Concerned About Fraud In Crude Oil Selling? Why, for Buyers, getting the 2 Percent Performance Bond by the seller is the Simplest & Surest Proof of a Genuine Seller
Credible research has shown that, while virtually every supposed crude oil seller who goes to a potential crude buyer to solicit business, would almost ALWAYS profusely forswear heaven and earth that he, or the crude oil he professes to be selling, is “absolutely trustworthy, reliable, genuine, authentic, and honest,” virtually every OBJECTIVE, CREDIBLE EVIDENCE available, on the other hand, gives a completely opposite and contrary REALITY – namely, that the overwhelming majority of these supposed sellers and their offers (in deed, up to the level of 99.999999%, according to one report) are totally fake, bogus, fraudulent or not legitimate.
MASTERFULLY FORGED & FALSE DOCUMENTS ARE AT THE HEART OF THE CRUDE/BUYING SELLING SCAM OPERATIONS
The primary instrumentality by which these fraudulent con artists and crude “sellers” operate or perpetrate their con game, is the use of skillfully forged or false documents. Such fraudulent and fake “sellers” – or, at least, the ultimate masterminds who originate and stand behind the scheme – are notorious for being master forgers and excellent copiers of every conceivable legitimate refinery and government agency documents related to crude sales or purchases. In deed, according to experts, so masterful at this game are these fraudsters, that the documents they provide to prospective buyers are often so strikingly convincing and real-looking that they are frequently plain difficult, if not impossible, for almost all but the most skilled of document authentication experts to immediately distinguish from the real and authentic ones.
As one report by the Fraud Watch International summed it up, “Victims [of such fraud]are often convinced of the authenticity of Advance Fee Fraud schemes by the forged or false documents bearing apparently official Nigerian government letterhead, seals, as well as false letters of credit, payment schedules and bank drafts.”
The U.S. State Department’s Bureau of International Narcotics and Law Enforcement Affairs, in a report titled “Nigeria Advanced Fee Fraud,” describes the documents employed by the Nigerian Advanced Fee Fraud (AFF) or 419 perpetrators, as “official-looking stationery with appropriate government seals, stamps, and signatures,” whose quality, it says, has “evolved over the years, from poorly handwritten letters to more professional products prepared on word processors. Word processors also allow AFF criminals to generate more letters.” It adds that the “AFF criminals include university-educated professionals who are the best in the world for nonviolent spectacular crimes.”
THE MAIN PROBLEM: INABILITY BY BUYERS TO VERIFY SELLERS’ CLAIMS & DOCUMENTS
The point is that, largely in consequence of the above reality, for serious international buyers of Nigerian crude oil, the single most critical and most difficult and risky problem they confront in the open market, is now often the verification and confirmation of the seller’s claims about having an authentic crude allocation and/or its current availability, and the confirmation of the proofs and documents submitted by them in support of those claims. For most buyers, undertaking that task is often dreaded and viewed as something fraught with massive risks and uncertainties that should only be threaded with the utmost caution, and the greatest care and deliberation.
BUYERS’ “PREFERRED” PROOF & EVIDENCE OF CREDIBLE SELLER TODAY – a 2% PB
Because verification and confirmation of such documents from sellers are generally so difficult and dicey, most such international crude oil buyers seek, therefore, to buy ONLY from sellers who can provide them what they consider the safest, most tangible, and most easily reliable kind of proof and evidence of credibility by a seller. And what is this “preferred” proof and evidence that most buyers would rather have? It is simply this – the provision by a seller of a 2% Performance Bond (PB) to the buyer.
THE USUAL VERIFICATION & CONFIRMATION APPROACHES
In a word, the usual proofs and evidence of crude allocation and availability offered by sellers to prospective buyers, is often the provision to the Buyer of the cargo’s PROOF OF PRODUCT or POP. In a C.I.F. or F.O.B deal, for example, the typical manner by which a supposed crude oil seller shows “proof” or evidence to a potential buyer that the Seller has a genuine crude allocation or crude available to sell, is for the seller to provide the buyer the PROOF OF PRODUCT, and the buyer is asked to “verify and confirm” the authenticity of this on his own, and, upon that, for the buyers to issue their Bank Guarantee or Letter of Credit (or other payment instrument) to cover the purchase cost of the product at delivery.
But the problem with this traditional method, is that for most international crude buyers, the average Nigerian seller’s POP (an array of documents that could include the current loaded vessel documents, current Authority to Board (ATB) that was specifically issued to the initial buyer (consignee) of the crude in whose name the vessel was issued, Certificate of quality, Certificate of origin, Cargo manifest, Vessel ullage report, Certificate of quantity, Bill of lading, the Bulk Allocation Details, the Seller’s Authority to Sell (ATS) from the NNPC, etc), is NOT reliable or readily verifiable for genuineness. For example, the POP, which is, in a word, the seller’s main document that’s meant to prove to the buyer that the seller actually has the product being sold, might be showing that an owner of the oil allocation or commodity has possession of the product as of the specific time of the transaction, say, at a certain hour of the day today. But yet, there is no guarantee that the product might not have been sold to another buyer just hours, or even minutes, right after that transaction, and that the commodity is actually still available for sale or delivery to the buyer.
