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Illegal Practices in commodities.

Fraud is Fraud!

Certain Business practices are legal while others are not. Illegal Business practice border on Fraud, while other practices are clear cut Fraud. Fraud is punishable by law in Criminal Courts. While many think that South Africa's law is inundated with too much work and full courts, this is not actually true. Lately it has become commonplace for commodity Brokers and Firms to have those doing Fraud locked up.

I want to touch on only a few illegal practices in this article and will add more in time to come.

1. Illegal Probes
One illegal practice is to probe the Bank account of Buyers without permission. S.A.N.C.E. as a rule always  insist on having written consent of the Buyer before allowing a Bank probe to be done.  Calling a Buyers bank to confirm that the Buyer does have an account as is known with their Bank is not illegal. Trying to find out how much Money they have in their account is not lawful and may secure you with free accommodation in the local police cells for a evening or two. The permission should give the person, bank or mine clear permission to probe. A document which is three months old is definitely not valid. If uncertain, we advise Mines or Brokers wanting to probe to rather contact the Buyers and requesting clear permission to do the probe.

2. Illegal LOI documents
Normally LOI documents will contain the following words, or something similar to this.

" We, the Buyer, with full corporate authority do hereby warrant and attest, under penalty of perjury, and assuming any and all financial and/or legal liabilities that may arise from any misrepresentations and being subject to any and all relevant applicable damages state unequivocally with complete security that we are ready, willing and legally able to buy A grade Coal, FOB, the quantity of: 500 000 MT per month for 12 months plus roll-overs and extensions for 36 months "

This LOI clearly states that the Buyer is ready (already in position), keen and financially able to buy A Grade Coal. The Sellers and their Mandates will normally take this LOI very serious.

The problem in the S.A. commodity industry, is now that Commodity Brokers issue and Sign such LOI documents themselves. Effectively they state that they (as the Brokers or Intermediaries) have the funds to purchase the Coal themselves. Sellers trust such LOI's and release full information regarding the product available to them. This is illegal and FRAUD unless they do actually have the Money to purchase the Coal. If you as a Commodity Broker expect to find a Buyer, or if you already have a willing and able Buyer, such Buyer (who does actually have the money) should issue and sign the LOI document.

Note: Commodity Brokers who issue such illegal LOI documents will be blacklisted by S.A.N.C.E.

You should, if you do have a genuine Buyer with funds, issue your LOI as per the example below:

"We, JJ Roux Enterprise Cc , as the Buyers Facilitators, with full corporate responsibility, under penalty of perjury, herewith confirm that our client is willing and able to purchase the following product under the following in terms and conditions"

3. Back to Back transactions are totally Legal      BUT

You are expected to disclose your Intentions to all the Parties involved. This is common Business practice and is totally endorsed by SANCE provided that your intentions are disclosed. We have just had an experience with a Commodity Broker acting as a Buyer. We drafted the agreements and met with the "Buyer" to sign the agreements. Few days later, still no funds or Proof of Funds. Then the truth surfaced: The Buyer is only a Commodity Broker hoping to resell the product we offered him, for a much higher price. He thought he could make R100 profit per metric ton since the price we offered the product at was so good. Unbeknown to him, he offered the product he had just "bought" from us to another S.A.N.C.E. member.

Naturally we received a quick call from the S.A.N.C.E. broker and we immediately knew what was happening.

This is in our opinion NOT legal at all since he fraudulently acted as the Buyer, trying to get the information of the Product for sale from us.

Such "Buyer" will be informed of his error and assisted to prevent such actions from repeating themselves. Such actions normally leads to such "Buyer" obtaining information about the product on offer fraudulently. It also create a lot of work for the commodity Brokers involved (in this case S.A.N.C.E.) without any chance of such deal ever going through.

The sad part of such illegal "Buyers/Commodity Brokers" is that the product could have been sold a week earlier to a genuine Buyer. The innocent parties involved often loose their reputation and get branded for not being able to close deals properly.

Note: Commodity Brokers who make themselves guilty of such practices will be blacklisted by S.A.N.C.E.

Back to Homepage    Article: Why Ghost Coal?   Our LOI Requirements

Contact: Louis Kearney 
Office: 012-751 6050 (Neotel)
Fax: 0866 124 303
Mobile Number: 079 872 3339


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