Business rules

When we talk about business, everyone has a personal opinion to complete the deal in their own way.Often they exceeded the criteria, and regulations, just out of habit or hearsay, almost never the rules you want to believe are imposed by International Chamber of Commerce are really such. How to get out? Let's read the article, and if you want at the bottom of page you leave your commentary.

The following information will give you a better insight into the actual conditions that are acceptable to the real buyers and sellers in this business as opposed to all of the nonsense that has been perpetrated by the brokers and others that simply do not understand this business.

First, let’s put to rest many of the things that are incorrect and inaccurate about this business of buying and selling instruments.

Consider the following corrections to items that are pervasive throughout the brokers’ network, continue to be included in Letters of Intent, have been incorrectly applied to these transaction and are never a part of a real agreement between the seller and the buyer:

1.       First and foremost, the days of the buyer standing in the public square and dropping his pants while the seller hides in the dark and is "protected" by some broker that calls himself the "mandate" are gone from this business, never to return.

2.       The LOI can never become a contract. This is contrary to contract law. The seller and the buyer will always enter into an enforceable commercial contract/agreement. The LOI is just that, an expression of the buyer’s interest or intention. More than 95% of the time, the LOI is written by a broker, not by the seller and, for the most part, these brokers have just cut and pasted information that they obtained from other brokers. Thus all of the conflicts and errors in the  are copied and pass along from joker to joker (err..i meant to say, broker).

3.       Banking coordinates are never conveyed in a LOI. These are very confidential and are not the business of the broker network. In fact, banking coordinates are never conveyed in an agreement. Banking coordinates are only conveyed principal to principal.

4.       The laws of perjury do not apply to any commercial document,  or agreements. This is contrary to contract law and it is impossible for someone to perjure themselves in a letter of intent or interest.

5.       The term “no proof” means just that.

6.       There are no rules, regulations. Acts, ordinances or laws (including the US. Patriot Act of 2001) that require a buyer to produce a proof of financial capability prior to acquiring any instruments.

7.       There is no agency or department of any Government that approved the private sale of Medium Term Notes (MTNs) or Bank Guarantees (BGs) and there is no department that issues a “fed number” for MTNs. This is all joker-broker nonsense.

8.       Banks do not endorse fee agreements, contracts or LOIs. This action would place a financial liability on the bank and they cannot and will not incur that liability on behalf of their depositors.

9.       Banks do not issue irrevocable conditional bank purchase orders (ICBPO), or any purchase orders, period. In fact, a bank is precluded from incurring any liability on behalf of a depositor. And, the words “irrevocable conditional” form an oxymoron. No western world bank will issue a MT543, as it is a liability on behalf of the bank. In fact, as of September 1, 2003, the MT543 is gone from the banking world.

10.     Issuing banks do not enter into agreements to sell their financial instruments and the buyer’s banks do not enter into agreements to purchase the financial instruments. The agreement is always between the buyer and the seller. And no banker or securities officer is going to act on behalf of the buyer or seller until and unless there is an agreement in place.

11.     Collateral first is the most misunderstood phrase. Collateral first does not mean that the actual instruments move to the buyer before payment. It means that the seller must provide an invoice setting forth the details of the instruments, before the payment is made. There is no longer such a thing as a collateral first settlement via Euroclear and there is no such thing as a “collateral first“ DVP settlement, these are not the same settlement types.

12.     Buyer’s confidential documents (passport, resolution, client information sheet, banking coordinates) are not sent through the brokers’ network. This always results in the documents being shopped around the world. These documents are only sent on a principal to principal basis, period.

13.     There is no such thing as “due diligence” by some “agency” for seasoned instruments. The buy/sell transaction between private parties is private and does not require the approval of any governmental body or agency.

14.     As a result of the post-September 11 rules on wire transfers of funds, it is no longer possible for buyers to move cash funds in amounts over US$500M without the funds being stopped and investigated. Accordingly, offers that set forth tranches of $1b, $5b and more, are just pure nonsense.

15.     The ICC in Paris, France, is not an enforcement, adjudication or legislative body. They are simply an information body. However they have recently published the ICC769e concerning the NCNDA. Butr, the ICC has no jurisdictional authority or standing in any commercial agreement.

