Going the extra mile in trust transactions

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Going the extra mile in trust transactions

We were recently involved in a transaction where the government of a large country wanted to buy some rolling stock from a manufacturer in another country. As it happened, the manufacturer wanted to sell the vehicles: That is, after all, why they are in business. The problem was that the two countries have, historically, distrusted each other, generally for good reason. The buyer had no confidence in the probability of getting exactly what was being ordered, in good working condition. The seller, on the other hand, had serious doubts as to whether the money would appear.

It might appear that a Letter of Credit would do the trick, but an LC is like a certified check, and can be cancelled or challenged. There have been enough problems with LCs in cases of mutual distrust that, in this case, it was simply not the appropriate tool.

Our solution was to put the money in trust, and accompany the shipment to its delivery point, where it would remain in the custody of the manufacturer. Each day our trustee would work with an inspection team from the purchaser. At the end of the day some certain number of vehicles would be inspected and accepted. We would then authorize the release of funds to cover that many vehicles, the money would be transferred, and the vehicles released.

This approach provided both sides of the transaction with a lot of comfort. No funds would be released until there was reasonable assurance that the merchandise was as it should be. No bad merchandise would be foisted off on the buyer. The seller would be getting money as soon as the merchandise was inspected, with no chance of a loss. The incremental cost for the inspections – and the trust company representative was negligible.

All worked well until the last day, when one of the vehicles wouldn’t start. A close look at the vehicle by the inspection team indicated that some sharp- toothed creature on the ship had eaten through the gas line.

The trust company representative, who had grown up on a farm in Nebraska, sent into town for a new gas line, which he himself installed. The vehicle started, and was inspected and accepted. The last of the funds were transferred, and all parties were happy.

The bottom line here is that with a little imagination, even difficult transactions, taking place in hostile environments among distrustful participants, can, with a little imagination, come off flawlessly.

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