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ABN AMRO to issue L/Cs in Singapore for Dubai Mercantile Exchange

1 June 2016

Dubai Mercantile Exchange (DME) has announced that ABN AMRO's Singapore office has been approved to issue letters of credit (L/Cs) for trading crude oil on the exchange.

The approval comes after joint efforts to facilitate oil trading for DME's and ABN AMRO's customers in Asia.

Existing providers

In 2015, Tokyo-headquartered Mizuho Bank and DBS Bank joined the handful of banks, including ING Bank, Rabobank and Royal Bank of Scotland (RBS), licensed to issue DME L/Cs directly from Singapore to guarantee deliveries of Oman Blend crude oil (DC World News, 30 June 2015).

In February 2014, RBS was the first bank to win approval to issue L/Cs on DME to guarantee deliveries of Oman Blend crude oil directly from Singapore.

Client benefits

According to ABN AMRO's managing director and global head of energy commodities clients, Friso Koopmans, the DME Oman contract plays a significant role in meeting clients' risk management needs in the energy market.

"We are committed to ensuring that clients seeking to trade on DME will now find a more seamless and convenient process for the issuance of L/Cs," he said.

Iraq opening up L/Cs to foreigners

Iraq is making letters of credit available to foreign contractors that have so far been reluctant to participate in dozens of planned water and sewerage projects worth billions of US dollars. The government is also making visas for business executives easier to obtain to encourage contractors to participate in projects in Iraq, where violence remains a problem. 

Even though levels of violence are not close to 2006-7 levels, when the monthly death toll sometimes exceeded 3,000 people, around 800 Iraqis were killed in August according to UN estimates. This deters foreign firms and workers, who are also reluctant to work on much-needed infrastructure projects in Iraq because of its slow bureaucratic procedures and unstable political environment. But according to officials the opportunities are great. Over the next two to three years, they anticipate awarding contracts for projects worth US$1.5 billion annually in the water and sewerage sector. Companies will be invited to tender for projects from 2014 onwards. 

Those awarded contracts may also be able to benefit from L/Cs provided by the Iraqi government to be used to import equipment and other supplies.

Issues in the upcoming revised ISBP

The Insight interview: Gary Collyer 

DCInsight Vol. 18 No.4 October - December 2012

DCI Why, only five years after the last version of the ISBP was published, was it considered necessary to do another revision of the text?

Collyer The last publication of the ISBP, Publication 681, was issued at the same time as UCP 600, and was essentially only an updating exercise of that publication to remove two or three of the practices that were considered to be no longer appropriate or where the practices had been incorporated into the text of UCP 600. Changes were also made to align the UCP references to the applicable UCP 600 articles and sub-articles. It was not, strictly speaking, a revision of the ISBP Publication 645 itself.

This new revision, five years on, comes when a number of practitioners will consider that we are fast approaching the halfway point through the lifespan of UCP 600. It was felt that now was the right time to document the practices that have become applicable under UCP 600. At the time of the release of Publication 681, the content was based on how we envisaged practice would evolve under UCP 600. Now, with the experience we've accumulated over five years, we know where we need to make some additions or modifications to the ISBP text. And we are making additions as opposed to only deletions or changes to the practices that were applicable during the last five years and the previous years under ISBP 645.

DCI Will there be practices described in the revised ISBP that are not covered by a specific UCP article, such as beneficiary's certificate, inspection and quality certificate and so forth?

Collyer We have expanded the list of documents to provide a more representative view of the type of documents regularly seen in letters of credit. One of the options presented to ICC national committees at the time of seeking approval for the revision was whether we should merely update what was currently in Publication 681 and nothing more than that, or whether by updating we should add new documents and possibly expand the publication into new spheres, such as practices applicable to advising, confirmation, transfers, etc., under letters of credit.

After evaluating comments from national committees, it was decided that we would keep the publication to an expansion of existing practices and the addition of new documents.

In particular, in the upcoming revision, as an example, we will be covering packing lists and weight lists. Whilst these are fairly simple documents, in the context of documents presented under letters of credit, the practices associated with their examination can set a standard under which other documents not covered in the publication should also be examined. So, although we may not be covering every type of document, the principles will have been established in the paragraphs covering analysis, inspection, packing lists, etc.

DCI There is a question that confuses some people concerning the relative weight to assign the UCP and the ISBP. For example, is it acceptable that a bank would refuse documents based on the ISBP alone?

Collyer Ever since the ISBP was first published in 2002 through the 2007 release, we have always said that refusal of documents should be based upon non-compliance of a presentation with the applicable rules of the UCP and/or the terms and conditions of the credit. We do not advocate refusal solely on the basis of the ISBP, and certainly the publication does not advocate this. But that said, it is often reported that some banks have refused based solely on the content of the ISBP.

The ISBP should be read in the context of explaining how the UCP articles are to be applied. A refusal should not simply say, for example, that a bill of lading does not comply with paragraph 114 of the ISBP. What banks should be saying is that the bill of lading indicates that the release of the goods thereunder is subject to the presentation of one or more other bills of lading that do not form part of the same presentation.

They may then use the reference to the ISBP paragraph as a supporting reference tool, but not as a primary reason for the actual refusal.

There is often a question asked as to the relationship of the ISBP to the UCP and the weight of authority that the ISBP conveys. We had this difficulty in 2002 with Publication 645.

It should be noted that the ISBP, although not a set of rules, actually follows the same kind of regime that is in place for ICC rules, i.e., that they go through the same commentary process by the national committees, the various drafting stages and are finally voted upon. Therefore, the publication, in that sense, has the same kind of weight within the Banking Commission and should be considered as a tool for use, not only by banks but also by beneficiaries. I have always been of the view that if a beneficiary understands the practices that banks are expected to follow in the examination of documents, he should be able to prepare his documents, or have other documents issued to that standard, thereby increasing the success rate of first-time presentation.

The reality is that with this new revision we will almost be back to where we were in 2002. I'm sure some banks will say: "UCP 600 has been around since 2007 and here we are in 2013; where is the link between the two publications?" I think we have to make the effort, through the Banking Commission, to show and encourage banks globally to apply, and adhere to, the principles of the revised ISBP that is based on our five years of experience with UCP 600.

DCI To what extent is the language in the revised ISBP influenced by the Banking Commission Opinions that have been decided before or after the last ISBP was published?

Collyer If you look at the content of the ISBP, even the 2002 version, over 80% of the publication was built upon principles that had been discussed and agreed in the ICC Opinions. Therefore, the Opinions play an important role in the establishment of international standard banking practices.

When people speak of how ISBP fits in the UCP, take one example. If you look at the definition of "complying presentation" in article 2 of UCP 600, which refers to a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules [UCP 600] and international standard banking practice, people immediately latch on to the fact that this latter phrase is based solely on the content of ISBP. It certainly is, but this is only one of the elements that go into creating the ISBP. The other elements include the ICC Opinions that don't actually make it into the ISBP because the issues discussed and decided upon in that Opinion are too specific for inclusion in a publication looking at the broader issue of examination. The same is true of the DOCDEX Decisions. All of these sources contribute to establishing "international standard banking practice".

DCI Let's look at a few of the controversial issues. The first concerns the language of documents. What are the issues and the choices here and how could they change the last ISBP?

Collyer The Drafting Group has looked at this quite extensively, and I think the issue here is not just in relation to what language is to apply or how data should be presented in different languages. The current wording in ISBP Publication 681 paragraph 23 states: "it is expected that documents issued by the beneficiary will be in the language of the credit." But an expectation does not always reflect reality.

In my view, this question of language should not create an environment in which the bank would have an absolute right to refuse on questions of language. The onus is clearly on each issuing bank to declare a required or acceptable language(s) in its credit. Of course, one could also argue that documents issued by the beneficiary should be in the language of the credit. But what if they are not?

We have inserted some wording that seeks to cover all the eventualities of language in documents. We have also looked at situations where the field tags, stamps and other pre-printed text may be in a language of the issuer of a document, i.e., a CMR or certificate of origin, but the data that have been inserted is in the required language of the credit. These issues have come up and been answered in previous ICC Opinions. We need to capture these in a new paragraph.

But there are still a number of national committees that contend that instead of saying, as in the current version, that it is expected that documents issued by the beneficiary will be in the language of the credit, we should be saying that they "must" be in the language of the credit.

The ISBP is not a set of rules; therefore the word "must" should not appear in this publication as a requirement in the examination of a document. The ISBP should not be a tool that protects a bank that does not do its job correctly, i.e., does not include clear and precise criteria in the establishment of the terms and conditions of a credit. Clearly the ISBP should explain practice but it should not provide a means whereby banks can be lazy in the way they do things and instead look for a publication like the ISBP to do their job for them.

DCI What about proposed language that would define terms such as "shipping company" or "third party documents not acceptable"? Isn't it a bit odd to define terms when you are trying to discourage their use as bad practice?

Collyer The real question is whether we should put something more detailed about these terms in the ISBP or should avoid referring to such terminology that is seen regularly in a letter of credit. And if we believe that these expressions constitute bad practice, should we just list these expressions without providing more explanation to what they will mean for the issuing bank or for the applicant?

Also, should we be providing a tool in this ICC publication that allows the continued use of poor language when we should be encouraging practitioners to be more explicit? For example, it is common for a letter of credit to require a document issued by a "shipping company". But, the UCP does not refer to such a term. It refers to the likes of a carrier, owner, charterer or their agent that could be seen to issue such documents. Therefore, why does an issuing bank not require the presentation of a document issued by the carrier or its agent? This would have no ambiguity.

By using different terminology, is the applicant or issuing bank inferring that a document may be issued by a party other than the carrier or agent named in the transport document? This is the distinction and point we are making in the draft text for this and other terms, including "third party documents acceptable", where an issuing bank could quite easily explain the meaning of a term that has none under the UCP.

DCI There is a question of the dating of certificates. I understand that some national committees want to state that a certificate is to be signed and dated, whereas now it only has to be signed. What's the logic behind that request?

