Blocked Funds and Other Pseudo-Instruments: Why They Are Rejected by Gold Sellers
In gold trading, a certain category of document has become remarkably common. It goes by different names depending on who is presenting it: blocked funds, a bank comfort letter, an MT799 message, a proof of funds certificate, a Ready Willing and Able letter. The names vary. The underlying problem does not.
Each of these instruments shares a single defining characteristic: the bank is present in the correspondence, but the bank has not committed to pay anyone. The document creates the appearance of institutional backing without creating the substance of it. For a seller evaluating a buyer's payment readiness, this distinction is the only one that matters; and it is the one most consistently obscured by the language these instruments use.
This post explains why the entire category fails sellers, using blocked funds as the primary example because it is currently the most widely encountered. The principles apply equally to every instrument in the same class.
What pseudo-instruments have in common
The instruments in this category are not all identical, but they share a structural feature that unites them: they represent a bank acknowledging, noting, or confirming something about a buyer's funds or intentions. They do not represent a bank undertaking to do anything. [1]
The distinction sounds technical. Its consequences are not.
A genuine payment instrument; a Letter of Credit, a Standby LC, or a bank guarantee; creates an independent obligation on the part of the issuing bank. If the seller performs according to the instrument's terms, the bank must pay. The buyer cannot instruct the bank not to. The seller's recourse is against the bank, not against the buyer. [2]
A pseudo-instrument creates no such obligation. The bank has written something, stamped something, or transmitted something. That act does not bind the bank to pay anyone. The buyer retains full control over whether payment is eventually made. The seller's only recourse, if the buyer refuses to perform, is against the buyer; in whatever jurisdiction the buyer chooses to defend themselves, under whatever legal costs that process involves.
This is the common thread. The bank's name appears on the document. The bank's obligation does not.
Blocked funds: the most widely used pseudo-instrument
Blocked funds proposals are currently the most common form of pseudo-instrument encountered in African gold transactions. A buyer offers to block or earmark funds in their account as evidence of payment readiness, sometimes accompanied by a letter from their bank confirming that the funds exist and have been reserved.
What blocking funds actually means inside a bank
Inside a bank, blocking or earmarking funds is a real concept. It means the bank reserves a portion of a customer's balance against a future obligation; a loan repayment, a pending transaction, a card limit. It is an internal accounting mechanism that prevents the customer from spending money that must remain available for another purpose.
What it does not do is create anything that faces outward toward a seller. The funds remain in the buyer's account. The buyer retains the ability to instruct the bank to release or withhold them. If the buyer decides not to complete the transaction after the seller has performed, there is no mechanism that compels payment. The bank has no independent obligation to the seller and no authority to pay without the buyer's instruction.
Why blocked funds proposals appear so often in fraudulent deals
Blocked funds language is well suited to non-executable and fraudulent transactions because it creates the appearance of buyer readiness without requiring the buyer to do anything a bank would need to process, verify, or commit to. The correspondence moves forward. The deal rarely closes.
In outright fraud, the sequence is consistent: the buyer presents blocked funds documentation, the seller is reassured that payment is secured, the seller incurs costs and exposes their position, the buyer fails to perform, and the seller has no recourse. The documentation that was supposed to represent security turns out to represent nothing enforceable.
Bank Comfort Letters, MT799 messages, and proof of funds certificates
Blocked funds are one example. The same structural failure appears across a range of instruments that circulate in gold trading correspondence.
Bank Comfort Letter (BCL)
A Bank Comfort Letter is a letter from a buyer's bank confirming that the buyer holds funds sufficient for a transaction. It is sometimes described as evidence of financial capacity. A BCL without an accompanying Ready Willing and Able declaration from the bank is of limited value as a payment guarantee; the bank is confirming that funds exist, not that it will pay those funds to the seller. [3]
The buyer can hold a BCL today and instruct their bank to do nothing with those funds tomorrow. The seller has no claim against the bank on the basis of a BCL alone. An RWA declaration goes further; it states that the bank is ready, willing, and able to execute the transaction. Even then, an RWA is a statement of intent and capacity, not a committed obligation. Sellers who treat a BCL with RWA as equivalent to an LC are accepting substantially more risk than the instrument warrants.
