Physical Commodity Broker Red Flags: A Verification Checklist Before You Sign

01 · Supply chain

A real cargo has one title holder you can name; a daisy chain only has people who know someone

Physical crude, refined products and LNG usually leave the producer in one of a few ways: a national oil company or refiner sells under a term contract to a qualified buyer, sells spot cargoes by tender or direct negotiation, or sells to a trading house or offtaker that then resells. At each step there is an identifiable seller who either holds title or has a contract with the party that does, and the product sits in a named terminal or on a named vessel. Intermediaries add genuine value in this chain: they find buyers in markets the producer does not serve, arrange shipping, blend or break bulk, carry credit risk, or provide trade finance.

A daisy chain looks different. An offer arrives through several people, each describing themselves as a 'mandate', 'seller's representative' or 'buyer's direct mandate'. Nobody in the chain holds title or can show a contract with the party who does. The offer often names an implausible volume (for example monthly lifts for a year or more at a discount to market), a famous producer or refinery, and a fixed 'procedure' that cannot be changed. In our experience the people in the chain are often sincere; they are forwarding a document they have not checked. That is exactly why the buyer has to check it.

Producers say this themselves. In a 2005 statement reported by Energy Intelligence, Iraq's State Organization for Marketing of Oil (SOMO) said forged contracts circulated by fax or email were illegal, that it did not use middlemen or agents, and that it sold crude to large refiners that committed to process the crude themselves, under term contracts after initial spot sales. Policies change, so check SOMO's current terms directly, but the principle that crude allocations do not circulate through informal chains still holds. PentaBay works with a local partner in Iraq, and we treat any 'allocation' offered outside the producer's own channels as unverified until proven otherwise.

Sources [3][4][5][6]

02 · The 'procedure'

The standard broker procedure moves the buyer's documents and money forward before any cargo is proven

Unsolicited offers for EN 590 diesel, jet fuel, crude, bitumen or LNG frequently arrive with a ready-made 'procedure'. The wording varies, but the order of steps is remarkably consistent. The terms below are market jargon, not defined legal instruments; none of them has a fixed meaning under any international rule set, which is one reason they are easy to misuse.

Each step is presented as normal practice. The problem is the direction of flow: at every stage the buyer discloses information, signs a commitment or pays, while the seller's side discloses only copies of documents that the buyer cannot verify with their issuer. Some procedures also contain labels such as 'R&P' whose meaning differs from one chain to another. If a step cannot be defined in plain contractual terms (who does what, for which consideration, with what remedy), do not accept it.

1. Buyer is asked to issue an ICPO (irrevocable corporate purchase order) or LOI before receiving a verifiable offer. Warning sign: the buyer commits first, and the document is then circulated to other parties as proof of 'real buyers'.
2. Buyer is asked for a BCL (bank comfort letter) or POF (proof of funds), sometimes in a specific bank format or by bank-to-bank message. Warning sign: the buyer's bank details and financial standing are released to an unverified party, and fraudsters can reuse them.
3. Seller issues an SCO or FCO (soft or full corporate offer) and a draft contract, often with a 'partial POP' (proof of product) pack of scanned certificates. Warning sign: the documents are copies that cannot be verified with the refinery, terminal or inspection company that supposedly issued them.
4. Buyer is asked to sign a TSA (tank storage agreement) with a terminal nominated by the seller, pay storage or 'injection' fees, and obtain 'dip test authorisation' so that an inspector can measure the tank. Warning sign: the terminal is contacted only through the seller, fees are paid before title is shown, and a dip test proves only that product is in a tank, not who owns it.
5. Buyer is pressed to pay by MT103 transfer on the basis of an inspection report, or to post an SBLC or other bank instrument, before documents of title are presented. Warning sign: payment is released against copies, not against a complying presentation under a bank-examined instrument.
6. Intermediaries ask the buyer to sign an NCNDA and IMFPA so that commissions are 'protected'. Warning sign: these papers deal with commissions between intermediaries and add nothing to the buyer's protection on title, quality or delivery.

Sources [3][4][7][8]

03 · Red flags

Every red flag should trigger a specific check, not just a feeling of doubt

A single red flag does not prove fraud; genuine sellers can be clumsy. But each signal points to a fact that can be checked. The table pairs common signals with the reason they matter, the check to run and the evidence that should satisfy you. If the counterparty refuses the check, that refusal is the answer.

Producers' own notices support several of these checks. Saudi Aramco says it will never request fees or payment from prospective suppliers during onboarding, and warns of spam emails from fake look-alike domains. ADNOC says it will never ask a third party for money to take part in its procurement process and that its emails only come from @adnoc.ae. QatarEnergy warns that scams come as offer letters, requests for proposals, invoices and bank-account change notices, sometimes with copied logos and seals and domain names containing the words 'Qatar' and 'energy'. INTERPOL's 2024 global financial fraud assessment lists advance payment fraud and business email compromise among the most prevalent global fraud trends.

Sources [3][4][5][7][8][9]

04 · Verification

Verify the company, the title, the tank and the ship through channels the seller does not control

The common weakness in broker-chain fraud is that every piece of evidence arrives through the chain. Independent verification means you find the contact details yourself, from the issuer's own website or a public registry, and ask the issuer directly. In our experience most legitimate terminals, inspection companies and shipowners answer reasonable verification questions, although they are not obliged to and will limit what they disclose.

The ICC International Maritime Bureau has shown how convincing false documents can be. In a 2010 notice on false shipments into North Africa, it described bills of lading that appeared genuine at first glance, where some named vessels did not exist and others were far from the stated loading port at the time. Its advice was that banks should carry out their own independent checks. The IMB also authenticates trade finance documents for ICC member banks, typically by emailing a copy of a bill of lading to the vessel owner and asking whether particular details are true.

