The Upfront-Fee Trap: NCNDA/IMFPA, Mandates and the Real Procedure

Advance-fee fraud in commodity trade does not look like fraud. It looks like paperwork. The buyer or seller is passed through a chain of intermediaries, each with a title, each with a document to sign, until a payment is requested that has nothing to do with the goods. The amounts are small compared with the contract value, which is precisely why they are paid. This article describes how the chain is built, what the documents in it really are and the procedure that leaves no room for an advance.

The anatomy of the chain

A typical sequence: a "mandate" of a refinery or sugar mill contacts a buyer. The buyer must sign an NCNDA and an IMFPA with the mandate's group of "facilitators" before receiving the seller's procedure. The procedure then requires one of the following before the product can be inspected or the contract signed:

• A "bank fee" for the seller's bank to issue a pre-advice or an MT799.
• An "insurance" or "legal" fee to the seller's lawyer, often described as refundable.
• A "dip test fee" or "tank extension fee" payable to a "tank farm agent", not to an inspection company.
• A "compliance" or "activation" fee for a letter of credit to become operative.
• A deposit for "allocation" with a refinery, payable to a company whose name does not match the refinery.

Each request is framed as a formality. Each is paid to a party other than the counterparty and other than an inspector the buyer has appointed. That is the test.

Rule: in a legitimate physical commodity transaction, money moves only from the buyer to the seller against performance, and from each party to the service providers that party itself appointed. Any other payment is the fee, and the fee is the deal.

What the documents actually are

NCNDA

A non-circumvention, non-disclosure agreement is a real commercial instrument. The ICC publishes a Model Occasional Intermediary Contract (ICC Publication 769, 2015) designed for exactly this situation: an intermediary introduces parties and wants protection against being bypassed. The document is reasonable between parties that know each other. It becomes a tool of fraud when it is used to prevent the buyer from contacting the principal directly, which is the one contact that would reveal there is no product.

IMFPA

The "Irrevocable Master Fee Protection Agreement" is not an ICC document and has no standard form. In practice it is a fee-sharing agreement among intermediaries, to be paid by the seller's bank or a paymaster at the time the seller is paid. A properly drafted commission agreement with a named paymaster at a named bank is legitimate. An IMFPA that lists eight parties with percentages adding up to several points of a billion-dollar contract, referencing "ICC 400/500/600", is a signal that the parties are negotiating their share of a transaction that does not exist.

"ICC 400/500/600" and "NCND rules"

UCP 400 (1983) and UCP 500 (1993) are superseded editions of the Uniform Customs and Practice for Documentary Credits; UCP 600 (2007) is current. They govern letters of credit, nothing else. There are no ICC "NCND rules" and no ICC enforcement body. A contract citing these as its legal basis was copied from an earlier fraudulent contract.

Mandates

A mandate is an agent with written authority from a principal. In the commodity world, real mandates exist but are rare, are named in writing by the principal, and can be confirmed by that principal. A "mandate" who cannot provide the principal's confirmation through the principal's own channels is a broker, and a broker who cannot say who the seller is has no seller.

How to recognise the trap early

1. The counterparty is never the title holder. Every message comes from an intermediary, a mandate or a "seller's representative".
2. Documents are signed before KYC is complete. Real counterparties identify themselves first.
3. Procedures mention instruments that do not exist in banking: "MT799 POF to the mandate", "BCL to the facilitator", "SBLC leased for 42 days", "bank-to-bank verification by the seller's lawyer".
4. Any payment is requested before a signed sale and purchase agreement with the title holder and before an inspection the buyer controls.
5. Pressure: a deadline, a competing buyer, an allocation that will be lost tomorrow.

The real procedure

Working with intermediaries honestly

Brokers add value when they bring a real principal, disclose their role and accept a commission payable from the proceeds at closing. That is how the ICC model contract envisages it. StartLiving Group signs non-circumvention agreements with disclosed intermediaries, pays commissions through a paymaster at the time of payment, and never pays, or asks for, a fee before a contract exists. A counterparty whose procedure cannot accommodate that is not a counterparty.