Aval guarantee fraud FAQ's

Aval:

Mostly used in Europe, an aval is a financial instrument that has been guaranteed by the issuer's bank. A bank will only guarantee a financial instrument for very creditworthy clients.

The parties to an aval are the author (Issuer / Payer), the bank, and the payee (Beneficiary).

An example would be a PROMISSORY NOTE or a CHECK written by the bank's customer on which the bank's officer writes his signature, date, and Guaranteed across the face of the instrument. (This is not the same thing as a Certified Check wherein the amount is removed from the issuer's account and placed in a holding account waiting for presentation of the check.)

What it does mean is that the bank is guaranteeing the Note or check inasmuch as the bank will be the party responsible for paying the Note when it comes due, or will pay the Note in case of default by the issuer.

Since no responsible bank is going to allow itself to be hung out to dry, the author of the Promissory Note is subject to a great deal of financial scrutiny before the bank will assume the obligation. See ACCEPTANCE.

The Scam: Sometimes an aval is referred to as a bank guarantee, because a bank is guaranteeing payment of the Note.

For financial fraudsters, the reference is a dream made in heaven. The fraudster can confuse you by stating that there is such a thing as a bank guarantee. It's after this that the waters are muddied.

Okay. We know that the bank is now responsible to pay the beneficiary the amount promised on the Note, and that the author of the note is responsible to the bank for the moneys promised, sometimes immediately, but sometimes in he form of payments - as in a loan - so interest may be added.

In other words, whereas the beneficiary receives his full payment from the bank, the bank does not receive a lump sum payment from the author of the Note. You see, a promissory note is written for one of two reasons - either the author does not have the full amount on hand, or the full amount would be a burden on the author's cash flow. Therefore, the monies paid to the beneficiary become a loan and loans carry interest.

The bank may, at its discretion, decide that it wants to have the cash on hand from the note and make a little profit to boot. So the bank sells the note at DISCOUNT.

This means that they sell the note for less than the full amount due including interest.

For example, if the Note was for $100,000 plus 10% interest, the full value of the Note would be $110,000. The bank would sell the aval (the guaranteed Note) for $100,000. plus a portion of the interest.

The bank makes less profit than they would have if they held on to it until maturity (the final due date on the aval), but at the same time they have made some profit and can use the basic $100,000 to make another loan right away.

Now the author of the Note is responsible to the new owner, who may sell it again for the same reason the bank did. This is frequently done with mortgages.

NOTE: since the guaranteeing bank can sell the aval before the beneficiary has been paid, the new owner of the aval is now responsible for paying the beneficiary. The bottom line here is that we are not looking at huge profits on any one single transaction.

When extremely creditworthy clients are granted a loan, especially if the loan is in the millions of dollars, the borrower is usually charged at the PRIME RATE. Depending on the circumstances, the borrower may be charge prime plus a small spread (percentage).

The swindler, cunning little snake that he is, will tell you that Bank Guarantees can be purchased like buying cabbage at the market. Alright, let's assume you do buy an aval. What are your responsibilities?

Well, for one thing it means that you are now the guaranteeing party.

If the beneficiary has not been paid, that is now your responsibility and you will have to wait on the author of the Note to pay you. Of course, you can always re-sell the Note provided you are in a legal position to do so, and provided you have the right contacts to get involved in such dealings, and provided that the bank was indeed diligent in its credit assessment of the author of the Note, and provided nothing happens to the author's finances in the meantime. Pretty big risk, huhn?

Can you buy an aval naming yourself as the beneficiary? Hm. Let's see - that means that you are willing to pay interest on a loan of your own money back to yourself. I don't think so.

Can you buy an aval and invest it in a HIGH-YIELD INVESTMENT PROGRAM? Or even worse, borrow against it to invest?

Now that you know how an aval works, and the personal responsibilities involved in ownership of an aval, do you really feel that this type of investment is feasible?

It would mean trusting in so many unknown factors that to even consider any such plan would be risky in the extreme. Risky to the point that you would end up in the poorhouse since the yields promised by the fraudster cannot exist.

After all, profits on an aval are based only on the interest, and the interest cannot legally exceed a certain number of points. Anything above the legal limit is considered USURY, and would bankrupt the borrower in any event.

Financial fraudsters promise that you can get in on the trades or buy/sell programs between banks for avals or Bank Guarantees.

Now that you have studied the workings of these loans, you can see that the banks haven't the least use for your money.

Banks, especially the big international banks, buy and sell loans all the time. The profits garnered from such transactions go to pay for bank overhead and stockholder profits. Not you. And definitely not some secret TRADER.

Aval guarantee fraud: truth vs. scam