16.     Contract law sets forth that there cannot be any conflict of jurisdictional oversight to an agreement. Accordingly, an agreement cannot contain multiple jurisdictions as the controlling laws. Example: “this agreement is governed by the laws where the buyer and the seller reside and the ICC. Paris, France”.  Or “this agreement is governed by the laws of the USA, UK, Hong Kong, Switzerland and Germany” were written by someone that know nothing about the law, period.

17.     Bank guarantees are never on any screen (DTC or Euroclear) for screening, authentication or settlement. All BGs must be transacted via standard non-Euroclear DVP protocol settlement procedures.

18.     Medium term notes (MTNs) are only on Euroclear, not on DTC, for screening, authentication and settlement. All MTNs and bonds on Euroclear must be transacted via standard Euroclear DVP protocol settlement procedures.

19.     Some of the webs are starting to issue bank promissory notes. These notes can be posted and settled on Euroclear, via standard Euroclear DVP protocol procedures.

20.     Prior to January 1, 2003, it was possible to settle on Euroclear with a collateral first settlement. The seller provided the buyer with the invoice containing all of the instrument and Euroclear codes, including the blocking code. The buyer would then screen the instruments, block (delivery) the instruments in its name and then pay the seller via wire transfer of funds. Euroclear called this a “free delivery” as the instruments were blocked in the name of the buyer without any funds being delivered (payment) at the same time. There were too many incidents where the funds never were wired, causing both the seller and Euroclear big problems. So, as of January 1, 2003, there are no more “free deliveries”.. All instruments on Euroclear must be transacted via standard Euroclear dvp protocol settlement procedures.

21.     Standard Euroclear DVP protocol settlement procedures and standard non-Euroclear DVP protocol settlement procedures, do not require and, in fact, preclude the need for a proof of funds, proof of capability, financial capability letter, MT760, MT543 or MT799. This is handled in the bank to bank call, after the agreement is signed and in place. Accordingly, no one will issue these documents, as they are replaced by the bank to bank confirmation call that must take place immediately after the agreement is signed.

22.     MT100 and MT103 are conditional swift transfers of cash funds. The MT100 has not been used for more than two years. The MT103 is the current method of sending a conditional swift transfer of cash funds. However, the MT103 is only used for fresh cut (new issue), funds first transactions and never for seasoned paper or a DVP settlement transaction.

23.     MT543 is a bank commitment or undertaking and is not issued by any US Bank and is not issued by most western european banks. Banks do not make commitments or undertakings on behalf of their depositors. If they were to do so, this would cause the bank to move liquid assets to the liability section of the balance sheet and bank simply will not do this. MT543s have been cancelled by the banking authorities and after September 1, 2003, are no longer used in the banking world.

24.     MT760 is not a proof of funds, blocking of funds, movement of funds or settlement document. It only has one purpose. Its purpose is for the actual movement of the bank guarantee (not MTNs or bonds) from the seller’s bank officer to the buyer’s bank officer.

25.     MT799 is a simple text message, sent bank to bank. In this business, this is used for a bank to bank proof of funds, only. The MT799 is not a form of payment and it is not a bank undertaking or promise to pay. It is simply a bank to bank confirmation of the funds on deposit, nothing more. And, all of these joker-brokers that modify the MT799 to make it look like a bank undertaking are just kidding themselves.

26.     Standby Letters of Credit (SBLCs) are not instruments that are issued, bought and sold at discounted prices. When a bank issues a SBLC, the price to the buyer is 100% of face value, plus the bank service charge for the instrument. And, the purchaser of the SBLC will ask the bank to place a restrictive endorsement on the SBLC, for the payment of a specific item of goods or services. All offers for large amounts of SBLCs at discounted prices are absolutely fraudulent offers.

27.     A fee protection agreement that states “to be determined” or “to be nominated” as the name of the paymaster for either the buyer’s side or the seller’s side is absolutely worthless. No prudent business person will issue a blank document. And, if you do not know the name of the seller’s side paymaster, then you do not have a valid offer and you do not have any way of delivering the Ready Willing and Able (RWA) letter to the seller.

28.     There is no such thing as slightly seasoned instruments. Instruments are either fresh cut (new issue that has not been registered with a buyer) or they are seasoned (instruments that have already been sold to one or more buyers). While the price of seasoned instrument can vary, the fact that they are either seasoned or not seasoned is binary in nature.

