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| BANK GUARANTEES DO NOT HAVE C.U.S.I.P. OR I.S.I.N. NUMBERS, NOT TRADABLE, NO "HARD COPY" SENT BY MAIL:
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2012-06-12 |
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Hello Agents, Brokers, Consultants & Mandates:
5 times a week I'm continue to receive buy offers for Bank Guarantees (BGs) in which the Buyer or Buyers' Rep. ask/demand/request to see the BG on Euroclear screen or or settle by DTC.
These types of procedures and requests ARE FRAUDULENT and DO NOT exist.
I advise ALL persons involved in the buying of BGs to very carefully read again, and again and again item 5a & 5b below and ALL of the related information between items 1 through 9 over and over again.
Thank you,
Robert Strickland
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1.- What are Bank Guarantees?
A Bank Guarantee is a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer himself does not pay the beneficiary.
It is important to note that these Bank Guarantees apply only whenever the issuing bank's guarantee is not contingent on the existence, validity and enforceability of it's customer's obligation; this is called an “abstract” guarantee (i.e. the bank's obligation is to pay regardless of any disputes between its customer and the beneficiary).
The issuance of Bank Guarantees is a private transaction and does not result in the issuance of any publicly tradable instruments.
Today, Bank Guarantees are transmitted ELECTRONICALLY on a bank-to-bank basis. So one must be very concerned if presented with a HARD COPY of a Bank Guarantee. IT IS VERY LIKELY A FRAUDULENT INSTRUMENT.
This is not to preclude pro forma writings of Bank Guarantees where the parties agree on the terms, and the applicant takes these terms to the bank and has the bank incorporate them into the electronic Bank Guarantee. There is a pro forma Bank Guarantee below.
2.- What are the two types of bank guarantees?
There are TWO types of Bank Guarantees:
DIRECT: Bank Guarantees that have the issuing Bank Guarantee one's of its customer's (called “Obligor”) obligations to a third party (called “beneficiary); and.
INDIRECT: Bank Guarantees that are issued in favor of a second bank which has issued a guarantee on behalf of the of the original bank's customer. With an Indirect Bank Guarantee, a second bank (usually a foreign bank with head office in the beneficiary's country of domicile) is involved.
3.- For what purposes are bank guarantees customarily issued?
a. Bid Bond (aka: Tender Bond)
These are primarily used in the export business for project tenders.
They are short term Guarantees.
It's purpose is to secure any claims by the party inviting the tender on the tenderer in the event of withdrawal of the bid before its expiry date or if the bid is modified unilaterally. It is also used if the tenderer, upon being awarded the contract, refuses to sign the contract or provide further guarantees on request.
The guarantee amount is generally 1% to 5% of the value of the contract.
b. Advance Payment Guarantees:
These are used not only in the import-export business but also in domestic commercial business, trade and industry.
In the event that a Seller has failed to meet its contractual delivery obligations in full, the purpose is to secure any claims by the Buyer on the Seller for reimbursement of the Buyer's advance payment on the contract price before delivery of the goods (or advance payment of the full contract price). The amount of the guarantee is the amount of the installment or advance payment.
c. Performance Bond Guarantee:
This is used to secure any claims by the Buyer on a Seller arising from default in delivery or performance of the terms of a contract (e.g. construction, assembly, execution). It is used in import-export businesses as well as in domestic commercial business, trade and industry.
The guarantee amount is generally 5% to 20% of the value of the contract. The terms of the guarantee is until the contract has been fulfilled.
d. Bank Guarantee for Warranty Obligations:
The application of this type of Bank Guarantee is in the import-export business and in domestic commercial business, trade and industry, where it is more often a surety.
Its purpose is to secure any claims by the Buyer on the Seller due to possible defects appearing after delivery.
The general amount of the guarantee is 5% to 20% of the value of the contract, and the terms depend on the custom of the particular business.
In the construction trade, the guarantee for warranty obligation in the form of a simple guarantee or a joint and several guarantee is known as a building (or works) contractor's guarantee. It can also be used in the export business as a "retention bond" (substitute for payment retention, often 5% to 10% of the value of the contract).
e. Payment Guarantees:
These are used in the import-export business or in any circumstance where payment of an obligation needs to be guaranteed. It is used to secure any claims by the Seller on the Buyer for payment of the contract price by the agreed date. The payment guarantee is often used instead of a documentary credit – upon delivery against “open account”.