Collyer I think this is similar to a number of comments that we have had with respect to other documents. When we were revising UCP 500 and declared that commercial invoices need not be signed, some national committees indicated they must be signed and some indicated that they also had to be dated. It seems that if any documents needed to be signed, there was an expectation on the part of some that they were also to be dated.

Going back to your earlier question as to whether there is anything in the ISBP that will overturn what is in the current version, if we were to include this requirement - that a certificate has to be signed and dated - this would be overturning paragraph 13 of the current ISBP, because that paragraph allows for a document to be dated by reference to another document that has already been dated.

DCI A final question that our readers will have a particular interest in: when do you think the next ISBP will be approved and published?

Collyer I hope we will have a document on the table for approval in April 2013 at the Banking Commission meeting that is scheduled to be held in Portugal. If it takes longer, the publication would not be available till 2014. We are now five years into UCP 600, and we need to get something out as soon as possible. Hopefully, if we can get it approved in April, it can be available in July 2013. 

Gary Collyer is Senior Technical Adviser of the ICC Banking Commission. 

SWIFT's webinars to acquaint practitioners with the BPO 

 DCInsight Vol. 18 No.4 October - December 2012    
by André Casterman 
To be in dialogue with its customers, SWIFT organizes frequent webinars for banking and trade professionals. These offer free training and a discussion of the latest case studies, and participants include corporates, consultants, vendors, banks, associations and academics. 

In past issues of DCInsight, I've described the Bank Payment Obligation (BPO), the joint SWIFT/ICC product that places a legal obligation on the issuing bank to pay the recipient bank subject to the successful electronic matching of compliant data. When it becomes widely operational, based on a set of ICC rules, the BPO is likely to revolutionize trade finance. 

SWIFT's 2012 trade webinars cover a range of subjects - getting paid on time using the BPO, an overview of the BPO rules, the value proposition of the BPO for banks and corporates and multi-bank standards for letters of credit and guarantees (MT 798). Usually, around 200 persons participate in each webinar, which is delivered live twice in a day at regular periods to cater to both Asian and American audiences. 

In September, the SWIFT webinar focused on the training and consulting services offered by SWIFT to banks that wish to adopt the BPO rules. This is very topical, as the role of technology in trade is becoming predominant, and SWIFT is well placed and skilled to train and advise banks on how to adopt these new innovations. 

Joining the club of banks adopting the BPO is a key milestone for a bank. It enables the banking industry to demonstrate its commitment to such an innovation to the corporate market. It also offers immediate free-of-charge "club benefits" to the member banks, such as private webinars and priority access to experts and specific tools. Some 40 banking groups are members of the group today, and an additional 10 banks will join by the end of 2012. 

During the webinars, participants are invited to raise questions which are usually answered immediately. In its September webinar, SWIFT received more than 60 questions. Following are examples of some of the key ones: 
• How many banks are advanced in terms of BPO readiness? As of September, a total of 10 banks were live or ready for live for the BPO. Standard Chartered Bank, Bank of China and Bank of Tokyo Mitsubishi were live and had signed up more than 30 corporate customers, mostly in Asia but also in the EMEA. A total of seven banks were ready to go live, and this included Deutsche Bank, JPMorgan and Standard Bank of South Africa.· 

• How different is the BPO/TSU from the eUCP? They are very different products. eUCP facilitates the dematerialization of documents required by the UCP rules, whereas the BPO is a separate set of rules. UCP aims at transactions in which paper documents are exchanged between corporates through the banks, whereas with the BPO, documents remain in the corporate-to-corporate space. 
• Is the BPO available in all countries, or are there any restrictions? Similar to the L/C, there are no geographical restrictions for using the BPO. Over time, SWIFT expects that all trade banks will extend their portfolio of services from UCP 600 (L/Cs) to UR BPO. 
• If a client wants to use BPO tomorrow, is SWIFT ready? The BPO rules have been available from SWIFT since April 2009. The move of those rules to ICC as UR BPO will increase their acceptance in the market. Banks can start adopting those rules any time. The change from SWIFT's BPO rules to UR BPO rules will be smooth and only impact the legal documentation (no technical/operational impact). Banks do not need to integrate the ISO 2002 messaging in their back offices. They can start using the BPO on the SWIFT's transaction matching application (Trade Services Utility or TSU) using the TSU interface provided for that purpose. 

SWIFT will be repeating this webinar in the future and will organize additional ones. Feel free to join! 
André Casterman is Head of Banking and Trade solutions at SWIFT and Co-Chair BPO Project at ICC. 

ICC Global Survey of trade finance shows mixed picture

DCInsight Vol. 18 No.3 July - September 2012

There were some bright spots in the new ICC trade finance Global Survey, but the overall picture was very mixed. Some excerpts from the Survey follow.

"Overall, the global picture looked brighter in 2011 than in previous years. Volumes in 2011 were up or largely unchanged in most traditional trade products, the overall value of trade finance transactions was also up and the percentage of trade credit lines that were cut for corporate and financial institution customers continued to fall.

"Respondents foreseeing an increase in volume outpaced those predicting a decrease by a ratio of around 2:1. Of the financial institutions responding, 51% reported an increase in export L/C volume and 56% an increase in import L/C volume. Considerable increases were also reported for guarantees (39% on the export side and 47% on the import side).

"The number of court injunctions and refusals still remains high. As an example, issuing banks of commercial letters of credit reported that pressure from applicants to refuse documents had increased from 6% to 14%. Where this was still an issue, the main reason cited was "financial downturn in local market", whereas previous Surveys had reported "falling commodity prices" as the principal reason. The 2012 Survey also showed that 30% of respondents (up from 26%) had experienced an increase in the number of court injunctions stopping payment under bank undertakings.

"Although the overall 2010 versus 2009 growth in SWIFT traffic was 5.81%, in 2011 trade traffic showed a decline of 2.23%. This trend is underlined by the decrease in category 7 traffic of 1.38% and of 4.76% in category 4. Whilst documentary collections represented 30% of total trade traffic in 2003, this figure fell to 25% in 2011.

"Although SWIFT trade traffic decreased in 2011 compared to 2010, there were important differences between regions. Looking at the annual figures, Asia-Pacific is the only region that showed an annual increase of 0.97% for import traffic in 2011. The region that shows the highest annual decrease was Europe-eurozone with 5.85% in 2011 for import traffic.

"From countries with a yearly volume higher than 120,000 trade messages sent (import), the countries with the highest growth in 2011 compared to 2010 were Romania: 34%; Myanmar: 27%; Sri Lanka: 16%; Nigeria: 13%; Indonesia: 12%; Bangladesh: 11%; and China: 11%. The countries with the highest decrease in 2011 compared to 2010 were Iran: 19%; Greece: 16%; Lebanon: 14%; Canada: 11%; Egypt: 10%; Taiwan: 9%; Denmark: 8%; and Spain: 8%."

Commentators from three countries

DCInsight Vol. 18 No.3 July - September 2012

South Korea

A few months ago, I came across an old letter of credit case that had been litigated in the Philippines. We had lost at the trial and the lawyers were preparing the motion for reconsideration to the trial judge before the matter was sent up to the Court of Appeal.

Song: "general principles do not decide a case"

I read the trial court decision, and although it was long and full of evidentiary matters contested between the two parties, the issuing bank and the presenting bank, the ruling of the trial court was just a repetition of the UCP 600 sub-article 16 (f), namely that because the issuing bank did not send a discrepancy notice within the five banking days following receipt of documents, the issuing bank was obligated to make payment on the documents.

But as Justice Holmes once said, general principles do not decide a case, but the facts involved in the case do.

It seemed strange that the issuing bank forgot to send the discrepancy notice. As the five-day rule is pretty imperative, all practitioners are drilled to send the discrepancy notices within the five days or to make payment.

The letter of credit required an acceptance certificate issued by the applicant and the copy of the bill of lading. The original bills of lading were to be sent directly by the beneficiary to the applicant after shipment.

I was told that the goods, which were tents, had been sent to the applicant by the beneficiary but the applicant, not happy with the goods, did not issue the said acceptance certificate.

The presenting bank, which had made a pre-shipment loan to the beneficiary in order to recover its loan, presented the copy bill of lading and the usual commercial invoice and packing list to the issuing bank. It noted on its cover letter accompanying the documents that there was a discrepancy, i.e., missing acceptance certificate of the applicant.

The issuing bank, after noting the discrepancy on the cover letter, immediately contacted the applicant for a waiver so that payment could be made. The applicant asked the issuing bank for time while it would discuss the matter with the beneficiary. After several months, the beneficiary and the applicant agreed to the return of the documents.

After around two-and-a-half years, the presenting bank sued the issuing bank in the Philippines, alleging that the issuing bank had wrongfully dishonoured its demand.

After researching this matter, I found the following leading case of Philadelphia Gear v. Central Bank, 717 F.2d 230, 238 (5th Cir. 1983).

In the case, the presenting bank had knowingly sent discrepant documents to the issuing bank, and when the presenting bank sued the issuing bank for not having sent the discrepancy notice, the trial court, like the present Philippine court, ruled that because the issuing bank did not send the discrepancy notice with the given time under the UCP, the issuing bank was obligated to make payment.

However, the Court of Appeal reversed the judgment of the trial court, saying the following: "It would be a strange rule indeed under which a party could tender drafts containing defects of which it knew and yet attain recovery on the ground that it was not advised of them." Philadelphia Gear Corp. v. Central Bank, 717 F.2d 230, 238 (5th Cir. 1983).

Although the letter of credit process is quite routine and mechanical, when someone tries to abuse the process as in this case, the court does examine the facts of the case and makes a judgment against the party abusing the process.

Many would argue that the five-day rule is absolute and that whether the cover letter mentions discrepancy or not, when the issuing bank does not send a discrepancy notice, it should pay.

I do not agree.

