The LOI / ICPO / DLC Scam Procedure

The "LOI to ICPO to DLC" procedure is one of the most persistent document-driven fraud patterns in physical commodity trading, particularly in petroleum products such as EN590 diesel, D2, D6, and Jet A1. It dresses up a fictitious trade in a sequence of official-looking documents to manufacture credibility and to push a counterparty toward an irreversible financial commitment. This explainer breaks down how the sequence works, the signals a compliance officer can detect, the regulatory frameworks that apply, and the operational steps a desk should take.

How the Procedure Works Step by Step

The scam reverses the normal order of a legitimate transaction. In a genuine deal, the seller proves control of the product before the buyer issues any financial instrument. In the fraudulent version, the buyer is pushed to commit first.

Step 1: The Letter of Intent (LOI). The buyer is asked to issue an LOI stating intent to purchase a specific volume, often a round figure such as 50,000 MT. This document carries no obligation, but it begins the paper trail and signals that the buyer is willing to engage.

Step 2: The Irrevocable Corporate Purchase Order (ICPO). The seller then demands an ICPO before disclosing meaningful proof of product. This "ICPO-first" demand is the structural heart of the scam. A legitimate seller can show control of cargo, tank receipts, or a verifiable storage position before asking the buyer to issue a binding order. The Petroge Energy LLC pattern, observed out of Georgia, is canonical here: virgin D2 and D6 offers paired with ICPO-first procedures, a 2 percent performance bond, unnamed refinery partners, and zero trade press footprint.

Step 3: The Soft Offer and the Bond Demand. The seller circulates a "soft corporate offer" with attractive pricing and asks for a performance bond or proof of funds. The objective is to extract an upfront payment or to secure a financial instrument that can be drawn against.

Step 4: The Documentary Letter of Credit (DLC) and MT700. The buyer is instructed to open a DLC, transmitted via SWIFT MT700, naming the fraudulent seller as beneficiary. Once the MT700 is operative, the fraudster works to present documents that trigger payment, or simply disappears after the instrument is in place. The MT700 is real banking infrastructure being abused inside a fictitious trade.

The Document and Red Flag Signals

The pattern leaves a consistent fingerprint. Compliance teams should treat the following as cumulative warning signs.

• ICPO demanded before proof of product. Reversal of the normal sequence is the single strongest indicator.
• Unnamed or unverifiable refinery and seller partners. The Petroge Energy pattern relied on unnamed refinery partners. Pinnacle Petrol LLC, based in the UAE, pitched 50,000 MT of EN590 ULSD loading at Rotterdam to an undisclosed buyer and described itself only as a "direct representative of the seller" working under a Mandate Authorization Letter. Layers of mandates and undisclosed principals obscure who actually controls the cargo.
• No trade press or commercial footprint. Legitimate volume sellers leave verifiable traces. A zero footprint for an entity claiming large allocations is a red flag.
• Identity and authority misrepresentation. Fabricated executive credentials are common. A LinkedIn profile for Simar Chahal claims employment as Chevron "Group Chief Executive Officer" since August 2002, which does not match Chevron's actual leadership. Always verify claimed titles against the named major's official corporate disclosures.
• Pricing well below market with urgency pressure. Steep discounts paired with deadlines push targets past due diligence.
• Origin and routing inconsistencies. Dark-fleet activity, such as the Novorossiysk to Turkish-Mediterranean re-routing cluster where bills of lading claim neutral origin, signals possible sanctions exposure layered on top of fraud risk.

The Relevant Regulatory Frameworks

Several established public frameworks govern the obligations triggered by these transactions.

FATF Recommendation 10 (Customer Due Diligence). This recommendation requires identifying and verifying the customer and the beneficial owner, understanding the purpose of the business relationship, and conducting ongoing scrutiny. The mandate-layering and undisclosed-principal structures seen in these scams are designed precisely to defeat beneficial ownership verification, which is exactly what Recommendation 10 obliges institutions to pierce.

OFAC sanctions programs. Where cargo touches sanctioned origins or evasion routing, such as the Novorossiysk dark-fleet pattern with falsified neutral-origin bills of lading, parties risk dealing with sanctioned persons or facilitating evasion. OFAC expects screening of counterparties, vessels, and routing, and the use of bills of lading to disguise origin is a documented evasion typology.

UCP 600 (Uniform Customs and Practice for Documentary Credits). UCP 600 governs the DLC and MT700 stage. It is critical to understand that banks deal in documents, not in goods. A DLC pays against compliant document presentation regardless of whether the underlying cargo exists. This is why fraudsters work so hard to reach the MT700 step. The protection lies in not issuing the instrument until the underlying trade is verified, because UCP 600 will not unwind a properly presented document set.

What a Compliance Team Should Do

The controls are procedural and should be applied before any instrument is issued.

1. Refuse the reversed sequence. Do not let an ICPO or DLC precede verifiable proof of product control. Insist on the legitimate order of evidence.
2. Verify the principal, not the mandate. Apply FATF Recommendation 10 to identify the beneficial owner behind any "mandate" or "direct representative" claim, as seen in the Pinnacle Petrol pitch.
3. Independently confirm claimed affiliations. Check executive titles and company links against official corporate sources, not against self-published profiles such as the Chevron CEO claim attributed to Simar Chahal.
4. Screen routing and vessels for sanctions exposure. Treat origin obfuscation and re-routing through transit ports as an OFAC risk requiring escalation.
5. Hold the MT700. Recognize that under UCP 600 the bank pays against documents. Do not issue or confirm a DLC until the trade, the seller's control of cargo, and the counterparty are independently verified.
6. Document and escalate. Record the red flags, file the matter internally, and report suspicious activity through the appropriate regulatory channel.

The LOI to ICPO to DLC procedure succeeds only when a counterparty commits before verifying. Holding the line on evidence order, beneficial ownership, and documentary credit discipline removes the leverage the pattern depends on.