“Most buyers do not accept Nigerian sellers’ proof of product (POP),” says Sam Nelson, an expert in crude buying and selling methods and the author of a primer on the subject. “As a result of this, they (the Buyers) want a tangible (Physical) proof of product. The buyer would request that the seller inspect the cargo and present a verifiable inspection report from accredited agencies like SGS, Q & Q or Robinson International before they (the Buyers) will charter a vessel for the transaction. This is because some so-called Nigerian sellers have false claim over products that never existed and they would forge documents to present as POP. Nigerian market has to be followed very carefully and all documentations thoroughly verified.”
Nelson adds: “Please do not give any inspection money to the seller. Always pay the money directly to the inspection company after they have collected samples of the crude oil from the mother vessel for chemical analysis to confirm the quality and quantity of the crude in the vessel. Also, insist that the ATB (Authority To Board) from the vessel for inspection originated from the captain of that vessel. Do not accept any documents as authentic if you did not verify it from the captain of the feeder vessel. Any documentation from a Nigeria seller must be verified for authenticity.”
MOST DOCUMENTS OR PROOFS BY NIGERIAN SELLERS ARE VIEWED WITH SUSPICION
In deed, nowadays, the same problem of general inability to definitively authenticate genuine crude allocation or availability, now pervades even situations where “tangible, physical” POP inspection has supposedly been made. And some buyers find that even this cautionary advice by Nelson, that the buyers should “insist that the ATB (Authority To Board) from the vessel for inspection originated from the captain of that vessel,” would often not quite work any more in many situations today.
In a TTO deal, for example, the fact of the buyers’ representatives boarding the vessel to make an “inspection” or “confirmation” of the “loaded” vessel, is often no more a guarantee that the transaction is necessarily genuine or legitimate. Nigerian con men and 419ers who operate in the crude oil industry, have been known to work with fraudulent vessel managers and captains or con men disguised as staff of the Shell/JV terminal operators. And Vessels confirmed as “pregnant” (i.e., loaded) even by the buyer’s representatives and his appointed SGS inspectors invited to come aboard the ship on a presumed ship “captain’s” ATB document, have been known to be actually arranged by fake ship operators and ship managers and “captains”; and in such cases the buyer will only be taking over a ship and cargo with FAKE Charter Party Agreement executed between the buyer and fake ship manager, with no AUTHENTIC ship owner’s approval and no authentic shipping documents. And once the buyer’s representatives aboard the vessel confirms that the vessel is “pregnant,” the buyer pays for the cargo, takes over the vessel, and the con men quickly split the money and vanish. The buyer losses everything since the legitimate vessel owner never authorized the captain to issue the CPA, and the essential cargo shipping documents used in the transaction are all merely fake.
Nigeria’s bureaucratic quagmire
And there’s yet another problem involved in trying to authenticate Nigerian crude oil documents. The problem of the bureaucratic quagmire associated with doing business in Nigeria. One expert vastly experienced in doing crude oil buying business in Nigeria, put it this way to this writer: “NNPC Crude Oil Marketing Department, Abuja, is the authoritative source to verify the Authority to Sell document. But you will spend an endless amount of time trying to verify it. As with most Nigerian establishments, people use personal connections to get such documents, but that does not mean that they can deliver.”
WHAT BUYERS NOW VIEW AS THE BEST AND MOST “PREFERRED” PROOF OF AN AUTHENTIC CRUDE SELLER – A SELLER WHO CAN PROVIDE BUYER A 2% PERFORMANCE BOND
In short, the point is that virtually all traditional manners of verification and confirmation of crude oil ownership and availability have become seriously infected and adulterated by con artists and fake operators to the point that many international crude oil buyers regard those methods as largely unreliable, too difficult to verify, and fraught with intolerable risks. And consequently, there has evolved among them what could today be called a “preferred” method for determining an authentic and credible seller of crude oil in today’s market. Such a seller is simply one who can meet one basic requirement – namely, is willing and able to provide the buyer a 2% Performance Bond upfront in a transaction.
What is a Performance Bond or PB?
This is, in a word, an insurance document issued for the seller by seller’s bank or insurance company guaranteeing that the issuer will pay a stipulated amount (a sum amounting, in this case, to 2% of the total value of the cargo being purchased) to the buyer in the event that the seller breaches (fails to perform) the terms and specifics of the contract signed by the seller with the buyer. (The Performance Bond could also be posted in the form of a Cash Bond). The bank or insurance company which issues the PB acts as the responsible “surety” of the bond
If a seller contracts with a buyer to put up a 2% PB – and is able to actually post that bond with his bank or insurance company – the seller is, in a word, guaranteeing the buyer that if he were to fail to perform his obligations under that contract, his bank or insurance company, in their roles as the “surety” of the bond, will pay the buyer a sum amounting to 2% of the value of the crude being purchased, regardless.