29.     There is no such thing as the “gray screen”. This is just joker-broker nonsense.

30.     There is no such thing as a “fed id” approving the acquisition of MTNs. This is just joker-broker nonsense.

31.     There is no such thing as a “fed pool” for MTNs. This is just joker-broker nonsense.

32.     There is no such thing as a “fed program” or  “fed trader”.  These are just terms created by the joker-brokers in this business. 

Bank Comfort Letter (BCL)

BCL, which stands for Bank Comfort Letter, has been called by one expert, one of “the most widely used acronyms which are both unsafe and impracticable” in the hands of the Internet intermediaries, and which has been a prime reason “why past trades have failed” with those intermediaries who use it. Often called by other names, such as the ‘Bank Capability Letter’ or‘Bank Confirmation Letter,’ the BCL is simply a letter provided by the buyer’s bank to confirm that the buyer has sufficient funds to carry out a particular transaction.

The BCL is viewed as a flawed, inappropriate, dangerous, and “silly” method when employed by modern Internet intermediaries, for essential the same reasons that other similar procedures(e.g., the LOI, ICPO, etc) have been similarly viewed by experts – it is often misused and misapplied by greedy, overzealous, devious and misguided Internet joker broker types and agents to try to gain, for themselves, an undue control and advantage of the trading process with potential buyers, by essentially “cornering and boxing in” the would-be buyer to commit,upfront, to an offer so as to unduly and hurriedly secure or safeguard a commission for themselves from such a buyer, with total disregard as to whether the offer is genuine or not, or has been verified or not.

An Illustrative Example from Case of a Seller’s Offer to the Author’s Office

The above problem is manifested in about two basic ways.

A) Let’s take, for the purposes of an illustration, this particular offer received at the author’s petroleum consultancy office from a dealer who purported he was acting as a Mandate/Agent for refined JP54 & D2 products from Russia, through an entity that he claimed was connected with Russia’s OAO Gazprom and Ufa Refineries. He demanded that our potential buyer provide the following documents to initiate a purchase, in order for the buyer “to be considered as credible”: 

The Seller’s Basic Procedures for Sale on a C.I.F Basis:

Seller issues a Soft Corporate Offer (SCO) [This is a Sales letter outlining the seller’s offer] to Buyer

Buyer confirms the SCO and issues Company Bio, a Letter of Intent (LOI), and Bank Comfort Letter (BCL).

Seller issues Full Corporate Offer (FCO) which buyer endorses and returns.

Seller issues draft contract open for amendments.

Both parties confirm draft Contract by endorsing it.

Buyer and Seller lodge the contract in their respective banks and finalize the bank to bank process.

The first problem with this request for a BCL by an intermediary, is the issue of practicality and feasibility. For example, whereas this agent is asking that the interested buyer should first provide him a BCL, as a purely practical matter the reality is that generally Banks (i.e., in this case, the buyer’s bank) will usually not give BCLs without FIRST seeing the POP from the seller or supplier. To put it another way, the fact is that such matter usually always boils down to the so-called ‘chicken or the egg’ proposition. That is, on the one hand, if, in fact, the “seller”actually truly has the crude allocation in hand, then there is no reason why they would not immediately give a POP to a credible buyer. It is not possible to go around that. But, on the other hand, if the “seller” FIRST receives a BCL (and ICPO) from a potential buyer, then it’s quite possible, or perhaps even likely, that they then can go out on their own and shop around for the product. The simple reality is that, at least to this author’s own knowledge, most petroleum buying entities in operation, will not send an ICPO and BCL to a supposed seller without first receiving a POP, and ONLY if a supplier were to send a buyer a legitimate deal with a POP, will the buyer send supplier an ICPO and a BCL, even accompanied with permission to do a soft probe of the BCL.

Buyers cannot buy “nothing.” This seller, in fact, not even the seller but a third-party intermediary agent, is asking a buyer to disclose to them a vital financial information without even having seen or being shown a product, or knowing who they are dealing with and whether it’s a legitimate seller at all, in the first place.

Thirdly, whereas the impression being conveyed by such a seller who demands a BCL is that it is some kind of security and a conveyance of proof of financial capability or assurance of payment on the part of the buyer, the reality of the matter is that the BCL really confers no such security. Why? Because, in practice, with a great many number of banks, it often takes very little to for them to issue that document to a customer,especially if he is one of their prized accounts – whether that customer actually has the funds in his account with them, or not. In sum, if a customer were to actually provide a BCL for, say, $200 million (the value of one shipment of 2 million barrels of crude oil), the fact of such presentation would still be NO proof, nevertheless, that he is, in fact,good for the amount represented in the BCL, the $200 million. Or, even for anything close to that! Hence, asking for a BCL, or getting a copy of one in your hands, virtually proves nothing as to the financial capability of a buyer to buy a product. Even if a principal does disclose this information to an intermediary, what use is this information to them?

