Matthew B. Greene Finance Law Blog on Lawyers.com

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As a result of a superficial public understanding (and misunderstanding) of the various government notices on frauds and scams, the “conventional wisdom” in the financing industry became a counter-productive overreaction of complete refusal to pay any fees of any kind whatsoever to anybody, if the payment happens to be requested at any time before a loan offer is issued.  This “knee jerk reaction” (or “Pavlovian conditioned response”) has become standard, no matter how necessary or legitimate the services are proven to be.

The government warnings, however, are not as overly broad in scope as the popular misconceptions, and were never intended to discourage or deprive borrowers of licensed professional services that are required for banking compliance and necessary to protect and advance the interests of the borrower.

The US Federal Trade Commission (FTC) most concisely and accurately summarizes all of the fraud warnings of various government agencies, with the following general rule:  “Legitimate offers of credit do not require an up-front payment. … Don’t pay for the promise of a loan.  It’s illegal for companies… to promise you a loan and ask you to pay for it before they deliver.”  The federal agency further clarifies that what is prohibited, and what it warns about, is specifically any offer that “guarantees a loan in exchange for a fee in advance.”  (US Federal Trade Commission (FTC), FTC Facts for Consumers, The Truth About Advance-Fee Loan Scams, May 2005.)

The focus of the majority of fee scams, primarily marketed over the internet and by e-mail, is the sphere of personal credit cards and mortgage loans.  These are basic and public consumer products that do not require any licensed professional services.

International project financing, especially when providing and structuring third party collateral, does require certain licensed professional services in order to comply with banking regulations.  Such costs are in exchange for licensed work product of independent commercial value that is a prerequisite to any lender making a decision.  Obtaining qualified licensed legal or underwriting services is essential to assist and navigate a borrower through the highly regulated, law-intensive and technical sphere of banking transactions.

The US Department of State clarifies that “legal fees” that are sometimes claimed as costs for an upfront fee scam are not legitimate retainers for real law firm services, precisely because they do not create any attorney-client relationship with any lawyer or law firm.  Such claimed “legal fees” are merely yet another false description among many other justifications (i.e. “registration” fees, taxes, bribes, etc.) for demanding upfront payment, none of which exist because the transactions are entirely fictitious, and all of the payment is taken as pure profits for the fraudsters.  (See: US Department of State, Bureau of International Narcotics and Law Enforcement Affairs, Nigerian Advance Fee Fraud, DOS Publication No. 10465 of April, 1997, page 14.)

The only time that purported professional services can turn out to be an “upfront fee” scam, is when the terms of the service contract explicitly specify that the payment is, essentially, for nothing of value in return.  For example, some fraudulent financial companies (that are not licensed, and are in fact brokers) charge upfront fees for mere “due diligence review”, which means that they literally review the documents only for their own personal awareness, which is of no value to the client.  To avoid such problems, the client must carefully read contracts that they sign, to ensure that the professional services promised are clearly specified in detail in the text of the contract.

The founder of STILAS Matthew Greene is an anti-fraud and law enforcement expert for governments and financial institutions, who has helped clients around the world save hundreds of millions of dollars by avoiding fraudulent scams in banking and finance.

This article is a brief extract from one of a series of expert reports developed by STILAS, in cooperation with certain federal law enforcement and national security agencies of multiple countries, for protection of national critical infrastructure in the private sector.

Matthew Greene and STILAS avoid accepting any business from the general public.  Consultation is generally provided only to government agencies and banking institutions.  Provision of services to the private sector may be considered only upon introduction through trusted partners or colleagues of Matthew Greene or STILAS.