Chang-Soon Thomas Song, Attorney at Law (Arizona), First Expert, International Dispute Resolution (Letters of Credit), Trade and Services Division , Korea Exchange Bank, Seoul, Korea, E-mail: [email protected] and [email protected]


Many years ago, in November 2000, when most of us were much younger, this story (mostly concerning documentary credits) started. From then until now, 12 years later, we have received almost 230 queries. That's why today I'm using this article to offer my gratitude and homage to the different people who have been in ICC Spain's Group of Experts on documentary credits for all of these 12 years.

Fornt: "There have been many queries resolved at the national level"

In 1999, the number of queries sent to the ICC Banking Commission was so burdensome that the Commission considered establishing a sort of filter at the national level to let the Commission focus only on cases containing points of special interest. This idea was considered in the meeting of the Commission on 28 and 29 April of that year. At least 18 ICC national committees responded and said they could help by providing, at the local level, answers to most of the queries. As a result, ICC Spain's Group of Experts on documentary credits was created.

In our first meeting - at a lunch provided by ICC Spain - there were eight of us. We established some strict rules to become a member of the group. Half of the members should come from commercial banks, the other four from savings banks (a distinction that has disappeared in today's Spain). There should also be some territorial balance among the institutions present to express banking knowledge coming from all regions of Spain. Each member was to be appointed by its institution. In addition, each of us should have at least ten years of experience in documentary credits (and other ICC rules, such as collections or demand guarantees). If a query should involve one of our banks as a party to the case, the member from that bank would abstain, not only from voting, but also from offering his/her point of view. Thereby, the independence and impartiality of the group was assured.

The procedure followed by the Group is a simple one. A query is received at ICC Spain, sometimes after a long phone call explaining the problems and generally followed by an e-mail with attached documents. The mail is forwarded to the Group - now containing 10 members. Some members have retired from their banks but have retained their expertise and remain active in the Group. The Secretary General of ICC Spain appoints the "rapporteur" for each response. Usually, there is an immediate exchange of e-mails among the members of the Group. In less than a fortnight, a response has been prepared.

Some banks in the Group have been replaced by others during these 12 years, but the requirements to be an expert in the Group have remained the same. Decisions are taken after voting a draft that a "rapporteur" - one of us - has prepared or amended. Sometimes up to three drafts are necessary to achieve a consensus. Either a unanimous or majority opinion is the basis for each answer, and in the very rare cases where there has been a draw, the case is forwarded to ICC Banking Commission for its final and binding decision. That has happened in just a few cases, less than ten in 12 years, of the 230 queries received. These were queries TA 695, TA 703, TA 716 and TA 646.

There have been many queries resolved at the national level because the Group has been quick, efficient, technical and free. The first queries were from banks that had doubts about an interpretation of the UCP; others arrived later from importers, exporters, insurance companies, freight forwarders and even students. The longest queries came from a student who had so many questions - though very basic - that the Group answered them just for academic purposes. One of the shortest came from a bank clerk who failed an exam after answering that in the new UCP 600 there can only be irrevocable credits. Most of the queries have generated such intense discussions among the experts that a Ph.D. thesis could be written on any of them.

Some of the queries have come from abroad, and the answers are posted in www.iccspain.org. Latin American Spanish-speaking users of documentary credits and demand guarantees, who need to have answers to their questions, are able to read them. In one case, we were asked to confirm the answer to a very complex case study developed for a course in Ecuador, with two standby credits used as a guarantee and counterguarantee, later blocked by an injunction from a French court. But no answer is intended to be binding nor can it be used as an authority, and to make that clear, the Group uses the same kind of disclaimer clause used by ICC Banking Commission after each opinion.

Twice a year, the ten members of the Group and its secretary - ICC Spain's Secretary General - meet. One member (or its bank) invites the others to its headquarters and the Group reviews again, "in situ", all the queries received that semester. There is more discussion, and, in some cases, the answers are amended. Usually after more than four hours of intense technical analysis of each case, the meeting is adjourned and the host offers a lunch to all the others. This has helped to maintain a good working relationship, even friendship, among the experts from the different banks, and though they do not agree on some approaches to the cases (or are fans of different football teams), they are speakers at many of the events arranged by ICC Spain to explain the UCP or the URDG easier.

This is a real success story, a solution toa problem faced by an overburdenedBanking Commission. As a member of the Group since its inception (there are three of us), I expect this Group - and others in other counties - to continue explaining the tools created by ICC to make trade easier.

Xavier FORNT, Profesor de la Escuela Superior de Comercio Internacional, Barcelona, E-mail: [email protected] prof.esci.upf.edu

Sri Lanka

The first ICC publication on International Standard Banking Practice (ISBP) was published in 2002 as Publication No. 645. However, with the influx of comments from the practitioners from various part of the globe, the ICC Banking Commission soon realized that its application had no clear relationship with UCP 500. But the Commission had no option but to remain until UCP 600 was approved to provide an updated version. As a result, ICC Publication 681 replaced Publication 645 less than five years after its original publication. ICC publication 681 was issued in June 2007, and now the Commission is busy once again in drafting the next revision.

Peiris: "[is it] necessary to revise ISBP so regularly?"

So, within a period of less than ten years, we have already witnessed one original publication and a revision with yet another revision due within a matter of months. My question is whether it is necessary to revise ISBP so regularly. As it is, the Commission revises ISBP even faster than the UCP. I believe we have to seriously think about what has prompted these frequent revisions of the ISBP.

I am in agreement with other trade practitioners that the application of international standard banking practices has considerably reduced the rejection rates of documents due to discrepancies. By providing a list of these practices, ICC has made the lives of documentary checkers much easier. However, what I cannot understand is why ISBP should change with every revision of UCP.

The UCP came to exist as a result of ICC's effort to codify the trade customs and practices that had prevailed in the past, picked up from merchants and/or court cases. These banking practices were then embodied in the UCP, though only in UCP 500 was it spelled out (in sub-article 13 (a)) that compliance would be determined by international standard banking practice "as reflected in these articles".

In order to help train documentary checkers, the US Council on International Banking started compiling a checklist that specified their members' understanding of typical terms and the methods to determine compliance of documents containing these terms. As mentioned by Dan Taylor in his "The UCP - A brief US History", this compilation of rules of practice influenced the development of the UCP.

I believe the time is now ripe for ISBP to become a document that can be referred to on its own by the documentary checkers in their process of examining documents. The drafting committees of ISBP have acknowledged and that the ISBP does not amend UCP; it only explains, in explicit detail, how the rules are to be applied on a day-to-day basis. Furthermore, nowhere in the UCP is it mentioned that compliance with international standard banking practice depends on a particular publication of ICC.

It's understandable that, in the beginning, the drafters of the ISBP did not have any sample document to compare with in producing a book on standard banking practices except the document prepared by USCIB, which also made reference to the prevailing articles of the UCP.

However, in the present context, the ISBP has become a universal document, and the practices stipulated in it go hand-in- hand with the examination of documents and with the application of the UCP. In this context, I am of the opinion that the drafting group should change the layout of the ISBP and produce a publication without mentioning any particular articles of the UCP so that ISBP revisions will not be necessary as frequently unless there are drastic changes made to the prevailing UCP

Michael Peiris is Consultant to International Chamber of Commerce Sri Lanka (ICCSL) and Convener of the ICC Sri Lanka Banking Committee. 

E-mail: [email protected]


DCInsight Vol. 18 No.3 July - September 2012

by André Casterman

In the last issue of DCInsight, I wrote an article about the Bank Payment Obligation (BPO), the joint SWIFT/ICC product that places a legal obligation on the issuing bank to pay the recipient bank subject to the successful electronic matching of compliant data. This is an update on recentBPO developments since my last article.

On 1 June 2012, ICC national committees received Draft 1 of the Uniform Rules for the BPO (URBPO). This first draft was the result of extensive work of the URBPO Drafting Group and the valuable input of the URBPO Consulting Group to two working drafts that have been shared since the February 2012.

As the scope and application of a BPO may not be known to all readers of these rules, the Drafting Group has produced a guidance document that offers detailed explanations on each rule. The URBPO rules will be presented at the Banking Commission meeting of November 2012 and be subject to approval at the spring 2013 meeting.

In the meantime, banks are confirming their strong interest to address the needs of their corporate customers using the future rules. A total of 38 banks have confirmed their current or future adoption of the presently available SWIFT's Trade Services Utility (TSU) BPO rules. The list of BPO banks has more than doubled since September 2011 when ICC and SWIFT signed their cooperation agreement to establish the BPO rules in the market. The number of corporates is also growing as the most advanced banks have already signed up close to 40 corporate customers, mainly in Asia/Pacific but also in the EMEA region. In all cases, buyers and sellers appreciate the major efficiency improvements that the BPO rules and the supporting electronic flows generate.

In May 2012, BP Chemicals and Vale went live on the BPO with Standard Chartered Bank. The major benefits for BP Chemicals is to improve their internal efficiency and to cut the risk of payment delay or default by providing assured payment on a specified date, subject to fulfilment of pre-determined conditions represented by data matching which is enabled by the underlying electronic messaging standards. As David Vermylen, Global Credit Manager, Petrochemicals at BP put it, "The BPO offers exporters a number of efficiency benefits through reduced document handling and lower confirming costs, and by conducting business with less paper compared to traditional letters of credit."

Standard Chartered clients can now benefit from assurance of payment and risk mitigation but through a much faster, paperless and fully automated process. The result is a less complex and more cost-effective settlement tool that accelerates the payment cycle. This is particularly useful in the commodities industry (such as oil, gas or petrochemicals) where the dependence on documents is not intrinsic to conducting trade (where, for example, the need for documents such as inspection certificates is minimal). This will also work in industries where the supply chain linkages between buyer and seller are strong.