MT799 messages
The MT799 is a free-format SWIFT message. In legitimate trade finance, it is sometimes used as a pre-advice message before a formal instrument is issued. It is not itself a payment instrument. It carries no independent payment obligation and cannot be authenticated through the same channels as a genuine LC or SBLC. [4]
Forgeries of MT799 messages are common in markets where document fraud is sophisticated. An MT799 that has not been followed by the issuance of a genuine instrument through verified bank-to-bank channels is correspondence, not commitment.
Proof of funds certificates
A proof of funds certificate confirms that a buyer holds funds. It does not confirm that those funds will be paid to the seller. It does not confirm that the buyer is willing to release them. It creates no obligation on the part of the bank.
In combination with other correspondence, proof of funds documents are used to create an impression of financial seriousness without creating any enforceable commitment. A buyer who offers proof of funds as their primary evidence of payment readiness is offering evidence that they have money; not evidence that the seller will receive it.
The only comparison that matters
The table below sets out the difference between a genuine payment instrument and the pseudo-instrument category across the dimensions that actually protect a seller.
What matters | Bank-clean LC or SBLC | Pseudo-instruments (blocked funds, BCL, MT799, proof of funds) |
Independent bank obligation | Yes; the bank commits to pay on conforming documents regardless of the buyer's position | No; the bank has noted or acknowledged something but has not committed to pay anyone |
Who controls payment | The bank; obligated to pay if documents comply | The buyer; can withhold, rescind, or instruct the bank not to pay at any time |
International rulebook | UCP 600 (LC) or ISP98 (SBLC); standardised and enforceable globally | None; no recognised framework governs any of these instruments |
Seller's recourse if buyer refuses | Present conforming documents; the bank must pay | None; the seller has performed but has no enforceable claim against the bank |
Verifiable bank to bank | Yes; authenticated via SWIFT between correspondent banks | No; verified only by PDF, screenshots, email, or free-format SWIFT messages |
Risk to seller | Documentary risk only; present the correct documents and the bank pays | Full non-payment risk remains on the seller throughout the transaction |
A buyer who can genuinely fund a significant gold transaction can obtain a proper payment instrument. The cost and process of issuing an LC or SBLC from an established bank is not prohibitive for a buyer with real capital and a real banking relationship. If a buyer insists that any instrument in the pseudo-instrument category is equivalent to a bank-clean LC or SBLC, treat that argument as information about the buyer rather than as a reason to accept a weaker structure.
What this means if you are a buyer approaching this market
If you are a buyer, the pseudo-instrument question affects you in two directions.
First, if you are being asked to accept any of these instruments from a counterparty as evidence of their payment readiness, you now have the framework to evaluate what they actually represent: a statement of intent or capacity, not a committed obligation.
Second, if you are attempting to enter this market using any of these instruments as your own evidence of payment readiness, you should understand that serious sellers are increasingly declining to engage on that basis. The market has learned, at considerable cost to buyers and sellers alike, that pseudo-instruments do not close deals. They are the beginning of correspondence that goes nowhere.
The structures that close deals in this market are the ones where the payment obligation is independent of the buyer's willingness to perform at the moment of completion. EasyGold works within those structures. The Transaction Models page describes four of them, each built around the same principle: your capital is not at risk until the gold is proven.
If you have been offered any instrument in this category and want a straight opinion on whether what you are looking at is executable, the Contact page is the right place to start. We will tell you honestly what we think, whether or not you proceed with us.
References
[1] International Chamber of Commerce. Uniform Customs and Practice for Documentary Credits (UCP 600). ICC Publication No. 600, 2007. Available at: https://iccwbo.org/resources-for-business/incoterms-rules/ucp-600/
[2] International Chamber of Commerce. International Standby Practices (ISP98). ICC Publication No. 590, 1998. Available at: https://iccwbo.org
[3] International Chamber of Commerce. Uniform Rules for Demand Guarantees (URDG 758). ICC Publication No. 758, 2010. Available at: https://iccwbo.org
[4] SWIFT. MT799 Free Format Message; SWIFT Message Standards. Available at: https://www.swift.com/standards/message-types. Note: the MT799 is a free-format message and does not constitute a payment instrument or independent bank undertaking.
Market pattern observations in this post (frequency of pseudo-instruments in non-executable and fraudulent gold transactions; prevalence of MT799 forgeries) reflect EasyGold's direct experience in the African gold market and are not drawn from published academic or regulatory sources.
