Beware of MT103/23 – Fraud?

QUESTION

Dear Mr. Old Man,

I stumbled on one of your  blogs and fortunately, I found your email address. I am writing you today hoping to find a definite answer to the question:

Does SWIFT MT 103/23 exist at all?

Such a question is relevant because as I tried to Google it, a number of sources suggest that the SWIFT code does not exist and that any any Buyer, Seller or Middleman must be careful with any FCO which state MT 103/23 as Payment method. On the other hand, just as many sources explain quite enough about this SWIFT CODE (which, to infer, means that MT 103/23 DOES EXIST).

Furthermore, I hope you don’t mind if I consult you about our current transaction’s payment method.

Hypothetically speaking, we, the Seller, are selling a piece of medical equipment with an overly inflated price, say some tens of million usd. The product shall be FOB in Brussels. Our Buyer suggests in the LOI that they would settle the payment in BANK-2-BANK and by MT 103/23 (Here we assume that code MT 103/23 is legitimate) to Seller’s account at, for example, UBS Paris. But the Buyer is suspicious about the deal they are making as they were cheated before. They decided to do the deal like this:

1. Buyer checks the product in Brussels.

2. After satisfied checking, the product shall be loaded onto the Buyer’s transportation to take back to Buyer’s destination (Paris).

3. Before the Buyer’s transportation leave Brussels for Paris, the Buyer shall send the BLOCKED Payment to Seller’s Account at Citibank Paris by MT 103/23.

4. As soon as the Buyer’s Transportation arrives in Paris with the desired product, the BLOCKED PAYMENT shall be released from MT 103/23 to MT 103. (how would the seller know if the product arrives in Paris and not somewhere else? What if the product does arrive but the Buyer does not inform that it has arrived, when will the blocked fund be released?)

My concerns are:

A) Does any of these step make sense to you? If not, please help me explain why.

B) Is it workable? Any risk? I know I have no rights to ask you to do all this charity consulting for me. But I really need this your expertise and please help me at your earliest convenience.

I look forward to your reply. Happy New Year and may Mr. Old Man shall always be young at heart!

N.

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ANSWER

Dear N.

I would like to confirm that there is no MT103/23 but MT103 with Field 23E (Instruction Code). This fields specifies an instruction which must contain one of the following codes:

SDVA: Payment must be executed with same day value to the beneficiary.

INTC: The payment is an intra-company payment, i.e., a payment between two companies belonging to the same group.

REPA: Payment has a related e-Payments reference.

CORT Payment is made in settlement of a trade, e.g., foreign exchange deal, securities transaction.

BONL: Payment is to be made to the beneficiary customer only.

HOLD: Beneficiary customer/claimant will call; pay upon identification.

CHQB: Pay beneficiary customer only by cheque. The optional account number line in field 59 must not be used.

PHOB: Please advise/contact beneficiary/claimant by phone.

TELB: Please advise/contact beneficiary/claimant by the most efficient means of telecommunication.

PHON: Please advise account with institution by phone.

TELE: Please advise account with institution by the most efficient means of telecommunication.

PHOI: Please advise the intermediary institution by phone.

TELI: Please advise the intermediary institution by the most efficient means of telecommunication.

Perhaps your customer is referring to the code HOLD where the payment is to held until the you (the beneficiary) claims. Yet, this seems not applicable to the situation described by your customer:

“As soon as the Buyer’s Transportation arrives in Paris with the desired product, the BLOCKED PAYMENT shall be released from MT 103/23 to MT 103”.

I hear now and then that MT103/23 would be used by scammers to defraud innocent sellers. So, please be cautious of scams. For such a large transaction with a new buyer, why don’t you insist on a safer method of payment?  LC, SBLC or BG issued by first class banks are recommended.

Also, you are recommended to contact Citibank Paris regarding MT103/23.

Best regards,

Mr. Old Man

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COMMENT FROM ABRAR AHMED

Dear N

Just to add to Mr. Old Man’s excellent comments…

Personally, I am always skeptical of so called MT103/102 (usually stated to be “conditional”) messages purporting to serve as a form of payment guarantee. Most such messages are not recognised as an eligible security by banks.

I am sure you are aware that a standard MT103 message is simply a TT payment instruction, which is obviously not a guarantee, but simply an unconditional payment. A so called “MT103/23” is (as far as I know) a format which would not be recognised by banks. The intention is for the buyer to arrange for the issuance of a SWIFT MT103 message with field 23 claused as “CONDITIONAL” so that the payment is not released/actioned by the recipient bank until certain conditions have been fulfilled, such as say, presentation of documents, evidencing shipment of goods. However, as pointed out by Mr. Old Man, field 23 may contain only the specific coded instructions as stated, and therefore “conditional” is not a valid code.

In fact, there are no coded instructions in a MT103 which requires the beneficiary to prove compliance with any contractual conditions, such as under an LC. It must also be understood that such messages are not governed by any ICC provisions, and any conditional payment instructions would affect the “straight through processing” (STP) function of the MT103 message.

It is unlikely that the SWIFT/Payment department of a bank would wish to involve itself in an area for which it is not qualified, such as in determining the integrity of any underlying documents. Such messages have been the subject of scams whereby an unscrupulous seller will circumvent the usual secure instruments such as LCs or bank guarantees, and instead rely on the relative ease of receiving payment against a less stringent examination of underlying shipping documents.

Abrar Ahmed