SBLC monetization: the legitimate core, the schemes and the alternatives

What does “SBLC monetization” mean?

The phrase is used in two very different ways. In bank practice, it is informal shorthand for obtaining financing on the strength of a standby letter of credit (SBLC) or a demand guarantee: a lender advances funds because a creditworthy bank has irrevocably undertaken to pay that lender if the borrower defaults.

In unsolicited online offers, the word means something else: an SBLC is “bought” or “leased” from a provider, “delivered” by SWIFT to the client’s bank, then “monetized” by a third party who pays out a large share of its face value, as a “non-recourse” loan or as the entry ticket to a “trading programme”. The first meaning is ordinary secured credit. The second matches structures that US regulators and law enforcement have repeatedly identified as fraudulent.

The difference follows from what an SBLC is. As our standby letter of credit guide explains, it is an irrevocable, independent undertaking to pay a named beneficiary against a complying demand, normally issued subject to ISP98 (or UCP 600) to support a specific obligation of the applicant. It has value only for that beneficiary, and only if the conditions for drawing are met.

What is the legitimate core of SBLC monetization?

Three established techniques sit behind the word. None of them turns an instrument into free money: each is a credit decision by a regulated institution about a real obligation.

1. A credit facility secured by an SBLC issued in the lender’s favour

This is the most common case. A company asks a lender for a loan or a working-capital line. The lender asks for security, and the company’s bank, or its parent company’s bank, issues an SBLC or demand guarantee with the lender as beneficiary. If the borrower does not repay, the lender draws on the standby.

Example (illustrative): a subsidiary in West Africa needs a local overdraft. Its European parent asks its own bank to issue an SBLC in favour of the subsidiary’s local bank. The local bank lends to the subsidiary, relying on the SBLC as credit support. The parent’s bank takes the parent’s credit risk; the local bank takes the risk of the issuing bank.

The lender checks the issuing bank and its country, the right to draw, and an expiry beyond the loan maturity. The amount and conditions of the loan remain its decision.

2. Discounting under a documentary letter of credit

Under a usance letter of credit (deferred payment or acceptance), an exporter who has made a complying presentation holds a bank’s undertaking to pay at a future date. UCP 600 (article 12) allows a nominated bank that has incurred a deferred-payment undertaking or accepted a draft to prepay or purchase it. The exporter is paid before maturity, less a discount, but only because goods were shipped and the documents comply.

3. Forfaiting

Forfaiting is the purchase, usually without recourse to the seller, of trade receivables such as accepted bills of exchange, promissory notes or deferred-payment obligations under letters of credit. The forfaiter relies on the obligor, often a bank, and on the underlying trade. The ICC Uniform Rules for Forfaiting (URF 800) have applied since 1 January 2013.

A related technique is the assignment of proceeds (UCP 600 article 39; ISP98 Rule 6): the beneficiary of a credit assigns the amounts it may receive to a financier. The financier still depends on the beneficiary making a complying drawing.

What does not exist: buying, leasing or trading SBLCs for profit

Several claims recur in monetization offers and do not correspond to how banks work:

• Buying an SBLC as an investment. The FBI states that SBLCs are not investment vehicles and are not traded or bought and sold. A standby supports an obligation of its applicant; it is not a security with a market price.
• Monetizing an instrument issued for someone else’s account. If a “provider” is the applicant, its bank will claim reimbursement from that provider whenever the standby is drawn, so the provider would carry the full risk of an unrelated client’s default for a fee. See our guide on leased SBLCs and bank guarantees.
• Loans that never need repaying. Forfaiting is without recourse to the seller, but an identified obligor, usually a bank, still pays at maturity. A loan with no repayment source, secured by an instrument nobody intends to draw, is not a banking product.
• Trading programmes. The SEC describes all “prime bank” programmes, including those presented as private placement or trading platforms, as fraudulent.
• Proof of funds by SWIFT message. An MT799 is a free-format message and creates no payment obligation. An MT760 carries a guarantee or standby, but only between banks and for a named beneficiary; it cannot be “downloaded” and resold. See SWIFT MT700, MT760, MT799 and MT103.

What do the SEC, the FBI and the ICC say?

The warnings are consistent and long-standing:

• The SEC investor alert “Prime Bank” Investments Are Scams (February 2015) states that all prime bank programmes are fraudulent, lists standby letters of credit, bank guarantees and trading platforms among the terms used to make them sound legitimate, and notes false claims of backing by the World Bank, the IMF, central banks or the ICC.
• The FBI’s Internet Crime Complaint Center (IC3) published a warning in 2019 on fictitious SBLCs. Its list of common features includes disproportionate returns, non-recourse or forgivable loans, “blocking of funds” or proof of funds by MT799 or MT760, advance fees, unnecessary secrecy, attorney escrow accounts and “the term ‘monetize’”. Its advice is direct: do not attempt to purchase or invest in an SBLC.
• An FBI warning on platform trading (2015) lists claims that letters of credit or standby letters of credit can be discounted or traded for profits, along with phrases such as “fresh-cut paper” and “top 25 world banks”.
• The ICC Financial Investigation Bureau has publicly reported fake standby letters of credit and bank guarantees, pointing to red flags such as incorrect banking terminology and unusual instructions.

These warnings do not concern standbys or guarantees as such, which remain ordinary bank products. They target the claim that such instruments can be bought, leased or traded for returns.

Red flags in a monetization offer

• A fixed “loan-to-value” is promised before any lender has reviewed your company, the issuing bank or the wording.
• Fees are payable upfront to an intermediary before any bank has issued, advised or accepted anything.
• The instrument is “leased”, “seasoned”, “fresh cut” or issued by an unnamed “top 25 bank”.
• You would be the beneficiary of an SBLC although you have no contract with the applicant and no obligation is owed to you.
• You are asked for online-banking access, transaction codes or a letter “blocking” funds.
• The procedure starts with MT799 “RWA” or “pre-advice” messages before any commercial contract exists.
• Secrecy, a non-circumvention agreement before any facts are shared, and pressure to act quickly.
• Profits are promised from “trading” or from humanitarian projects.

What to do instead if you need liquidity

Start from the business need, not from the instrument. Companies looking for “monetization” usually need one of the following:

In each case the decision belongs to a bank or lender that knows the client, has analysed the transaction and accepts the risk.

How Star Alliance can help

Star Alliance Consulting does not buy, sell, lease or monetize instruments and does not hold client funds. We review the underlying transaction, help prepare the file and the proposed wording of a standby, guarantee or letter of credit, and coordinate with the parties and the institutions concerned; any credit or issuance decision belongs to the issuing institution. You can ask us to review an offer you have received or describe your financing need.

Frequently asked questions