13 common Letter of Credit and Bill of Lading frauds: Revisiting the Solo Industries & Saad Group Trade Finance Frauds

Those who forget the lessons of history are condemned to repeat them. Trade finance frauds are no exception.

In the IIBLP’s Dubai Trade Law & Compliance Conference held in Dubai on 15 March 2022, one of the panelists referred to the Solo Industries fraud in a panel discussion addressing the recent Singapore case, Credit Agricole Corporate & Investment Bank (CACIB), Singapore branch v. PPT Energy Trading Co.¹

In this case, the Singapore Court ruled that “fraud can only, by definition, encompass a beneficiary who acts dishonestly, in presenting otherwise facially compliant documents either with the knowledge that what is contained therein is false, or without belief that what is contained therein is true.” The Court determined that CACIB, as an issuing bank, could have defense to the claim under the LCs only if it could prove that the beneficiary (PPT) was a party in the scheme to defraud CACIB which its own client, the Applicant (Zenrock Commodities Trading Pte Ltd.) had perpetrated.

“fraud can only, by definition, encompass a beneficiary who acts dishonestly, in presenting otherwise facially compliant documents either with the knowledge that what is contained therein is false, or without belief that what is contained therein is true.”

The reference to Solo Industries took me down memory lane when I was heading trade finance operations of a bank in Dubai in the mid-1990s and was receiving several high value LCs in favour of Solo Industries issued by my bank’s correspondent banks and its overseas branches in India, Europe, and USA.

My bank’s role was to simply act as an advising bank and since the LCs were “freely negotiable” (a term used in UCP500) and were not required to be confirmed, no documents under the LCs were ever presented to us. Wondering as to the disposition of the documents and sensing a possible discounting opportunity from Solo Industries, I called Madhav Patel, Director of Solo Industries, requesting him to route some business through my bank. He simply replied, “not interested”. It seemed that he was getting far better pricing from other banks in Dubai than what he thought my bank could possibly quote at the time in 1995.

I could certainly match or improve on his pricing expectation, but I had a strange hunch to drop the discussions. It was as if my intuition was telling me that something was not quite right which my rational mind could not yet explain. A few days later, Patel came down to my bank to see me. Having built his reputation over 20 years, Patel was quite well known in Dubai banking circles and was considered a highly respected, sought after businessman among the trade finance banks. For instance, I was told that an AED 100m (USD 27.2m) facility was approved for Solo Industries by one bank in Dubai in less than a week. This would be my first and last meeting with Patel.