Practitioner Series: Leased or Fresh Cut SbLCs – the games Providers play

Clients sometimes encounter guarantee “Providers” that can be a valid option in rare situations. Here is a nuanced Practitioner’s Primer to this topic. Key ideas in bold in case you are in a hurry.

When someone offers a “leased” (or “fresh cut”) financial instrument, they are probably a Provider, not an accredited asset owner, and to date, easily 98% of all Providers are fake/fraudulent.  They offer nothing more than a fee scam. 

How do you know if it is a scam? Telltale signs include …

• They charge the client ahead of delivering value, and/or fail to deliver value at all.
• They offer to “sell” the instrument … we don’t need clients to own the security, whether in the form of an SbLC or Bank Guarantee or similar instrument. CAP funding clients seek just the benefit of its services until the client’s project reaches COD, then it is returned or released (on its maturity date). If you did “own” an SbLC, you could “cash it in” per the terms of that contract. This is more often the methodology of Trade Finance transactions, not applicable to CAP’s Project Finance.
• Providers often working with unlicensed banks whose guarantees are essentially worthless (share the bank’s name and website with your In3 contact, who keep the current list on file). 

We work with licensed commercial banks, or Credit Unions in the US, whether or not top rated. But some Providers claim to work with large/legitimate banks, where HSBC and Deutsche Bank (DB) are by far the most common (as of 2025).  Many other big banks get named, but the real test is whether they can use our 3-step process, starting with obtaining the bank’s “specimen” (draft) of the guarantee wording (called “verbiage”), then upon approval, their RWA letter, and finally the account holder’s ATV letter or one of the acceptable alternatives.

This sequence checks the feasibility of the transaction (called an “undertaking” by the bank) by lining up the elements “as if” the client was ready to have the instrument issued. It serves as an effective way of pre-qualifying the client’s Security, or (if an impasse is reached) screening out typically fraudulent Providers.

We don’t charge a fee for any of this, and there is no commitment necessary by the bank to complete this test, where the Authorization to Verify (ATV) letter is usually sent in order to contact the banker via secure email. Direct email without the ATV is also an option, but the RWA letter and specimen must be approved in order to use that method.

That same banker will deliver the instrument once funding has been committed and is under contract, via SWIFT MT199/760, then hardcopy. An RWA letter is the bank’s statement of intent, putting the involved banker on record as willing and able to issue the instrument if all goes well during our due diligence, resulting in committed funding. That commitment results in an investment agreement that governs the use of the SbLC, and thus is often referenced via a tracking code known to the banker.

By itself, objections to any of the above does not necessarily mean the Provider is fake nor does it prove they are incompatible with our requirements. Many or most Providers are indeed operating a fee scam and their refusal to follow our protocol does means we caught them “in the act” and should move on. But some Providers simply do not fully understand our 3-step process and can be persuaded to see it through to a logical conclusion. Their refusal to do so either means they are indeed fraudulent or sometimes is just a personality test that shows they’re not a good choice for your business needs.

How do you know if they’re likely running a fee scam? 

The most common scam with SbLC Providers is charging the client a fee for an RWA letter, and/or for the “pre-advice” MT799 SWIFT message, neither of which, on their own, deliver a usable SbLC or BG (that results only from MT760 SWIFT and hardcopy), and thus, these preliminary messages have no monetary value and must not incur a fee. 

The source of the instrument should only charge X days after the respective banks deliver and receive the SbLC or BG hardcopy, once the contract(s) for funding have been signed and notarized — the initiation steps are verbiage, RWA/ATV letter, then the funding contract, then SWIFT MT799, then MT760, then delivery of hardcopy via courier, which is the last step before financial closing. The SbLC / BG is revocable until the first transfer of funding against it.

We offer our bank’s formal letter as legally binding attestation of the availability of funds to uphold the investment agreement draw schedule. This only occurs once the above Security “test” has been passed. Prior to that, clients and those involved with said security should have literally nothing to lose. No fees, mainly, but also no obligations to see the bank’s undertaking through if there are issues blocking or preventing closing.

