Back-to-back loans as a “non-SWIFT” way of transfering funds

Back to back loans

Usually wire transfers are notified between banks with use of SWIFT messages, that is a worldwide financial messaging network, operated by Society for Worldwide Interbank Financial Telecommunication, which exchanges messages between banks and other financial institutions.

A series of articles published on June 23, 2006, by The New York Times, The Wall Street Journal and Los Angeles Times revealed that the Treasury Department and the CIA, United States government agencies, had a program to access the SWIFT transaction database after the September 11th attacks called the Terrorist Finance Tracking Program (before you confirm that it is good to track down terrorists, please note that i.e. the Alabama Department of Homeland Security has constructed a website that defines “Domestic Terrorists” as “those who oppose a strong federal government”. In short, if you oppose gun control, high taxes, military interventions, foreign-held national debt, or just a large government, it is strongly suspected that you are a “Domestic Terrorist”).

In September 2006, the Belgian government declared that the SWIFT dealings with U.S. government authorities were, in fact, a breach of Belgian and European privacy laws. Additionally, it is supposed that the U.S. government has submitted “useful” data to U.S. companies (manufacturer – customer relations, prices, etc.).

Since end of December 2010 U.S. government authorities are not been able to access SWIFT data from European Union routinely, but such data is still available in a case of USD wire transfers. Please note also that Society for Worldwide Interbank Financial Telecommunication still maintains such data and it is quite probable that sooner or later U.S. government authorities shall regain access to them.

Back-to-back loan as “non-SWIFT” transfer of funds

A back-to-back loan is a credit instrument under which economic value of funds or financial instruments is transferred between parties without actual wire transfer. Entity “A” establishes a collateral on liquid assets (like cash) and requests lender to release to the borrower a loan with a corresponding value. Thereafter, the loan is repaid by the collateral.

In consequence, there is no direct transfer of assets between owner of the collateral and the borrower, but economic value equivalent to the value is transferred between a pledgor whose assets are used as the collateral and the borrower.

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