Following is a list of banks that, as of June 2012, are adopting the BPO:


Banco do Brasil, Banco Itaú, Bank of America Markets, BMO Capital, BNY Mellon, Citi, JP Morgan


Bank Al Etihad's, Barclays, BNP Paribas, Byblos Bank, Commercial Bank of Dubai, Commerzbank, Deutsche Bank, Fim Bank, First National Bank of S. Africa, HSBC, National Bank of Greece, Qatar National Bank, Standard Bank of South Africa, The Royal Bank of Scotland, UBS, Unicredit


ANZ, Bangkok Bank, Bank of China, Bank of Communications, BTMU, China Citic Bank, China Minsheng Bank, Hua Nan Bank, Kasikornbank, Korea Exchange Bank, Siam Commercial Bank, Standard Chartered Bank, SMBC

As readers can see, the list includes some of the world's most prominent banks, and it is lengthening all the time. When the joint ICC/SWIFT rules are completed, they will represent, as I said in the last issue of DCInsight, "a revolutionary development in trade finance", perhaps the most revolutionary since the introduction of the UCP in 1933

André Casterman is Head of Banking and Trade solutions at SWIFT and Co-Chair BPO Project at ICC. His e-mail is [email protected]

Former US bank president arranged L/Cs in exchange for bribes

By Mark Ford

3 February 2012

The former president of Florida's largest privately owned state-chartered commercial bank has pleaded guilty to accepting nearly US$500,000 in bribes.

Danilo Perez, who was the president of Ocean Bank, arranged letters of credit (L/Cs) for some co-conspirators in a string of frauds.


The unidentified co-conspirators paid bribes to the former bank president in cash or gifts, including expensive watches or tickets to the Super Bowl between 2005 and 2007 according to court documents.

As well as arranging L/Cs, Perez also advanced loans and overdraft privileges to co-conspirators according to prosecutors.

Bank statement

The former bank president has also pleaded guilty to not paying tax on his ill-gotten gains.

Ocean Bank has issued a statement saying it co-operated fully with the authorities investigating the frauds and that it has not employed Perez for two years.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.

Sanctions cut off L/Cs for Iran's grain import


By Mark Ford
1 February 2012

New EU sanctions have made it impossible for grain exporters to obtain letters of credit (L/Cs) for food imports to Iran.

The tougher sanctions have also left around 400,000 tonnes of grain in around a dozen ships left stranded outside Iranian ports for up to three weeks.

Financing refused

In January, the EU said it would freeze the assets of Iran's central bank as part of an international programme of sanctions aimed at curbing the Islamic republic's nuclear ambitions.

According to one European grain trader, the accumulation of sanctions has caused major EU banks to refuse financing grain shipments to Iran.

No L/Cs

"The myriad of sanctions have worked to the point where the Iranian banking system is virtually defunct, thereby not allowing international trade houses to receive workable L/Cs," the grain trader told the Reuters news agency.

"Their ships are stopped while people figure out how to get payment done, it's a mess," he added.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Vietnamese exporters decline credit insurance to bolster L/C and cash exports


By Mark Ford   4 January 2012

The Vietnamese government is looking for ways to boost foreign trade by providing exporters with more financing options and guaranteeing export payments.

Vietnamese exporters currently sell mainly on letter of credit (L/C) or cash terms and appear to be declining other financing options.

Credit insurance

In November 2010, Vietnam's finance ministry announced a trial programme that aimed for a minimum of 3 per cent of the country's exports to be guaranteed against non-payment.

The ministry is now reporting that it is failing to meet that target and is pressing more firms to utilise credit insurance to guarantee that they are paid for their exports.

L/C usage

An estimated 90 per cent of Vietnam's exports are paid for on L/C terms according to the ministry, but exporters have apparently been reluctant to take up alternative or additional financing options such as credit insurance.

At a December meeting organised jointly by the ministry of industry and trade and the finance ministry, delegates heard that some firms were unfamiliar with credit insurance while others found this option too expensive.

Limited success

So far, credit protection contracts worth just US$77.55 million have been signed with just 14 firms.

This does not even account for 0.1 per cent of the total country's export turnover and falls substantially short of the finance ministry's target of guaranteeing US$3 billion of exports annually.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Ratings will improve state-owned US bank's L/C provision


By Mark Ford


4 January 2012


The Standard & Poor's (S&P) ratings agency has upgraded its ratings for the only state-owned bank in the US.

This means the Bank of North Dakota (BND), which provides financial support for the state's public, agricultural, commercial and industrial sectors, will be better able to provide letters of credit (L/Cs) for its customers.

Ratings review

Although North Dakota guarantees BND's deposits, it does not extend such support to the bank's L/Cs, loans and other financial instruments.

This prompted the bank's management to seek a more detailed ratings agency review of its reserves, earnings and management.

L/C benefits

The improved S&P ratings that resulted from such a review should be useful for BND's L/C offerings.

These include the L/Cs the bank provides to private banks and government agencies to guarantee that a loan or bond issue will be paid off.

A BND-issued L/C backed by its new stronger rating should also help lower the interest costs of public works and private financing in North Dakota's agricultural, commercial and industrial sectors.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO TRAINING SERVICES.


Ousted US bank CEO accused of L/C irregularities


By Mark Ford


21 December 2011


The former employers of a bank CEO in the US state of Minnesota have accused their former employee of using letters of credit (L/Cs) to secure personal loans for himself.

Voyager Bank Financial Services (VBFS), the holding company of Voyager Bank, allege that the bank's long-time CEO, Tim Owens, also embezzled loans from his employer.


Owens obtained US$15 million in personal loans from Voyager Bank and its holding company, according to allegations made by VBFS.

The holding company was apparently prompted to make the allegations after Owens filed a suit accusing the bank, VBFS and others of several misdemeanours, including wrongful termination, breach of fiduciary duty and defamation.

L/C abuse

According to the suit filed against Owens, he used L/Cs issued by Voyager Bank to raise loans from two other banks.

Owens allegedly did not repay the loans of US$7.5 million from Alliance Bank and U$2.2 million from Tradition Capital Bank.

Open dispute

This meant that Voyager Bank finished up paying off the U$9.7 million Owens allegedly owed those banks.

Owens was dismissed in August but, according to local media reports, the dispute between the Voyager group and its former employee has up until this month been dealt with mainly behind closed doors.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Iran bars L/Cs for UAE imports



By Mark Ford3 January 2012

Iranian importers have been barred from opening of letters of credit (L/Cs) for imports from the UAE, according to local media reports.

The semi-official news agency, Mehr, says the L/C ban is due to the UAE's "illogical behaviour."

Trade ban

"Based on the government's recent decision, opening L/Cs for imports from the UAE has been banned," the news agency quotes Iranian parliamentarian, Gholam-Reza Mesbahi-Moghaddam, as saying.

Other media reports suggest that the Islamic republic may ban all trade between the UAE and Iran.

Dubai traders

The L/C ban is the latest blow for the tens of thousands of Iranian traders based in the UAE, mainly in Dubai.

They have already had their business activities severely curtailed by US and European sanctions imposed on Iranian L/C business.

Worsening relations

The UAE has become increasingly critical of Iran over recent months, not least because of the Gulf state's concerns over Tehran's nuclear ambitions.

Relations between the two countries have worsened still further during the Arab Spring, notably over the sporadically violent protests in Bahrain.

Broadly, Iran supports the mainly Shiite Bahraini opposition movement, while the UAE is backing Bahrain's monarchy.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.




by Azahari bin Awang Ahmad

17th November 2011 

Economic uncertainty is upon us again, not long after the last credit squeeze crisis that impacted most of the Western world, rich Asian nations and other nearby regions. Lucky for Malaysia, we only suffered on the periphery of the crisis and largely emerged unscathed despite some slowdown in the export markets and some workers retrenched.

Many economists are predicting that the next global downturn is very much around the corner, including Nouriel Roubini, whose previous prediction about the credit squeeze crisis was largely ignored but proven correct, is again saying that the year 2012 will precipitate another economic meltdown if correct measures are not taken now to alleviate it. And this time, because of the near perfect conditions for the disaster to come, with European debt crisis affecting Greece, Italy, Portugal, Ireland, Spain and may be also France, plus the unmanageable national debt crisis faced by the US, which was down-graded a notch by S & P recently, and the spending cuts by the UK’s Coalition government, the expected disaster looming around the horizon is feared my many to be more severe this time around.

This time Malaysia may not have the luxury of escaping the meltdown so easily, being a relatively small, open economy and dependant on external demand for our goods and services, when most of our major markets are going to go through a tough period of economic downturn, we may face the difficulties as well. Malaysian companies, especially exporters, have to be prepared for the worst.

Payment risks

Even during good time, payment risks are always a major headache to exporters. The risks range from the worst case scenario of non-payment of goods already delivered and taken up by overseas buyers to the less severe form of buyers asking for discounts, delay in making payments and creating disputes over the quality and specification of goods bought. Furthermore, if the buyer really means malice and want to defraud the exporter, they will make all sorts of excuses from making payment when the goods have been received.

The problems associated with payment risks will only increase when an economic downturn is taking place, where most buyers will be hard-pressed to make good of their obligations to pay for the goods and services that they have bought. Therefore, it is imperative that Malaysian exporters know what these risks are and plan ahead with strategies that would make them ready to face and mitigate those risks.

Apart from the risk of non-payment by the buyer, Malaysian exporters also face all sorts of other risks, which, if not properly mitigated and managed, would also result in losses of money for the goods sold.

Since most of Malaysian exports are conducted in foreign currency, the next big risk faced by our exporter is the foreign exchange risk, where the amount of money received in our currency is lesser than the amount the exporter expects, due to fluctuation of foreign exchange rate. If not properly managed and mitigated, the amount received may well be insufficient to cover the cost of goods sold, production costs and other overhead costs.

Then there is also transfer risk, where the money from the buyer’s country may not be allowed to be transferred to Malaysia, due to whatever reasons, mostly political, especially if the exporter is selling to sanction countries. Although the transfer risk has nothing to do with the buyer’s ability to pay, it also has got to be tightly managed to ensure that the payment for the goods and services sold is received.

