Part I Legal and Practical Challenges to Traditional Trade Finance, 6 The Fraud Rule in the Law of Letters of Credit Revisited

2021 ◽  
Author(s):  
Gao Xiang
Keyword(s):  
High Standard ◽  
Trade Finance ◽  
The Law ◽  
Letters Of Credit

The fraud rule in the law of letters of credit is still developing and has proven to be very controversial. The current international rules and national laws and decisions by most of the courts in many jurisdictions have taken the position that the fraud rule should be applied in a strict fashion or in cases of ‘material’ fraud. This chapter argues that a bifurcated approach should be adopted. That is, for fraud in the documents, a clear and simple fraud should be able to trigger the application of the rule; for fraud in the transaction, a high standard of fraud should be adopted.

Part I Legal and Practical Challenges to Traditional Trade Finance, 7 Letters of Credit and Stop Payment Orders Made in the Issuer’s Country

2021 ◽  
Author(s):  
Enonchong Nelson
Keyword(s):  
Common Law ◽  
Critical Examination ◽  
Letter Of Credit ◽  
Rome Convention ◽  
The Us ◽  
The Law ◽  
Letters Of Credit ◽  
Contractual Obligations ◽  
Rome I ◽  
Made In

This chapter offers a critical examination of the significant, but largely unexplored, question whether, and to what extent, a foreign order restraining the issuing bank from making payment under a letter of credit can afford the issuing bank a good defence to a claim in a court outside that bank’s home jurisdiction. At common law, in England as well as in other jurisdictions, such as Hong Kong, Singapore and the US, such orders have only limited effect in the forum. This chapter argues that the approach of the English courts to article 4 of the Rome Convention of 19 June 1980 on the law applicable to contractual obligations meant that such orders could defeat a claim against the issuing bank in England only in very narrow circumstances. It goes on to examine the extent to which the changes introduced in article 4 of the Rome I Regulation of 17 June 2008 on the law applicable to contractual obligations have altered the position under English law, so that stop payment orders made in the issuer’s home jurisdiction may now have a much wider reach in England. The chapter contends that notwithstanding the amendments to article 4, in the specific context of letters of credit, the approach of the English courts under the Rome I Regulation is likely to be broadly similar to that under the Rome Convention. The Rome I Regulation has not (even unintentionally) opened the door to stop payment orders made in the issuer’s home jurisdiction.

Part I Legal and Practical Challenges to Traditional Trade Finance, 3 Soft Clauses in Letters of Credit

2021 ◽  
Author(s):  
Davies Martin
Keyword(s):  
Trade Finance ◽  
Letter Of Credit ◽  
Exchange Time ◽  
The Past ◽  
Blockchain Technology ◽  
The Future ◽  
Letters Of Credit

Soft clauses in letters of credit make the issuing bank’s obligation conditional upon some event or certification that is in the control either of the applicant, or some agent, entity, or organisation in the applicant’s country. Such clauses make an apparently irrevocable letter of credit into what is, in essence, a conditional undertaking dependent on the applicant’s approval. Soft clauses are not always a vehicle for fraud—there may be genuine reasons for their inclusion—but they certainly make it easy for an applicant to ensure that the issuing bank does not pay the beneficiary. This chapter will consider the problems caused by the use of soft clauses, some possible solutions, and it will suggest alternatives, some of which look to the past (bills of exchange/time drafts), some to the present (open account and standby letters of credit), and some to the future (the advent of blockchain technology).