WHY BUYERS LOVE THE PERFORMANCE BOND GUARANTEE
Buyers love finding sellers who can provide them UPFRONT 2% Performance Bond, overwhelmingly viewing that as the “preferred” option as they consider that the safest, most reliable, most tangible, and most assured and least fraud-prone kind of proof and evidence of credibility by a seller. Most experts contend that if a seller can offer a 2% PB deal – and, what is even more important, is actually able to post the PB because he has the financial wherewithal to do so – it is almost assured that the seller will not fail the buyer in the actual execution of the deal, but will almost surely perform those obligations as contracted with the buyer.
Sam Nelson, expert in crude buying and selling methods and the author of a primer on the subject, put it this way: “A contract with any of these bonds in place will be successfully completed. A bonded contract has a higher degree of success than a non-bonded contract. A bonded contract is a bankable contract. The players have their money at stake and that is a good reason for them to perform.”
And the Legal Dictionary explains it this way: “The purpose of a bond is to provide an incentive for the fulfillment of an obligation. It also provides reassurance that the obligation will be fulfilled and that compensation is available if it is not fulfilled. Performance Bonds guarantee for the satisfactory completion of a project.”
There are a few specific bases why buyers and experts feel that way:
1. Being able to post a PB is a sign of financial credibility and ability.
To be able to finance an actual posting of a 2% PB (which will mean, for example, at the current crude prices, 2% of, say, $200 million for a 2 million barrels cargo, something amounting to $4 million), a seller would have to have some substantial financial ability and resources.
2. Financial Cost and Penalty Involved In Posting a PB, is a Powerful Disincentive Not to Perform.
Sam Nelson: “The players have their money at stake and that is a good reason for them to perform.” In deed, most buyers, upon getting the 2% PB issuance from a seller, would promptly accept that as equivalent to POP and forgo having to review the POP.
3. The Normal Con Man or 419er Will Not Have the Disposition, the Reputation & Financial Wherewithal to Post a PB.
Robert Strickland of Strickland Associates, an experienced New York dealer in crude oil deals, says as follows: “If you are concerned with FRAUD! ONLY true Sellers that offer a 2%+ Performance Bond are genuine Sellers of Nigeria [crude oil].”
Sam Nelson, the crude oil deals expert and author: “These bonds are necessary to protect the interest of the parties involved for unnecessary losses due to fraud or complete negligence.”
4. Being able to post a PB is a solid indication to a buyer that the Seller has already been vetted.
Obtaining a PB is generally not an easy or automatic thing. Before a bank or insurance company would give a seller a bond, the seller shall have gone through a rigorous application process, and must have met a set of stringent financial and character requirements and conditions. Hence, when a buyer gets a seller who can, and does actually, post a 2% PB, the buyer is almost assured that he’s got a credible seller, and one most unlikely to be a fraudster or a 419er.
For just an example, one Syracuse, New York, insurance company requires applicants for a Public Construction job PB to provide them the following items, among others:
Surety Questionnaire Filled Out Completely
Copy of Contract/Award Letter or Solicitation Letter
Business Financial Statements (2 years audited fiscal year financials) OR
Last 3 years Company Income Tax Returns
Personal Financial Statements and Resumes on all owners of 10% or more
Work in Progress Schedule (if applicable)
A. Workman’s Compensation
B. Liability Certificate
C. Key Man Policy
Supplier and Contractor Reference Letters
Schedule of Completed Jobs
Bank Reference Letter
Company and Personal Indemnification (GAI we supply)
Articles of Incorporation
Job Cost Breakdown and/or bid specs
To most buyers of crude oil in the international open market, getting an UPFRONT 2% Performance Bond issuance from a seller, is the overwhelmingly “preferred” method for doing a sales/purchase deal. It is the option they consider to be the safest, most reliable, most tangible, and most assured and least fraud-prone kind of proof and evidence of credibility by a seller.
For various reasons and factors, many of which are outlined above, most buyers and experts believe that if a seller can offer a 2% PB deal – and, what is even more important, is actually able to post the PB because he has the financial wherewithal to do so – it is almost assured that the seller will not fail the buyer in the actual execution of the deal, but will almost surely perform his own obligations as contracted with the buyer. Hence, in a deal of that kind the buyer has little or nothing to worry about concerning a potential risk of fraud or scam. In consequence, buyers love finding sellers who can provide them – who can actually post – a 2% PB, and consider that to be the best evidence and assurance of having a credible seller, and one most unlikely to not perform the contract, or to be a fraudster or a 419er