The amount of the guarantee is the contract price or a part of it.
f. Guarantee Securing Credit Line:
The use of this guarantee is to secure any claims by the lender on the borrower due to a credit (loan, etc.) not being repaid in accordance with the terms of the lending contract.
The amount of the guarantee is the amount of the credit or loan, and it usually includes a margin to cover accrued interest and incidental expenses.
The term of the guarantee is until the expiration date of the loan plus a few days (e.g. 15 days).
These are often abstract guarantees in favor of a foreign or domestic lending bank.
g. Letter of Indemnity for Missing Bill of Lading:
This guarantee is specifically used for importers when the bill of lading is missing. Its purpose is to secure any claims by the shipping line/shipping company on (i) The Buyer resulting from the goods arriving from overseas being released without the original bill of lading being presented (e.g. due to postal delays or even loss) or (ii) The Supplier due to issuance of a replacement bill of lading (original misplaced or lost).
The term is often unlimited or until the original bill of lading or release document from the beneficiary is presented.
In practice the wording of the guarantee is frequently stipulated by the ship owner and must be sent directly by the debtor, with a counter-guarantee from the bank to the shipping line.
4.- Are Bank Guarantees transferable?
a. Assignment of Bank Guarantee Proceeds.
The beneficiary CAN assign the proceeds of a Bank Guarantee. But this assignment does not assign the rights of the beneficiary as “drawer” on the Bank Guarantee, and only the beneficiary may exercise the “drawer” rights and present the demand for payment under the terms of the Bank Guarantee unless the terms of the Bank Guarantee provide otherwise.
This means that the assignee may receive the proceeds of the Bank Guarantee, but in order to obtain those proceeds, the Beneficiary must make the demand for payment.
This means that the Beneficiary can transfer by assignment at discount the benefits of the Bank Guarantee. An assignment of proceeds requires notice to the issuing bank of this action; otherwise the issuing bank would pay the Beneficiary rather than the assignee.
b. Transfer of Bank Guarantees:
Bank Guarantees CAN be transferred to a third party ONLY with the WRITTEN CONSENT of the issuing bank AND the Beneficiary.
5.- Are Bank Guarantees the subject of trading?
a. No Public Market.
There is NO public market for the trading of Bank Guarantees.
Beware! Fraudsters or naive Brokers are always erroneously representing that there is a public market for the trading of Bank Guarantees (and StandBy Letters of Credit (SBLC).
This is not to be confused with the trading of other bank issued instruments.
There are genuine markets in Medium Term Notes (MTN's), in bonds, notes and other credit instruments of various kinds. Also, there are valid markets in equity instruments of many varieties.
But there IS NOT a legal market for “Bank Guarantees”.
Bank Guarantees can ONLY be TRANSFERRED or the proceeds ASSIGNED in private transactions (See above).
b. No CUSIP or ISIN Numbering for Bank Guarantees:
Bank guarantees ARE NOT trading securities, ARE NOT trading debt instruments, ARE NOT for trading investment funds, and therefore ARE NOT subject to the settlement procedures offered through Euroclear or DTC and most other settlement firms.
Obviously, therefore, they also ARE NOT ISSUED CUSIP or ISIN numbers for trading purposes.
However, Euroclear may accept Bank Guarantees for “safekeeping” purposes ONLY and NOT for trading.
So one has to be careful in understanding the particular legal relationship of a Bank Guarantee to Euroclear or other settlement entities, especially as to issues of authenticity.
A Bank Guarantee held in "safekeeping" DOES NOT serve to authenticate the instrument.
Anything can be the subject of a "safe keeping" situation. Mixing a metaphor, you can get a safe keeping receipt for a ham sandwich, a hamburger, a hotdog and small Pepsi.
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 Contact Information | |
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| Name |
Mr. Robert Stricklan |
| Company |
Member : Strickland Associates, LLC |
| Email |
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Inquire Now |
| Tel |
1 510 557 7041 |
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1 866 766 3901 |
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1 510 240 9345 |
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