This is normal and reasonable business practice, because if they (provider or bankers) don’t get paid, they can withdraw the instrument due to this non-payment – again, the restate, SbLCs / BGs (AvPNs, SGs, etc.) are technically revokable prior to the first transfer of funds against it. 

We prefer that they wait at least 30-45 days to be paid, but can, in certain rare circumstances (once there is a banker on board to deliver the instrument per RWA/ATV letters, etc.), arrange to pay for the instrument sooner than the first draw, but only if a mutually appointed escrow agent is used, so long as the Provider adheres to our other protocols.  We won’t agree to pay a Provider without all 3 steps and a bit more than that.

We can also cover the SWIFT fee from the issuing bank, if absolutely necessary, but only in arrears; this is problematic when there’s a Provider involved for reasons mentioned above.  Our funding partner already covers the client’s costs associated with receiving and using the Security, out of regular draw(s). 

Framed another way, and why it may be worth seeing through: if a Provider actually works out (so far, we’re ZERO for about 20 tries, though we have come close a few times) then you or we together will be using that same Provider for many other deals. 

That said, this difficult reality is one of the main motives for the Impact Guarantee Fund, because so few (or perhaps zero) of these Providers are able to deliver what clients require for CAP funding.  They mainly assume the requested instrument is for Trade Finance, a Documentary LC, but even then, fake paper can float around for years looking for someone to victimize.  We do not need to own such instruments; clients seek only their services on a short-term (annualized) basis. When someone “purchases” an SbLC or DLC then it can be cashed in, which is the traditional method of paying a seller in Trade Finance (import/export of commodities) transaction.

We highly recommend everyone study Tips for Sourcing a CAP Guarantee, Tip #1, “First, eliminate any “providers” (leased or purchased instruments) that are set on charging initial fees before delivering the guarantee instrument.”

Here’s also a statement online at Security Options & Facilitation Guide that offers further perspective:

Fraud Alert:  Avoid most SbLC/BG “trading platforms” (too few have earned a verifiable reputation for delivering value) and also avoid those who claim to offer BG/SbLC “leasing.”  In general, they often work with blacklisted banks that use various techniques to defraud the naïve or vulnerable.  Search the FBI’s Internet Crime Complaint Center (example of fraud with SbLC) ….

Unlicensed Blacklisted Banks:  Ask us for our list of blacklisted banks.  To be clear, these banks will deliver an SbLC or DLC, but it will have no value to us/the FO’s bank.  These fake banks lure in their victims by charging very little (say, $50,000 for a $250M instrument), and the scam is that their paper is worthless to any real bank and certainly of no value for our Project Finance purposes.  They might have some value for trade transactions; depends on the circumstances and this is not our area of expertise.  

One thing is very clear:  we need to keep this list to ourselves because fraudsters would retaliate if they knew they were on such as list (aware of their games), as they did earlier with a version that eventually got taken down.   Makes sense that those conducting scams would want to
a) Vigorously and aggressively defend their illegal activities, as that’s how they currently make money, as disreputable as it is. 
b) Make the party miserable that outted them, having been “caught in the act,” though they often don’t get punished by the authority with jurisdiction, but just go further underground, having just learned how to be better criminals.  :<{

Not exactly black-and-white, is it? Nice to be among honest businesspeople, isn’t it?  One less thing to think about.

One of our Affiliates had a group on LinkedIn about this, but the group disappeared recently. Please be careful and judicious when discussing this topic. The less said the better.

Conclusion: Nobody issuing a new SbLC from a real bank refers to it as “fresh cut” … and so few Providers can deliver value, we recommend you give a caveat to clients that propose to use them: “If you are absolutely certain they aren’t going to steal your money, please proceed with the RWA and ATV letters”. It would be best to not waste your time by meeting — even by remote — with any Provider (but consider meeting with the banker, if at a “real” bank), or reading their elaborate Terms of Reference (ToRs) unless you have nothing else better to do. The RWA / ATV letters provide an elegant way of determining if they will deliver.

We may someday find a Provider that is legitimate and, if their process is compatible with our requirements (unlikely, but worth letting the client sort that out, largely without our help), we’ll bring them a LOT of business!