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? 

• 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 it the SbLC or Bank Guarantee. Seeking just to have the benefit of its services until the client’s project reaches COD, then it is returned or released (on its maturity date).
• Providers often working with unlicensed banks, a tell-tale sign (see list below; please DO NOT SHARE the list or password). 

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 2-stage process, starting with the verbiage, RWA and ATV letters.

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 sent in order to contact the banker via secure email.

That same banker will deliver the instrument once funding has been committed and is under contract via SWIFT, 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 a funding agreement. That agreement gets referenced via a tracking code known to the banker as it governs the use of the SbLC.

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 do not fully understand our 2-step process and can be persuaded to see it through to a logical conclusion.

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 value and must not incur a fee. 

The source of the instrument should only charge X days after delivering the SbLC or BG hardcopy, once the contracts for funding has been signed and notarized — the initiation steps are RWA/ATV letter, then the funding contract, then SWIFT MT799, then MT760, then hardcopy via courier, the last step before financial closing.

This is normal and reasonable business practice, because if they don’t get paid, they can withdraw the instrument due to this non-payment – SbLC 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 circumstances (once there is a banker on board to deliver the instrument per RWA/ATV letters), arrange to pay for the instrument within 3-10 business days if a mutually appointed escrow agent is used, so long as the Provider adheres to our other protocols, namely initiating the process of approval with the proposed instrument verbiage, then the RWA letter (that mirrors the verbiage), and finally an Authorization to Verify (ATV) letter.  We won’t agree to pay a Provider without all of that.

We can also cover the SWIFT fee from the issuing bank, if absolutely necessary, but only in arrears, when there’s a Provider involved.  Our funding partner already covers the client’s costs associated with the Security, out of first regular draw(s).  So if a Provider actually works out (so far, we’re ZERO for about 20 tries, though we have come close a few times) then we’ll 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!