Sources [1][2][9][10][12]

05 · NCNDA and IMFPA

NCNDA and IMFPA papers protect intermediaries' commissions; they prove nothing about the cargo

In general terms, a non-circumvention, non-disclosure agreement (NCNDA) is meant to stop parties introduced through a chain from dealing around the introducer or disclosing contacts. An irrevocable master fee protection agreement (IMFPA) is meant to fix how commissions are paid to intermediaries out of a transaction. Both are private contracts among intermediaries and principals. Their enforceability depends on the governing law, the signatories' identities and the way they are drafted, which is a matter for counsel.

What they do not do matters more for buyers. They do not show that the seller exists, that the product exists, or that anyone in the chain has authority from the title holder. They do not create a bank obligation, do not secure delivery and do not give the buyer any remedy on quality or quantity. A thick file of signed NCNDA and IMFPA papers is evidence that many intermediaries expect commission, not evidence of a cargo.

Practical rule from our experience: do not sign commission papers before the seller and the title have been verified, never accept that commission is paid out of the buyer's prepayment, and keep commission arrangements separate from the sale contract so that they cannot delay or condition the buyer's payment instrument.

Sources [3][4][5]

06 · Payment

Protective payment terms make the seller prove title through a bank or an inspector before money moves

A documentary letter of credit subject to the ICC's UCP 600 is the standard protective instrument in physical commodity trade. UCP 600 has 39 articles; its titles alone make the key point. Article 4 is 'Credits v. Contracts' and Article 5 is 'Documents v. Goods, Services or Performance': the credit is separate from the sale contract and banks deal with documents, not with the cargo. Article 14 sets the standard for examining documents, and Article 34 is a disclaimer on the effectiveness of documents. A letter of credit therefore protects the buyer only as well as the documents it requires. The buyer should specify a full set of bills of lading or equivalent title documents, an inspection certificate from an inspector the buyer appoints, and data such as the vessel's IMO number that can be checked independently.

Cash against documents (CAD) after inspection can also protect the buyer when the parties have a trading history: the buyer pays only when original title documents and an independent inspection report are presented. Open account between established counterparties is common in the market but depends on credit assessment, not on proof of each cargo.

Structures that do not protect the buyer share one feature: money or a bank undertaking leaves before title is proven. These include fees for registration or allocation, 'non-refundable' deposits, MT103 transfers against copies, and requests to obtain, lease or 'monetise' an SBLC or bank guarantee. The US SEC's investor alert of February 2015 states that all 'prime bank' programmes are fraudulent and lists standby letters of credit and bank guarantees among the official-sounding terms promoters use.

Sources [1][7][11]

07 · Korea and MEA practice

Korean and MEA counterparties are targeted through trust in introductions; replace trust with a written verification step

Korean buyers and sellers are often reached through personal introductions, messaging apps and forwarded PDF offers. Middle Eastern and African approaches commonly invoke a national oil company, a government allocation or a family connection to a refinery. In the cases we have seen, the language of the offer is often polished and the documents look professional; what is missing is any route to the title holder that does not run through the chain.

Producers do not sell through messaging apps. Saudi Aramco states that it will never offer to buy or sell products as part of an exchange on social media, and QatarEnergy says it does not use or control third-party websites to conduct business and asks recipients to confirm payment-detail changes by a separate email or a call to their usual representative. If someone claims a relationship with a producer, ask that producer through its published contact points; Aramco, ADNOC and QatarEnergy all publish reporting channels for suspected fraud.

Inside a company, make verification a gate rather than a judgement. The sales or sourcing team may continue a conversation, but no ICPO, bank letter, fee, commission paper or contract leaves the company until a named person has completed the checklist below and kept the evidence. This protects good relationships too: a genuine counterparty will accept direct verification, and a chain that cannot pass it saves you time.

Sources [3][4][5][6][8]

08 · Checklist

Do not sign, issue or pay anything until every item below is evidenced on file

Use this list before signing an offer, contract, ICPO, commission agreement or bank instruction. Each item should be backed by a document or record of a direct confirmation, with the date and the name of the person who checked it. If an item cannot be completed, record why and decide at management level whether to proceed.

• Seller's legal name, registration number and directors confirmed from the official company registry of its country of incorporation.
• Title holder of the product identified by name, and title or authority to sell confirmed directly with that title holder through contacts found independently.
• Product location confirmed: terminal operator, tank number, quantity and holder confirmed in writing by the terminal, or vessel confirmed by IMO number.
• Vessel IMO number, name, flag and manager consistent across Q88, offer documents and public AIS position; laycan physically achievable.
• Independent inspection company appointed and paid by the buyer, instructed directly, with access to the load port confirmed.
• Price basis and volume consistent with published market benchmarks and with the seller's evident size and history.
• Email domains, phone numbers and bank details checked against the counterparty's official sources; any bank-detail change confirmed by phone.
• No fee, deposit, storage or injection charge, or commission payable before title and product are proven.
• Payment by documentary L/C subject to UCP 600 or CAD after independent inspection, with required documents that can be verified independently.
• No request to lease, monetise or provide an SBLC or bank guarantee as a precondition of receiving an offer.
• Sanctions, export-control and AML screening of the seller, owners, vessel and banks completed and recorded.
• NCNDA or IMFPA, if any, signed only after verification and kept separate from the sale contract and payment instrument.
• Counsel and the buyer's bank have reviewed the contract and instrument wording.

Sources [2][9][10][11][12]