In cases where the banks’ services are used to facilitate or “guarantee” payments, the exporter, although slightly more secure, still faces the possibility of non-payment due to the banks themselves facing financial difficulties, as shown in recent financial meltdowns. So, even the use of financial institutions to assist exporters, non-payment risks remains high. It is important that the exporters are aware of these risks and the necessary precautionary measures accordingly.

Another growing risk that only recently manifests itself is the political risk, where countries may simply ungovernable or disturbed enough to prevent payments from those countries being effected to our exporters. This scenario is very much alive now in the most parts of the Middle-East, where the end-game is still unclear. This risk is very potent that unprepared exporters would have to meet heavy losses dealing with these countries, if it not carefully managed.

Payment methods in international trade

There are various ways in which payments in international trade transactions for the goods exported are effected, each carries its own inherent risk, some major to the exporters while some are slightly lesser, while there is one particular method – not very popular though – where there is no discernible risk at all to exporter.

The first method of payment in international trade transaction is called Open Account trading, where the buyer will make payments to the seller after the goods have been received. Both parties would have had to agree earlier when the payment is to be effected, after the buyer has received the goods, whether immediately or, if the seller allows credit period to the buyer, some days or months later1. This method is very favourable to the buyer where he retains complete control of whether or when he wants to make payments for the goods that he has received from the seller. Because of the obvious risks of default by buyer, most sellers seldom want to engage in the business using this method except for those deemed trustworthy and of long-standing business relationship.

Another method that is in use to settle for payment in an international trade transaction is called Collection, where the documents of the goods being shipped are routed through banks with instruction to be exchanged with payment from the buyer, or in cases where credit period is granted by the seller to the buyer, against buyer’s signed acceptance and undertaking to pay for the goods when they fall due. Under Collection method, the seller is slightly better off, for several reasons. Firstly, there is now an involvement of third parties in the transaction, making it a little bit difficult not to pay up. Secondly, without the shipping documents, the buyer cannot go to the shipping company to clear goods. So, in order to get the goods he has to pay first or provide a legally binding written acceptance undertaking. Therefore, in terms of risk profile, Collection method is better to the seller than the Open Account trading.

However, the seller must not be carried away in terms of thinking that he is now on safe ground. Even under Collection, the fact remains that the buyer holds total discretion with regards to the payment for the goods and the seller relies entirely on the buyer’s willingness or ability to make payment. If, for whatever reason, the buyer does not pay up, the seller is totally unprotected, except for the contract that he may have signed with the buyer, which is legally difficult and costly to be enforced, especially if the seller is a small or medium size company and the buyer is in faraway countries.

Then there is another method of payment in international trade, one where would take away some of the payment risks faced by the seller, which is called Documentary Credit. Under this method, the responsibility to make payments to the seller for the goods and services that he has sold to buyer lies with the buyer’s banker. Under this method, by issuing the Documentary Credit, the bank assumes the liability to effect payment. This method is much preferred by the seller because it takes away the risk of non-payment, dispute, delinquency from the buyer. The seller no longer needs to worry whether the buyer can pay or not for the goods as the buyer’s banker will now make the payment.

However, there is a catch. The Documentary Credit issued by the buyer’s banker is neither a guarantee of payment nor an absolute way of getting paid. The Documentary Credit comes with terms and conditions that the seller needs to fulfill and comply with, before he can expect to be paid. If he cannot comply to the terms and conditions stipulated by the bank in the Documentary Credit, the seller will not get paid as well.

Risk Management and Mitigation

All is not lost. Even during bad economic times, business can still flourish and payment could still be relatively safely received, if proper mitigation of risks are evaluated and undertaken by exporters.

First and foremost, the exporters will have to evaluate the existing manner in which the payments currently received from buyers are safe or not, in the event of the deteriorating economic conditions. If found unsatisfactory, then the exporters may want to move to a safer method of payment, such as moving to Documentary Credit from Collection or Open Account method.

If changing the method of payment is not possible due to existing contractual obligation or buyer’s refusal to re-negotiate the terms of payments, then it is advisable that exporters undertake some risk mitigation efforts, several of which are discussed below:

Protection of payment from Export Credit agencies – there are several financial institutions in Malaysia that provide payment guarantee to exporters, for a fee and subject to some terms and conditions, in the event of non-payment from buyers or their bankers. The cover provided is normally up to 95% of the export value, but in certain special conditions, arrangement can be made for a full 100% cover. This alleviates the risk of non-payment, but can only be enforced if the exports can prove that they have fully completed their part of the transaction, such as successful delivery of the goods and compliance to the terms of the contractual agreement.

Confirmation of Documentary Credit – if the transaction is conducted under Documentary Credit issued by foreign bank, the exporters can improve their risk position by getting the Documentary Credit confirmed. What the word confirmation means is that the obligation to make payment for the goods shipped under a Documentary Credit is provided by another bank, on top of the payment obligation provided by the bank who issues the Documentary Credit. This other bank is normally a bank of choice by exporters, usually banks in Malaysia but can also be international banks based in another country. Confirmation adds another layer of protection to the exporters, in the event the issuing bank is unable to pay due to financial distress or collapse, the other bank that provides the confirmation would step in and make good of their obligation to pay under that Documentary Credit. However, confirmation is only good and enforceable when the exporter fully complies to the terms and conditions of the documentary credit without any deficiency.

Silent Confirmation/Payment Guarantee – there are banks, especially those that deem themselves as big, global, international and reputable banks, that do not allow Documentary Credit issued by them to be confirmed by a third bank, an act which they may consider as blemishing their reputation and standing. In such situation, confirmation of Documentary Credit cannot be done, openly that is. However, the exporters can still avail themselves to a good risk mitigation tool, even under this condition, in what is called silent confirmation or payment guarantee. What it means is that the exporters can still get another bank to provide confirmation or guarantee of payment under the Documentary Credit, but it is done quietly, without the knowledge and awareness of the bank that issued the Documentary Credit. Silent confirmation/ payment guarantee is obviously more complicated and a little bit on the sophisticated side, but it is available for exporters who find themselves in this situation and wishes to improve their risk position further.

Without Recourse Financing – perhaps unknown to some exporters, especially the smaller ones, most trade financing provided by banks in Malaysia (and worldwide) is “with recourse” in nature, meaning that the banks provide export financing to exporters in good faith that the financing amount would be re-paid by export proceed eventually to be repatriated by overseas buyers and that, in the event that the payment for the export is not received, the banks reserve the right to recover their financing amount from the exporters themselves. This is obviously a very bad risk position for the exporters who, not only that they do not have the payments for the goods that they have exported, they have to source for other avenues and funding sources to re-pay the banks who have provided them the export financing. However, this is not a hopeless situation and exporters can avail themselves to a risk mitigation tool in the form of without recourse financing. There are several products of this nature available in the market such as forfeiting, bills purchased on without recourse basis, receivables financing and factoring. For a fee, what these without recourse financing tools provide is a truly peace of mind to the exporters, in the sense that they turn account receivables into immediate cash in their book.

Protection under “avalization” arrangement – in cases where the exporters get their payment under Documentary Collection and are unable to change it to a more favourable method of payment such as Documentary Credit, they can still reduce their non-payment risk by getting protection under “avalization” arrangement. The word Avalization originates from the French word aval, which is loosely translated by trade finance practitioners as protection or guarantee. The avalization arrangement is one where the buyers banker provides avalization or payment guarantee to to the exporters in the sense that the bank obliges itself to make payment to the exporters when the payment falls due. This is more or less similar to the obligation provided by bank to exporters under a Documentary Credit situation, except that in this case, there is no Documentary Credit involved. Thus, under the avalization arrangement, the exporters are getting similar payment obligation by the buyers’ bank, without having to get involved in a Documentary Credit transaction and its attendant complexities.

Hedging for Foreign Exchange fluctuation – although it is common for big exporters to hedge against forex fluctuation, this simple fact is sometimes lost among the smaller exporters, who are often left to face the vagaries of forex fluctuation, which can be detrimental to their financial position. Therefore it is absolutely advisable for the exporters to protect themselves against currency fluctuations.


It does not require the brain of a rocket scientist to be successful in international trade business, but it is not a walk in the park either. It requires a lot of common sense, conscientious efforts and sharp keenness, as opposed to local trade, so that the challenges and obstacles are properly evaluated and risks optimally mitigated so as to ensure success. To be aware of risks to payment and to take the necessary steps to improve risk mitigation will go a long way towards achieving success, longevity and continuity in the field of international trade business.


Writer’s profile

Azahari is an ex-banker with over 20 years of experience, specializing in international trade and trade finance. He provides consultancy, advisory and training on trade finance subjects, international trade matters and banking/financial services in general. He can be contacted at 0123640471 or [email protected].  He also blogs at www.mytradeservices.blogspot.com.


Thailand's floods prompt L/C amendment calls


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By Mark Ford
11 November 2011

Thailand's recent floods have prompted traders to call for amendments to letters of credit (L/Cs) pertaining to goods stranded in some of the country's ports.

Thai exporters and importers also want the Port Authority of Thailand, the Customs Department and banks to ease regulations and waive fees collected on stranded containers.

L/C situation

Vice-president of the Thai Logistics Services Provider Federation, Thongyu Khongkhan, has told local media that banks are being called upon to amend the terms of L/Cs for those traders whose business has been affected by the country's month-long floods.

"Some exporters may not be able to ship their products on time and need their banks to amend the terms for L/Cs and packing credit and waive the fees," he reportedly said.

Thongyu, who is also an adviser to the Land Transport Federation of Thailand, said banks had also been asked to extend periods for packing credit.

Stranded cargoes

Thousands of containers are stranded in Klong Toey and Laem Chabang ports because the factories that ordered cargoes are now inundated with floodwater.

Stranded cargoes include raw materials, equipment, machinery as well as parts and components for industrial production.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Pakistan mulls L/Cs to unblock energy finances


By Mark Ford 3 November 2011

Pakistan plans to utilise letters of credit (L/Cs) in long-term measures to prevent the re-occurrence of the inter-corporate circular debt that is currently choking energy sector financial flows.