They cannot personally conduct a ‘soft probe’ so what business does an intermediary have asking another intermediary for this type of third-party information?”

Joker Brokers waste time in requesting non-sense documents. For example requesting a buyer for a Bank Confirmation Letters (BCL) or to provide Proof of Funds (POF) prior to the acceptance of offer and contract signing is foolish. Business confidentiality is paramount, as a full mining consulting firm can undertake no action to endanger its principals or clients, providing loose access to client banking is such an action. No serious buyer gives an untested vendor access to banking confidential.

In general only brokers, not principal Suppliers seem to request BCL's. This seems to be for the comfort of the brokers. However at most a BCL will only provide limited degree of financial capacity. A professional seller understands that a Buyer trying to provide premature proof of "Ready, Willing, and Able" (RWA) via a BCL does not guarantee purchase. It only says "I (the buyer) have money to buy something ", but it does not say "I (the buyer) will buy something from you."

BCL's never prove buyer's RWA for reasons detailed below, therefore requiring them is a waste of time and generally will kill your deals. Brokers who request a BCL need to consider that few serious Buyers will issue a financial statement of such confidentiality in today's International area filled with fraud, identity theft, piracy, and other financial threats. In a world of rampant fraud no serious buyer allows soft probes into their banking. 

A serious Seller is concerned about one thing only, closing a sale. Where the Buyer's funds come from, at what stage in a transaction Buyer might choose to fund a certain account, and other matters are simply not the Seller's concern as long as the Buyer is able to perform as required under the contract. A fully funded LC at the appropriate stage of transaction is the most appropriate method of demonstrating RWA, such an Irrevocable payment is useless until the documents passing title to the Buyer are produced. No money, no product, no product documents no money. This is the most secure and safe protocol protecting Buyers and Sellers Globally.

The Joker Broker

This is a letter to us from a former admitted Joker that is now a closer!

What do you do when you receive an offer of over one hundred millions barrels of JP-54 and more than five millions ton of D2 requiring an ICPO with BCL or Soft Probe, NCND and IMFPA up front?

This is pure Broker rubbish - throw it in your rubbish bin. No delivery port can handle such volumes. Do you realize how much fuel you are talking about here? Do you know those huge VVLC tankers, which are as long as 3 soccer fields put together? Well this quantity is 17 of those huge tankers!!!! Which refinery can handle such quantities? Which Port has enough spare tank space for this “lake” of fuel? Which pipeline will bring this “river” of fuel to the Port? And which refinery will produce it? 

Answer: “It simply does not exist”. I know that brokers don’t like to hear it, but I have to tell you that you are filling up peoples’ email systems with nonsense from brokers and it is spoiling your name. Maybe you are getting these so-called “deals” from good people, but perhaps they are getting them from the Joker Broker “Daisy-chain”. Please listen to good advice - instead of sending 100 emails with Broker nonsense which does not work, find just one…… only one….. Good deal where you are talking directly to the Seller (legal owner of the product) or his Mandate and you will save yourself (and all of us) a lot of unnecessary work. Let me give you (for free) some good advice, coming from years and years of experience in this business: (It cost me a lot of money and years of hard work with no successful deals to gain this experience, but I am giving it to you for free, so this is your lucky day to get something valuable for free!!).

1. When a deal starts off with “send ICPO with BCL or Soft Probe, NCND and IMFPA” this is “Broker Language”. Those that know this “Broker-Language” know that this means: “I was a Joker-Broker - I don’t have any product for sale and I don’t know anyone who has got any (real) product for sale - so I want you to give me an Irrevocable Purchase Order with your full financial details disclosed, so that I can then run around with your order and your money in my hands, looking for product and the next thing you will be seeing is your company details and your banking details exposed to the world, running around on the internet between thousands of other Joker-Brokers”. I was a Joker and I have closed a five deals now after years of the rubberish.I am a closer and recommend The Joker Brokers from any that would like to at least learn this business!

This is what this language means - I suggest you “learn the language” and please do not send me EVEN ONE “deal” which starts off with this procedure - please just put them straight into the rubbish bin - which is exactly the place that I will put them when someone sends them to me.

