To be expected, as the use of AI continues to advance through the entire global business community, there is also an increase in the creation of forged Letters of Credit.
A forged Letter of Credit (LC) is typically created to deceive a supplier into believing that payment has been secured from a legitimate bank. One common method of forgery involves fabricating an LC document using a fake letterhead, fraudulent signatures, and counterfeit bank seals to make it appear as though a reputable financial institution has issued the guarantee. Fraudsters may create an entirely bogus LC or take an authentic LC and modify key details, such as the payment terms, beneficiary name, or issuing bank, to mislead the supplier. In some cases, scammers generate sophisticated digital forgeries using image editing software or by replicating real bank documentation to fool an unsuspecting recipient.
Another method of deception is manipulating SWIFT messages, which are used for international banking communications. A fraudster might claim that the LC was issued via a SWIFT MT700 message (which banks use to authenticate LCs) but instead provide an altered or completely fake confirmation. They may even use a phony email address or website that mimics a legitimate bank’s domain to provide fake verification when the supplier attempts to confirm authenticity. Some fraudulent parties may also forge a confirmation letter from what appears to be an advising or confirming bank, making it appear as though a third-party financial institution has validated the LC.
A more complex type of LC fraud occurs when a dishonest intermediary — such as a corrupt agent or middleman — creates a forged LC and presents it to both the buyer and seller. The goal might be to extract an advance payment, secure goods on false credit, or mislead auditors and regulators into believing that a transaction has legitimate financial backing. In these cases, by the time the fraud is discovered, the goods may have already been shipped, or the supplier may have released inventory without any real financial security.
How a Credit Manager Can Detect a Forged Letter of Credit
A savvy credit manager must always verify the authenticity of an LC before releasing goods or services. The first step in detecting a forged LC is to directly contact the issuing bank using official contact details, rather than relying on any phone numbers or emails provided by the buyer or intermediary. Most reputable banks have an LC verification process, allowing suppliers to confirm whether an LC is genuine. If a bank refuses to confirm or the details do not match their records, this is an immediate red flag.
Another effective method is to examine the SWIFT MT700 message carefully. An official LC should be transmitted through secure banking channels, and the advising or confirming bank should be able to verify its legitimacy. Any discrepancies in the format, missing authentication codes, or unusual routing information should raise concerns. If an LC is not issued through SWIFT but is presented as a standalone document, a credit manager should be highly skeptical, as most legitimate international LCs are communicated via SWIFT to ensure authenticity.
Credit managers should also scrutinize the document for inconsistencies, such as misspellings, formatting errors, or mismatched fonts, which are common signs of forgery. Genuine LCs from major banks adhere to strict formatting standards, including specific reference numbers, unique security features, and clear terms. Any vagueness in the payment terms, incorrect legal language, or deviations from standard ICC (International Chamber of Commerce) rules, such as UCP 600 compliance, should be viewed as potential fraud indicators.
Finally, checking the credibility of the confirming bank is crucial. If the LC claims to be confirmed by a well-known institution, the credit manager should verify the confirmation independently. Fraudsters sometimes list non-existent or little-known financial institutions as the confirming bank, making it difficult to trace accountability. A simple check with a trusted financial directory or the ICC Banking Commission can help determine whether the bank is legitimate. By implementing these due diligence measures, credit managers can significantly reduce the risk of falling victim to forged and fraudulent Letters of Credit.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
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