To solve the problem in the short-term, the government is to issue up to 300 billion Pakistani rupees (Rs300 billion) worth of bonds to clear up the current financial mess.

L/C requirements

Under the government's proposed plan, oil marketing companies will be required to buy petroleum from refineries using L/Cs.

This would provide a solid guarantee on all outstanding receivables.

Time limit

The L/Cs would also be limited to the length of time it takes to deliver the petroleum.

Similarly, power companies would also have to use L/Cs when purchasing from oil marketing companies.

Outstanding receivables

Problems in the energy sector often centre on Pakistan State Oil (PSO), the country's largest oil supplier.

It is routinely owed so much money by its customer that, periodically, it cannot meet its payment obligations and has to cancel orders for more fuel.

According to latest estimates, it has outstanding receivables of around Rs155 billion.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


L/Cs return to Libya, retreat from Syria

By Mark Ford

4th November 2011

Letters of credit (L/Cs) are starting to flow again in Libya, where the central bank is reasserting its control over the country's banking system.

But in Syria, where international sanctions are increasingly being imposed on institutions linked to the government, L/Cs are becoming harder to come by.


Libya is rebuilding its economy as it recovers from eight months of brutal civil war, according to central bank officials.

One sign of this is that L/Cs for imports into Libya are beginning to flow once more, according to deputy director of research and statistics at the Tripoli-based central bank, Ezzedin Ashur.

Libya's recovery is being supported by western governments beginning to lift sanctions on the north African country's frozen assets, which include US$168 billion in assets abroad held by the Libyan central bank and the country's sovereign wealth fund.


But in Syria, international sanctions are tightening their grip on an economy that appears increasingly dysfunctional as civil unrest continues there.

The European Union has now followed the US by freezing transactions with the Commercial Bank of Syria, which handles all L/Cs for the regime of President Bashar Al Assad.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO .lick to add text, images, and other content

Documentary credit insurance gaining popularity in Arab and Islamic world

A programme that insures letter of credit (L/C) transactions is gaining popularity in the Arab and Islamic world according to the Islamic Corporation for the Insurance of Export Credit and Investment (ICIEC).

The corporation's Documentary Credit Insurance Policy (DCIP) is apparently proving most popular in Turkey and the Gulf Cooperation Council (GCC) countries.

Deal flow

The ICIEC issued its first DCIP for Kuveyt Turk Participation Bank in October 2010 and subsequently issued similar policies to another Turkish institution, Bank Asya, and the Saudi British Bank (SABB) in Riyadh.

The policies provide those banks with insurance cover for L/Cs confirmed by them.

Improved L/C capacity

The ICIEC says the DCIP will help the banks increase their capacity for L/Cs issued by foreign banks while helping them to better manage some of their international bank risks.

In June 2011, ICIEC issued yet another DCIP in Turkey with Aktifbank, which already operates as a local agent for ICIEC in the Turkish market.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO Training Services.


A brief history of 'Presentation' by Gary Collyer

In this newsletter we continue to look at the origins and development of the wording of certain UCP articles. A few ICC Banking Commission Opinions are also referred to, to reinforce the application of the current wording. This time, we look at UCP 600 sub-article 14 (c) – outlining the default presentation period and article 33 - Hours of Presentation.

In the first UCP, published in 1933 as UCP 82, the sub-heading to articles 43 and 44 was 'Presentation'. This heading encompassed two articles - one covering presentation period and the other covering a presentation made outside of banking hours. It should be noted by documentary credit practitioners that the wording of UCP 600 article 33 has changed minimally in relation to that which appeared in UCP 82, article 44. 

1933 Revision - "Uniform Customs and Practice for Commercial Documentary Credits Publication No. 82" 

Article 43
Documents must be presented without delay. Banks may refuse the documents if presented to them too late, in other words at a date not justified by the usual time taken to cover the distance between the place of dispatch and the place where payment is made.  

Article 44
Banks are under no obligation to accept documents outside their banking hours. 
The equivalent text in the next revision read:

1951 Revision – "Uniform Customs and Practice for Commercial Documentary Credits Brochure 151"

Article 43 

Documents must be presented within a reasonable time after issuance. Paying, negotiating or accepting Banks may refuse documents if in their judgment, they are presented to them with undue delay.
Article 44 

Banks are under no obligation to accept documents outside their banking hours.

The wording of article 43 in both UCP 82 and UCP 151 gave latitude to the banks to determine whether a presentation had been made without delay or within a reasonable time. This was certainly so in relation to the wording in publication 82, where the length of time for the presentation to occur was taken into account based on the distance that existed between the place of dispatch and the place of the bank that was to pay. 

Even with the introduction of the term 'reasonable time', UCP 151 article 43 did not provide any clear guidance on determining an acceptable (default) presentation period. A bank could still decide, based on their own judgment, as to whether there had been a delay in presentation. The wording of UCP 151 article 43 also appeared in the next revision of 1962 - UCP 222 article 41. 

UCP 222 saw the first change to article 44 of UCP 82. The words "presentation of" was added so that the text read "Banks are under no obligation to acceptpresentation of documents outside their banking hours. (emphasis added) 

It was not until the 1974 revision - UCP 290 - that the UCP introduced a requirement that a credit must specify a time period after the issuance of bills of lading or other shipping documents during which presentation must be made. If no such period was stated, banks were to refuse documents presented to them later than 21 days after the date of issuance of the bills of lading or other shipping documents. However, there was no mention in the rule of words to the effect that "documents must, in any event, be presented not later than the expiry date of the credit". 

In UCP 290, we have the first reference to 21 days. 

The 1983 revision - UCP 400 - saw the same position reinforced in article 47. However, in the 1993 revision - UCP 500 sub-article 43 (a) - the notion of a time period after the date of issuance of a transport document was changed to one of a period after the date of shipment. The words "In any event, documents must be presented not later than the expiry date of the credit" was also added. 

The 2007 revision - UCP 600 - maintains the position of a specified period after the date of shipment but also amended two crucial aspects of UCP 500 sub-article 43 (a). The presentation period was specifically directed towards one or more original transport document issued under articles 19-25, and the reference to 21 days was enhanced to reflect that it is a calendar day period that is to be considered. 

2007 Revision - "Uniform Customs and Practice for Documentary Credits ICC Publication No. 600"

 Standard for Examination of Documents 

Sub-article 14 (c) 

A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit. 

Hours of Presentation

A bank has no obligation to accept a presentation outside of its banking hours. 

The subject matter covered by sub-article 14 (c) and article 33 has not attracted as many requests for ICC opinions as some other articles of UCP. However, here is a summary of the main issues that have been covered.

The most common type of issue, raised under the articles that have referred to the presentation period, have related to the dating of a bank's schedule, in relation to the date that the documents were originally presented, and at which bank’s counters does the presentation period apply.

In Opinion R372, a bank negotiated documents and sent them to the issuing bank. The schedule was dated 4 days after the specified presentation period had ended. The nominated bank certified on their schedule "documents were negotiated as per terms of the L/C". The issuing bank refused the documents citing 'late presentation' as the discrepancy. The issue raised was whether a nominated bank was required to insert the date of presentation on their schedule. 

The UCP does not require any evidence to be stated of the date of receipt of the documents by a nominated bank. In normal circumstances, the wording quoted on the schedule of the nominated bank would have sufficed although it may have been better to say something like "we confirm documents presented within presentation period [or XX days after date of shipment] [or expiry date]". The conclusion to the opinion supported the actions of the nominated bank.

For opinion R586, the issuing bank was located in Country C and the credit stated that it expired in Country C. Presentation was to be made within 10 days after the date of shipment. The issuing bank received documents from a presenting bank and refused them due to a few discrepancies, including late presentation. The question asked was whether the presenting bank could or should have confirmed that presentation was made within the specified period. 

The conclusion given by the Banking Commission stated that as the credit expired at the counters of the issuing bank, the documents were to reach the issuing bank not only by the expiry date, but also within the 10 days after the date of shipment.

Opinions R691 and R692 referred to separate LCs whereby their terms and conditions required the presentation of separate invoices and drafts covering interest (the applicant bore the interest cost for the period following the date of negotiation until the specified due date). The credit also required that documents be presented within 21 days after the date of the bill of lading. The shipping documents were received within the 21 days and were negotiated. The beneficiary was contacted to present their interest invoice and draft that could only be created once the date of negotiation had been determined. By the time of presentation of the interest invoice and draft the period of 21 days had elapsed. The issuing bank refused the documents, but the nominated bank objected.

The conclusion of the Banking Commission agreed with the nominated bank. The presentation of the interest invoice and draft was a separate presentation. As there was no transport document associated with the interest invoice and draft, sub-article 14 (c) could not be applied.

It should be noted that where a credit requires a form of transport document that is not covered by UCP 600 articles 19-25 or where a copy of a transport document covered by articles 19-25 is presented, sub-article 14 (c) will not apply. The credit must make specific mention of the conditions under which the documents are to be presented. For example, "documents must be presented within 21 days after the date of the FCR" or "documents must be presented within 21 days after the date of shipment as shown on the photocopy bill of lading". 

Opinion R648 refers to the application of UCP 600 article 33. The question that was posed was: "It is our understanding that the day of presentation is to be a banking day, even if documents are received by a bank's mail receiving unit which may be open on a non-banking day."

The analysis and conclusion offered by the Banking Commission stated: "The day of presentation may or may not be a banking day. The applicable rule here is contained in article 33, which states "A bank has no obligation to accept a presentation outside of its banking hours." This allows a bank to decline any presentation made outside of its stated banking hours - whether it is a banking day for the purposes of an act subject to the rules to be performed or on a day that the bank's mail receiving unit is open, but a non-banking day for the purposes of UCP 600.

