty money.

Internet Scambusters A free electronic newsletter on Internet-based scams. The site has links to other relevant sites.

Money Fraud: Financial Scandals An About.Com feature with links to sources of information.

AuditNet's Fraud/Investigative Resources Links selected by Jim Kaplan of AuditNet.

Government Accountability Project The mission of the US Government Accountability Project is to protect the public interest and promote government and corporate accountability by advancing occupational free speech, defending whistleblowers and empowering citizen activists. The site includes some links to whistleblower sites in other countries.