2. Next valuable tip:
Question: ‘What do the real buyer’s want?’ -
Answer: Real buyers want to receive offers ONLY from real sellers.
Next Question: ‘How do I recognize a “real seller” from one who is not?
Answer: A ‘real seller’ actually owns the product - he is the legal title holder of the product and 98% of the time he is not offering this product to the “Joker-Broker world” for sale. So you need to be sure of the circumstances as to why a “real seller” is offering “real product” for sale to a broker network when he can just call up Shell Oil or ExxonMobil or BP or Total Oil and sell it direct to them as they are always needing product. 

QUESTION: “WHAT DO I LEARN FROM THIS? ”Answer: “I learn that I will not receive “real” offers from a Broker Daisy-Chain. I will only receive them from a real seller or his real appointed Mandate”.

3. Next valuable tip: NOBODY gives oil products away for nothing. About 95% of deals which have a low fixed price are “scams” and there is no product available. They are the fabrications of the Joker-Broker brigade. A real seller will in 95% of all cases only sell with a discount off a Platt’s based price. (Why would a Seller sell D2 for somewhere in the $400’s when he can get over 50% more, anytime from any major oil company? - Sellers are not that stupid!!)

4. The remaining 5% of deals which sell for a fixed price are mostly “Spot” deals and they have a time window of a maximum of about 3 days. Within this time, they are normally sold and delivered because nobody can afford the tank storage space costs for any extra days - it eats up all the profit. Unfortunately the Joker-Broker brigade pick up on some of these deals and continue to offer them all around the world for months and months after they have already been sold. The Brokers will swear to you that the deals are genuine, as they may have been at the time, but what use is a so-called “genuine” deal when it was already sold and delivered two months ago?

5. A “real buyer” who has money in his bank to buy product with, wants ONLY to receive offers from a REAL seller who: (a) actually owns the product (b) the product is already ‘in tank’ at the delivery port with tank receipts issued, or (c) the product is in the pipeline on the way to the port, or (d) the seller has bought crude oil which is on the way to the refinery and the product he wants to sell will be available in 30 to 45 days at the loading port, and (e) the Seller has some kind of documentary proof (Soft POP) that the product is real and available.This “REAL SELLER” will always be prepared to offer product to a genuine buyer on an FCO and he will always be in a position to give some sort of partial POP (proof of product) in exchange for POF (proof of funds) and he will normally be ready to do this bank-to-bank. What does this mean? It means that you should ask your so-called “seller” if he can produce (bank-to-bank if he likes) some sort of evidence to a buyer/buyer’s bank to prove that the product is real, owned and available for sale. If the seller cannot do this, you need to find out why, because in most cases it will be found that he can't produce this because he doesn’t have it, because the deal is a fake.

6. In any “real deal” there will never be a huge discount offered with huge commissions to intermediaries - it just doesn’t happen. So when you see a huge discount and/or huge commissions to intermediaries, it is more than likely that the deal is fake.

7. Please be aware that very often someone in the Broker fraternity hears about a deal which, at the time, may be genuine. This deal is then widely circulated amongst brokers, even months after the product has been “sold and delivered”. This is called “chasing after rainbows”.

8. Whenever you see JP54 offered in huge quantities, throw it in the bin. Remember that the largest airline in the world uses only 7,800,000 barrels per month and that is “worldwide” at numerous different destinations!! Also remember that the largest airline in the world will not be buying from us - they have long term, long standing arrangements direct with producers. So do yourself a favour and put all “huge” JP54 offers where they belong - straight into the rubbish bin.

9. Do some research on the delivery ports? Whenever anyone is offering you more product than the available tank capacity in the delivery port, it is obviously a fake deal.

10. Take some good advice - treat every deal as a “fake deal” until it is proven to be genuine - you will be right in over 90% of the cases….. The large majority of deals (in fact, almost all of them) running around the broker world are either fake deals, or they might have been available for a 3-day window but are still circulating days, weeks and even months after the deal was closed and delivered.

11. Lastly - only deal with people who are either a genuine Seller Mandate (with official Mandate Appointment Letters from the Seller - and beware… there are many fakes!!!) or not more than one step away from such a genuine Seller Mandate. On everything else you will find out that you are wasting your valuable time….. And mine (which by the way, I am not going to allow to happen).

Have a nice deal!