For the purposes of this query, whether or not a presentation is allowed to be made outside the banking hours of the trade department of a bank is for that bank to decide. Article 33 allows a nominated bank or issuing bank to decide whether or not it will accept a presentation made by a presenter outside of its banking hours. The reference to "banking hours" means those hours applicable locally to the nominated bank or to the issuing bank, depending on to which bank the presentation is to be made. A bank that receives documents on a day when the mail receiving unit is working, but the trade department is not, may decide to acknowledge receipt of the documents, but on the basis that the documents are considered to have been received for the next working day of the trade department. It should be noted that the conclusion to ICC Opinion R 265 concerning the presentation date under UCP 500, states: "Article 45 of UCP 500, in effect, allows a bank to refuse the presentation of documents after the close of their business hours. By accepting a presentation of documents outside the bank's normal banking hours would mean that, in this case, Saturday would count as the day of receipt of the documents for the purposes of sub-article 13 (b).” The same premise would apply under UCP 600 article 33."

More arrests in alleged Iranian L/C fraud

A further fourteen people have been arrested in the alleged multi billion US dollar letter of credit (L/C) frauds that have shaken the government of Iranian President Mahmoud Ahmadinejad.

This is in addition to the nineteen people already detained in respect of the same suspected frauds (DC World News, 13 September 2011).

Fresh arrests

According to Iranian officials, the latest batch of arrests has taken place over the last three or four days.

Those arrested are thought to include several bank officials according to local media reports.


Iran's prosecutor general, Gholam Hossein Mohseni Ejei, has called for the former head of state-owned Bank Melli to return to Iran.

Mahmoud Reza Khavari travelled to Canada soon after he resigned as the alleged frauds became public.


Meanwhile, there is some confusion over the total value of the alleged L/C frauds.

Economy Minister Shamseddin Hosseini has now scaled down the value of the frauds from US$2.6 billion to US$1.6 billion.

Iranian officials claim to have recovered an unspecified sum of money that they say was embezzled during the alleged frauds.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Middle East, North Africa unrest roils L/C markets

Popular protests that began in Tunisia in January and subsequently spread to countries across the Middle East and North Africa (MENA) region have had varying impacts on the letter of credit market.

 Unsurprisingly, the unrest has had a negative impact on L/C business, but measures introduced in Tunisia and Egypt as those two countries set about designing new political and economic structures may yet make L/Cs more available in the long run.

Short-term impacts

The short-term impacts of civil disturbances have been severe. According to an Egyptian banker, L/C deposits at the Central Bank of Egypt fell by nearly 66 per cent in January and February, and while the country was in deep turmoil earlier this year, trade and shipping sources in the country reported difficulties processing L/Cs for much-needed grain imports.

Yemen, which depends on oil as its main foreign currency earner, has been hit by a severe US dollar shortage. The lack of hard currency, compounded by poorer exchange rates, has caused serious problems for traders opening L/Cs, according to an official at the Port of Aden.

In Bahrain, there are rumours of at least one global banking giant decamping its regional headquarters from Manama to Dubai, Abu Dhabi or Qatar.


Libya is the first major oil exporter to be affected, and the sustained and violent repression of public protests make the outcome of the protests there very uncertain. In early July, though the rebels had made important advances, they still had not taken Tripoli.

Sanctions heaped on the government of Libya have choked L/C business - even if there was sufficient oil being produced to export. But, since Libya's rebels under the banner of the National Transitional Council (NTC) have persuaded key inter-international players of their legitimacy, banking arrangements of some kind are likely to facilitate L/C business.

As of this writing, however, transacting L/Cs is problematic on several fronts. Sellers may be unable to present documents and obtain payment while Libyan banks could claim protection under force majeure provisions. Even if normal banking resumes, it will depend on specific L/C terms and arrangements as to whether banks will honour or negotiate credits that expired during the period of unrest.

There is some comfort for UK-based parties from the government's Asset Freezing Unit (AFU), which has issued some licences to allow transactions to be completed even if they appear to breach sanctions. According to an AFU official, at least one license has been granted to a London-based bank in respect of trade finance payments. These include some due under L/Cs where the goods and services were provided before sanctions became effective.

But parties who have applied for these licenses reckon it takes time and suggest that the AFU has only limited resources available and are overloaded with work because of the number and amount of assets frozen as a result of unrest across the MENA region.

To make matters worse, according to an AFU notice, bogus communications have been identified that claim to be from the unit. It says these messages are often in the form of emails or letters and sometimes use the name of a current or former Treasury employee. They are likely to be linked to organized fraud, and the unit strongly advises recipients not to respond to them in any way.

L/C revival plans

While conventional Libyan L/C business has disappeared, signals heard from Benghazi where the NTC is based indicate that officials are fully aware of the need to revive it. In March, DCInsight learned that officials at the Central Bank of Libya - which now works with the NTC and has relocated temporarily from Tripoli to Benghazi - were holding talks with other banks to work out how L/Cs could be made available again.

Moreover, the NTC has substantial international support, even if the EU and the US have stopped short of officially recognizing the rebel entity. Qatar is playing a key role too. In May, Reuters reported that payments to rebels for Libyan crude had been made through a bank account in Qatar in US dollars and that an oil and gas support group had been set up in the Qatari capital, Doha.

Executives at the Arabian Gulf Oil Company (Agoco), which is also now under NTC control and based in Benghazi, are said to be working closely with the Qataris, who are keen to find arrangements whereby Libyan oil can be exported in exchange for food and medicine. Agoco is not currently producing oil for fear of attack by pro- Gaddafi forces but says it could resume crude exports out of the port of Tobruk within four weeks once security improves.

But dealing with Agoco may not be the safest option, according to one lawyer who attended the mid-April Doha summit on Libya. "NOC has not recognized Agoco's legitimacy and claims it is still a subsidiary. It has also said it will sue any buyer of Libyan oil from any entity other than the NOC," he said.

But he does think that L/Cs could be possible under circumstances whereby Libyan oil is sold through a third country such as Qatar? "Once the third country has the oil it could then be legitimately sold on to another trader who would not be subject to sanctions and the oil could possibly then be sold on L/C terms," he said.

Brighter L/C prospects

The uprisings that ousted Tunisian President Zine el-Abidine Ben Ali and Egyptian President Hosni Mubarak were spurred substantially by a lack of jobs and economic prospects as well as political disenfranchisement. In these countries, the difficult process of building new political and economic constructs has begun, albeit against a background where dissatisfaction with the pace and direction of reforms still causes frustration and violence remains a feature.

The task of building or rebuilding functioning economies is seen by key international powers as a quicker task than political reform and, crucially, one that can ease frustrations during the slower process of creating new political structures.

In this context, the US has already launched extensive economic support packages for both Egypt and Tunisia, and will most likely do the same for other countries charting a future featuring democracy and market economics. These packages work through local institutions and are designed to create new jobs.

In Egypt, the US provides insurance for L/C business, as well as support packages for small- and medium-sized enterprises. The new packages also help local institutions integrate with their global counterparts by encouraging and facilitating the use of internationally accepted financial instruments, such as loan guarantees and insurance facilities.

Such measures should help, but ultimately the future of L/Cs in the MENA region is dependent on security, as is evident in Iraq where Citigroup of the US says it is expanding its trade finance and syndicated lending services to some of the Iraq's 44 banks.

The security situation in Iraq has improved markedly over the last year. The country has massive earnings potential from oil exports and is poised to invest heavily in the oil and gas industry, power generation and housing. Clearly there is huge scope for new opportunities writing L/C business in a country where, provided stability is maintained, there is so much upside as well as the means to generate revenue and acquire spending power.

HSBC and Islamic Development Bank to develop Shariah-compliant trade finance products

HSBC Holdings has signed a memorandum of understanding (MoU) to provide letters of credit (L/Cs) in a programme to facilitate Shariah-compliant trade financing activities operated by an affiliate of the Islamic Development Bank (IDB).

The affiliate, International Islamic Trade Financing Corp (IITF), hopes to disburse over US$2 billion of trade financing to companies in Asia, the Commonwealth of Independent States, the Middle East and Africa.

Boost trade

The programme aims to boost trade amongst the 57-member countries of the Organisation of the Islamic Conference.

HSBC will provide the L/Cs on behalf of IITF customers who import or export goods and offer syndication and co-financing to help boost Islamic trade finance.

Trade growth

Under the MoU, IITF is also expected to invest in HSBC's Shariah-compliant overnight commodity Murabaha investment product.

Total trade finance amongst OIC member states, which include Saudi Arabia, Malaysia and Turkey, is expected to reach US$4 trillion by 2012.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


US L/Cs exposed to eurozone risks

By Mark Ford
16 August 2011

Letters of credit (L/Cs) issued by US banks may be exposed to risks in Europe's banking sector.

Recent concerns over exposures to European counterparties have centred on banks in France, where several US banks have reportedly increased their gross exposures this year.

L/C commitments

Citigroup's exposure to French banks increased by 40 per cent in the six months to end-June by US$15.7 billion, according to the bank's latest report.

The group now has a total of US$44 billion outstanding in its dealings in France.

Citibank also had US$64.9 billion in client commitments in France, which includes L/Cs, according to its quarterly report.


Goldman Sachs has also reportedly increased its exposure to French banks by around 30 per cent, although it is unclear how much of this is covered by hedging and other strategies.

Concerns have risen in recent weeks over European banks' ability to maintain funding in the wake of Europe's several government debt crises.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Post-credit crunch shift to bank guarantees/L/Cs sustained


Businesses in the Middle East and North Africa are continuing to shy away from open account trading according to Standard Chartered's managing director and head of transaction banking in the UAE.

In a recent interview with local media, Haytham Al Maayergi said corporates continue to favour safer instruments such as letters of credit (L/Cs) and bank guarantees.

Safer instruments

Many businesses shifted to L/Cs and bank guarantees or even pre-signed cheques in the wake of the 2008 financial crisis and continue to do so to secure timely payment, according to Al Maayergi.

He maintains that companies using these instruments experience slower cash flow, but the model apparently works well.

Regional differences

Secure payment methods are mainly used with counterparties in Asia, Africa and the Middle East, according to Al Maayergi.

