Red Flags in a Copper Deal Under CIF Terms

QUESTION

 Dear Mr. Old Man,

I hope this message finds you well.

Please forgive my intrusion but having seen your highly professional explanations on letters of credit, I would like to consult you on a professional matter.

I am a trader from China, and as I am still in the initial stages of my business, I have some confusion regarding payment issues in international trade. Recently, I plan to purchase copper concentrate from an overseas seller. Under the CIF terms agreed with the seller, the relevant clauses are as follows:
…
      6. Seller sends DLC MT700 draft verbiage to Buyer for Buyer’s Bank approval.

7. Buyer sends DLC MT700 verbiage approved by their bank to Seller & his agent via email.
8. Buyer’s Bank will release the SWIFT-confirmed DLC MT700 to Seller’s fiduciary bank account within five (5) banking days. Upon re-confirmation of the SWIFT from Buyer’s Bank, Seller will issue a 2% performance bond to Buyer’s Bank within five (5) banking days. Seller will issue NCNDA/IMFPA to be filled out and signed by all parties involved in this contract.
9. Trial shipments of 5,000 MT will commence within a maximum of 20/25 days after the receiving bank accepts the DLC MT700. Seller will notify Buyer of all shipping documents and send soft copies via email. Upon receipt of the goods at the discharge port, Buyer will arrange inspection by SGS/CIQ/CCIC or an equivalent institution at their own cost.
10. Buyer shall send one original inspection report (issued at the destination port by SGS/CIQ/CCIC) to Seller’s Bank – Abu Dhabi Islamic Bank (ADIB), Abu Dhabi, UAE, with a copy to Seller’s email address and their mandate’s email address.
11. Buyer will release payment within three (3) days via MT103/TT transfer to the bank account nominated by Seller as specified in the proforma invoice. Seller will hand over the shipping documents for the 5,000 MT trial shipment to Buyer.
    …

I am confused about this payment method. Since I have already opened a DLC/MT700, the seller requires payment via MT103/TT after the goods arrive at the port:

1. Is there a risk of double payment? Could this be a fraudulent practice?
2. If this is a “L/C with T/T Reimbursement”, can it be stipulated in the MT700 that the actual payment will be made via MT103?

I have encountered similar clauses in transactions of other commodities, such as pet coke and sulfur. I have checked a lot of information and consulted Chinese banks, but have not received a very clear answer. Therefore, I hope you can provide guidance.

Best regards,

Xu Mengnan

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 ANSWER

Dear Xu Mengnan,

Thank you for your question.

You are right to be cautious — this transaction raises multiple red flags and may very well be unusual, if not a potential scam. Let’s break it down from a risk management perspective.

You are being asked to:

1. Open a Documentary Letter of Credit (MT700) in favor of the seller.
2. Later, make a separate payment via MT103/TT after the goods arrive at the port.
3. Accept that the seller will send only soft copies of documents via email, while original shipping documents will be handed over only after payment by TT.

Key Red Flags:

1. Double Payment Trap

There is a clear risk of double payment:

• First via TT (outside the LC), and
• Possibly again through the LC, if documents are later presented.

This dual-payment setup is commonly seen in fraudulent schemes, where the seller disappears after receiving the TT payment.

1. Unsecured Document Handling

The seller proposes to send only soft copies of shipping documents by email and withhold originals until after TT payment.

The seller may never send the originals — or may not ship anything at all.

1. Use of a Fiduciary Account

The mention of a fiduciary account at Abu Dhabi Islamic Bank (ADIB) is a concern. Such accounts are often used in questionable arrangements and lack transparency.

1. Performance Bond of 2%

This is often just a psychological comfort clause. Unless issued and confirmed by a reputable bank or insurance company, it carries little weight and could be meaningless.

You should:

• Conduct strict KYC on the seller and verify their financial standing.
• Consult your bank’s trade finance team before issuing any LC or making payment.
• Consider seeking independent advice from a trade expert familiar with international transactions.

In short: Do not proceed with this transaction without full clarity and bank-level security.

Best regards,

Mr. Old Man