The fraudster, often with the help of a third party such as a lawyer, obtains control of the BFL which he uses as collateral to get a loan at a bank of his choice. The fraudster can then default on the loan and flee. Under the BFL the issuing bank must pay the lending bank and the victim loses his money.
However, the banking community does not recognISe BFLs as banking instruments and they should not be issued by banks or accepted as collateral.
The beneficiary presents its documents together with a bill of exchange payable at a future date stipulated in the credit. The bank accepts the bill of exchange by signing it, and returns it to the beneficiary. Acceptance of a draft obliges the acceptor to pay it at maturity.
"You bankers are technicians. Your job is to compare the documents with thedocumentary credit, the UCP and the documents with themselves, none ofwhich requires any discretion on your part!" ............ read more