He adds that open account terms are still used for trades with counterparties in the US and Europe.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Chinese firms use bank guarantees and L/Cs to obtain credit overseas

14 July 2011By Mark Ford

Chinese firms are using bank guarantees and letters of credit (L/Cs) to obtain credit for their subsidiaries from overseas banks.

They are doing this because of a credit shortage at banks on mainland China.

Credit shortage

Firms on the Chinese mainland have been able to obtain overseas loans by applying to a domestic bank for a bank guarantee or a standby L/C for their overseas subsidiaries, which can then obtain credit from overseas banks.

Now it appears that banks on the mainland are running up to or have reached their quotas for writing such business.

Hong Kong

This, in turn, has apparently prompted some of this business to move to banks in Hong Kong.

Bankers there say that firms on mainland China find this an attractive proposition because of the domestic credit shortage, higher interest rates on the mainland and an appreciating renminbi.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES


Pakistan releases funds to make power L/Cs more available

29 June 2011

The government of Pakistan has released funds of around US$128 million to make letters of credit (L/Cs) more available for the country's largest vehicle fuel retailer.

The move should help Pakistan State Oil (PSO) to assist in reducing the fuel shortages Pakistan is currently experiencing.

Funds release

The majority state-owned firm is currently locked in a complex web of inter-corporate debt in Pakistan's fuel sector as it struggles with high oil prices.

The release of funds aims to ease the pressure on PSO, which is the largest oil marketing company in the country.

It will now be able to open more L/Cs, which it needs to pay for oil imports.

Taxes due

Some of the funds will have to be used to pay taxes that PSO owes to the government.

More than half of the funds released will go towards tax payments over the next few days.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES and other content

Bank guarantees and L/Cs contribute to Chinese credit growth concerns


28 June 2011

Bank guarantees and letters of credit (L/Cs) are partly responsible for a big increase in off-balance sheet loans reported by Chinese banks.

According to data released by the People's Bank of China, the country's banks have increased such loans by 110 per cent.

Extended loans

China's banks extended the equivalent of US$50 billion of off-balance sheet loans to companies in the first quarter of 2011.

But fears that some of these loans are not entirely risk free are underlined by higher risk assessments of these lenders' bonds over the last few months.

Fitch research

Research by Fitch reckons the value of disclosed off-balance sheet items by 16 Chinese banks is between US$3.5-$4 trillion.

The ratings agency says these items - which now represent 25 per cent of total bank assets - include entrusted loans, credit commitments, guarantees, L/Cs and acceptances.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


South Korea presses Vietnam for new L/C arrangements


South Korean entrepreneurs have been pressing for improved banking arrangements between Vietnam and South Korea with the aim of providing traders with better access to letters of credit (L/Cs).

The entrepreneurs say the problem of obtaining L/Cs is just one barrier to trade between the two nations.

Trade barriers

Complaints about difficulties over L/Cs emerged during a recent meeting between South Korean business representatives and the Vietnamese authorities in Hanoi.

A range of problems associated with customs and tax arrangements were also aired. Some delegates complained about the burdensome bureaucracy related to import and export procedures.

Faster imports

One South Korean importer argued that easily obtainable L/Cs would greatly help speed-up the import process.

But a representative from Vietnam's ministry of finance said it would take time to introduce such a measure because it would require the co-ordination of banking systems in both countries.

Vietnam would nevertheless take time to study the feasibility of such a process, he added.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.


Insurance industry L/Cs under pressure from captive trusts


By Mark Ford17 June 2011

Captive insurance companies should consider using captive trusts instead of letters of credit (L/Cs) as collateral according to a vice president at Wells Fargo.

Roger Quinn, who sells captive trusts, reckons they are less expensive than L/Cs and will provide the insurance subsidiaries of large corporations known as captive insurers with several additional benefits.

L/C alternative

Quinn told the 7th Annual Captives and Corporate Insurance Strategies Summit in June that in 2010, around 70 per cent of captive insurers used L/Cs as collateral.

But he argued that the spiralling cost of L/Cs since the 2008-09 financial crisis has now made them prohibitively expensive for captives relying on them for collateral.

Spiralling costs

Before the crisis, the cost of L/Cs for on a cash collateralised basis ranged from ranged between 15- 45 basis points, Quinn told delegates at the conference in Toronto.

He now reckons the pricing of similar L/Cs is in the range of 45-100 basis points, with the average being around 75 basis points.


Captive trusts, in which the bank is the trustee, provide several benefits according to Quinn.

These include lower fees than those charged for L/Cs and freedom from the need to renew L/Cs each year.

A captive trust could also replace multiple L/Cs according to Quinn.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES


China ends death penalty for L/C frauds


By Mark Ford 5 May 2011

China has introduced new legislation abolishing the death penalty for people found guilty of letter of credit (L/C) fraud.

The proposal comes in the wake of pressure from legal scholars and reformers in China who argued that people guilty of relatively trivial non-violent crimes have been executed (DC World News, 24 August 2010).


Several financial crimes no longer carry the death penalty as a result of China's decision in 2007 that all verdicts involving capital punishment should be reviewed and approved by the Supreme People's Court.

These include frauds related to financial bills, the false issuance of value-added tax invoices as well as well as carrying out fraudulent activities with L/Cs.

Non-violent offences

In all, 13 non-violent offences no longer carry the death penalty. These include the smuggling of cultural relics, precious metals and rare animals and theft from ancient cultural ruins.

The new legislation came into effect on 1 May 2011.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in CTZB TRAINING & MANAGEMENT SERVICES.


Asian Development Bank and Australia to guarantee L/Cs to developing Asian economies


By Mark Ford


4 May 2011


Australia's export credit agency has signed a risk-sharing agreement with the Asian Development Bank (ADB) to guarantee letters of credit (L/Cs) for exports of Australian goods into certain Asian countries.

The agreement is made under the ADB's Trade Finance Programme (TFP) with Australia's Export Finance and Insurance Corporation (EFIC).

Risk sharing

Under the agreement, EFIC and ADB will share the risk of guaranteeing L/Cs for exports of Australian goods to Bangladesh, Pakistan and Sri Lanka.

The agreement aims to make it easier for some of Asia's developing economies to import Australian goods.

Least-developed countries

According to ADB, companies in the least-developed economies of Asia struggle to obtain the trade finance they need to buy key inputs for export production or end products from overseas, including from Australia.

The bank says this holds back business and means less job creation, ultimately restraining economic growth for developing Asian economies.

TFP operations

This is why the TFP does not support countries such as China, India, Malaysia and Thailand. Last year the most active users of the programme were Bangladesh, Pakistan, Vietnam, Sri Lanka and Nepal.

In 2010, the TFP supported 783 trade transactions worth US$2.8 billion, with most of that trade conducted in countries where international banks do little or no trade finance business.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in CTZB TRAINING & MANAGEMENT SERVICES.



LC Fraudster amongst Chinese hyper-rich Chinese Entrepreneurs

By Mark Ford


20 January 2011


A letter of credit (L/C) fraudster is one of just a handful of entrepreneurs to have been listed as 'problematic' in China's rich list.


The Special Report of China's Rich, released earlier than this month by the Hurun Research Institute, says that Mou Qizhong is one of just 24 Chinese nominees in the list since 1999 that appear to be corrupt.




The report points out that 98.7 per cent of nominees in China's rich list operated their enterprises legally.


But the former head of Nande Corporation, Mou, was accused of L/C fraud in 1999 when a court found him guilty.


Life sentence


The entrepreneur subsequently managed to stay out of jail for several years after a string of appeals.


Eventually he was jailed for fraud and insider trading and is reportedly serving a life sentence.




Mou and four staff members, including his son, nephew and sister-in-law, were accused of fraudulently obtaining a US$75 million loan from a state owned bank.


The prosecution case rested on the allegation that Mou applied for funds for an import deal he fabricated.



This article represents the views of the author and not necessarily those of the ICC or any of the other partners in CTZB TRAINING & MANAGEMENT SERVICES

New scheme to boost L/C and guarantee support for UK exporters
By Mark Ford
10 February 2011

Small companies in the UK are to be offered state-guaranteed loans to help their export efforts.

The Export Finance Guarantee Scheme (EFGS) will extend the range of existing export facilitation services that include support for letters of credit (L/Cs), guarantees and indemnities, export collections, bonds, trade loans and pre- and post-shipment financing.

April launch

The scheme, which is due to launch in April, is an extension of an existing £700 million domestic enterprise finance guarantee, for which companies with a turnover of up to £25 million are eligible.

The EFGS is one of a range of measures taken by the UK government to make finance available to companies that, since the credit crunch, have found it hard to find funds from purely commercial sources.

L/C support

The UK government's Export Credit Guarantee Department (ECGD) launched its L/C guarantee scheme in late 2009 (DC World News, 6 November 2009).

It was established to improve access to short-term export finance for UK exporters.

Under the scheme, EGCD provides guarantees to British banks of up to 90 per cent of the value of confirmed L/Cs issued by selected overseas banks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in CTZB TRAINING & MANAGEMENT SERVICES.

India and Pakistan could improve L/C and bank guarantee availability


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By Mark Ford
23 June 2011

Talks between Indian and Pakistani officials could lead the way to improved letter of credit (L/C) and bank guarantee availability for bilateral trades between the two countries.

The prospects for such improvements are apparently brighter since the commerce secretaries of each country met recently.

Talks resumed

It has emerged that Rahul Khullar and Zafar Mehmood, respectively the Indian and Pakistani ministers of commerce, met in Islamabad for talks at the end of April.

These were the first ministerial level talks on trade between the two countries for three years since the November 2008 terrorist attacks Mumbai.

Trade barriers

The ministers are assumed to have held only preliminary talks prior to setting an agenda for future meetings that are expected to examine ways to lower or remove barriers to bilateral trade.

These include poor banking arrangements that prevent traders from obtaining L/Cs or bank guarantees for bilateral trades.

Other trade barriers include visa restrictions as well as poor telecommunications systems and trade logistics.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC PRO TRAINING SERVICES.



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The reality of the strict compliance rule

"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