TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Recently, Board staff noted an increase in the number
of questionable domestic and international financial schemes
involving so-called "Prime Bank" financial instruments, such as
Prime Bank Notes, Prime Bank Guarantees, and Prime Bank Letters
of Credit. Working with the enforcement staffs of the other
federal financial institutions supervisory agencies and with U.S.
and international law enforcement agencies, we prepared, on
behalf of all of the supervisory agencies, the attached
Interagency Advisory concerning the use of these types of
illegitimate financial instruments.
On October 21, 1993, the bank, thrift, and credit union
regulatory agencies jointly issued the Interagency Advisory.
Because this matter potentially affects many banking
organizations, we would appreciate you distributing the
Interagency Advisory to the domestic and foreign financial
institutions supervised by the Federal Reserve in your District,
as well as to the appropriate members of your Federal Reserve
Bank's supervision and legal staffs.
It should be noted that the enforcement staffs of the
supervisory agencies will, in the future, prepare and distribute
similar Interagency Advisories concerning on-going questionable
banking practices or illegal schemes whenever necessary to advise
the banking community about such problems. These interagency
alerts will be prepared and forwarded directly to the officers in
charge of supervision at the Federal Reserve Banks for
appropriate distribution to the banking organizations in their
Districts and to their staffs.
In the event you have any questions concerning this
matter, please contact Mr. Richard A. Small, Special Counsel, at
(202) 452-5235, or me, at (202) 452-2620.
Deputy Associate Director
ATTACHMENT TRANSMITTED ELECTRONCIALLY BELOW
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation National Credit Union Administration Office of the Comptroller of the Currency Office of Thrift Supervision
October 21, 1993
NOTES, GUARANTEES, AND LETTERS OF CREDIT AND SIMILAR FINANCIAL INSTRUMENTS
The enforcement staffs of the federal financial
institutions supervisory agencies, who work with federal law
enforcement officials responsible for investigating and
prosecuting bank fraud-related matters, have noted an increase in
the use, or attempted use, of questionable financial instruments
in connection with complex, and possibly illegal, schemes. Many
of these schemes have been aimed at defrauding borrowers and
investors in the United States and abroad, as well as domestic
and foreign banks. The questionable instruments are often
denominated as "Prime Bank Notes", "Prime Bank Guarantees", or
"Prime Bank Letters of Credit". They are also called by such
other names as "Prime European Bank Letters of Credit", "Prime
World Bank Debentures", or "Prime Insurance Guarantees".1
Over the past several years, federal and state law
enforcement authorities have prosecuted, or are presently in the
process of investigating, wrongdoers who have defrauded
individuals and entities by promising, for example, to arrange
loans that would be funded in some manner by "Prime Bank"-types
of financial instruments, or would, in some other way, involve
such instruments and advance loan fee payments. Many of the
illegal or dubious schemes that have been brought to the
attention of various regulatory agencies by law enforcement
officials, foreign banks, the World Bank, and central banking
authorities appear to involve overly complex loan funding
mechanisms necessitating the use of "Prime Bank"-type documents.
Other suspicious schemes involve "investments" in "Prime Bank"-type financial instruments and promises of unrealistic returns on
multi-million dollar investments. In many recent situations, the
agencies have been advised that individuals have been improperly
using the names of large, well-known domestic and foreign banks,
the World Bank, and central banks in connection with their "Prime
Bank" schemes. When contacted by potential borrowers, investors
or regulators, the institutions had no knowledge about the
unauthorized use of their names or the issuance of anything akin
to "Prime Bank"-type financial instruments.
Because the staffs of the federal bank, thrift and
credit union regulatory agencies are not aware of any legitimate
use of any financial instrument called a "Prime Bank" note,
guarantee, letter of credit, debenture, or similar type of
financial instrument, you should be alert to the potential
dangers associated with any transaction involving these types of
instruments.2 Likewise, you should be attentive to the
attempted use of any traditional type of financial instrument--such as a standby, performance or commercial letter of credit--that is somehow referred to in an unconventional manner, such as
a letter of credit referencing forms allegedly produced or
approved by the International Chamber of Commerce. Examples of
these include bogus schemes involving the supposed issuance of an
"ICC 3034" or an "ICC 3039" letter of credit by a domestic or
foreign bank.
The staffs of the regulatory agencies, in cooperation
with the Department of Justice, the Federal Bureau of
Investigation, the U.S. Secret Service, and the Securities and
Exchange Commission, want to alert you to this situation and
request that, in the event you become aware of any transaction
involving any of the aforementioned types of financial
instruments, you advise one of the following federal regulatory
agency officials:
Also, if you suspect that a criminal offense is being committed, it is required that you promptly make a criminal referral to the appropriate federal law enforcement agencies in accordance with applicable criminal referral regulations.
Footnotes 1. These and similar financial instruments were the subject of prior regulatory agency alerts issued by the Office of the Comptroller of the Currency. These included the Office of the Comptroller of the Currency's Banking Circular BC-141, Supplement 2, dated July 14, 1982, several subsequent supplements to BC-141, and BC-243, dated February 7, 1990. Return to text 2. There are currently six insured depository institutions with the word "Prime" in their names in the United States. Two of them are commercial banks that operate in Florida, one is a commercial bank in Connecticut, another is a commercial bank in Indiana, and two of them are thrift associations operating in Wisconsin and Pennsylvania, respectively. There is also one bank holding company in Illinois with the word "Prime" in its name. This alert is not associated with any deposit or other type of legitimate debt obligation or financial instrument issued by any of these financial institutions. Return to text |
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