Managing money laundering risks in commercial letters of credit

2016 ◽  
Vol 19 (2) ◽  
pp. 158-168
Author(s):  
Ramandeep Kaur Chhina
Keyword(s):  
Money Laundering ◽  
Regulatory Requirements ◽  
Trade Finance ◽  
Content Type ◽  
Letter Of Credit ◽  
Commercial World ◽  
Proceeds Of Crime ◽  
Letters Of Credit ◽  
The Uk

Purpose The purpose of this paper is to critically examine the role of banks in detecting and mitigating money laundering risks in trade finance activities, especially in commercial letters of credit, and to answer the central question: do banks comply with regulations that are inadequate (if so, is more stringent regulation compatible with the commercial world of trade finance?), or are banks are in danger of non-compliance? Design/methodology/approach The relevant principles promulgated by international organisations as well as the law enacted in UK to prevent money laundering risks in commercial letters of credit was examined to assess banks’ compliance with their anti-money laundering (AML) obligations. The key provisions of the Money Laundering Regulations 2007, Proceeds of Crime Act 2002 and the Wolfsberg Trade Finance Principles were discussed, and the extent of banks’ compliance with these provisions was highlighted by carefully analysing the steps a bank might take at various stages of the operation of a commercial letter of credit and what the banks in fact do. The paper relies heavily on the findings of the recent study conducted by the Financial Conduct Authority (UK) to analyse the actual practice followed by UK banks in controlling money laundering risks in transactions involving commercial letters of credit. Findings The paper establishes that considering the formal nature of commercial letters of credit (which makes them independent from the underlying transaction), any stringent measures to regulate trade finance activities of a bank may destroy the effectiveness of commercial letters of credit as a tool for promoting international trade. The current law and regulations together with the Joint Money Laundering Steering Group Sectoral Guidance and the Wolfsberg Principles provide the requisite legal and regulatory framework to control money laundering risks in commercial letters of credit. The paper however establishes that the majority of banks in UK currently appear to be in danger of non-compliance with the UK AML regime and certainly need to meet their AML obligations in a more serious way. Practical implications The findings may influence banks to adopt a more vigilant approach in their trade finance activities and to undertake more responsibility in ensuring compliance with the current AML law and regulations, while highlighting that their current practice may put them in danger of non-compliance. Originality/value The paper demonstrates in an exceptional way the legal and regulatory requirements for banks to prevent money laundering risks in their trade finance activities and where, in practice, the banks are falling short of compliance with these requirements. By adopting a step-by-step approach in evaluating banks’ “current-and-must have” approach to controlling money laundering risks at various stages of a commercial letter, the paper makes a valuable contribution to the study of combating money laundering in commercial letter of credit transactions.

Legal Stability and Claims of Change: The International Court's Treatment of Jus ad Bellum and Jus in Bello

2006 ◽  
Vol 75 (3-4) ◽  
pp. 371-407 ◽  
Author(s):  
Alexander Orakhelashvili
Keyword(s):  
Use Of Force ◽  
High Standard ◽  
Armed Conflicts ◽  
Legal Change ◽  
International Conflicts ◽  
Post Cold War ◽  
Legal Norms ◽  
Standard Of Proof ◽  
Legal Position ◽  
The Law

AbstractThe post-Cold War era has witnessed a number of international conflicts and attendant claims that the law related to the use of force and armed conflicts has experienced significant changes in consequence of those events and processes. This has been argued extensively in terms of the conflicts of Iraq, Yugoslavia, or Afghanistan. The proof of legal change is, however, difficult to establish as it is subject to a high standard of proof and at the same time legal changes can damage the consistency and credibility of the system. As the International Court's consistent jurisprudence demonstrates, the argument of alleged legal changes in the legal regime governing armed conflicts is not based on consistent reasoning. This is explained by example in the Court's treatment of a number of fields, such as consent to the use of force, proof of the facts of the use of force, the law of self-defence and the law of belligerent occupation. The Court's consistent jurisprudence not only undermines the argument of legal change but also demonstrates that the legal position in this field maintains its separate existence in relation to power and politics. The strict application of legal norms is an inevitable requirement for a transparent legal system.

scholarly journals Fraud in documentary letters of credit: A comparative study of excising international legal frameworks

2017 ◽  
Vol 1 (1) ◽  
pp. 48-69
Author(s):  
Hamed Alavi
Keyword(s):  
Research Question ◽  
Legal Systems ◽  
Trade Finance ◽  
Main Research ◽  
Legal Nature ◽  
Long Time ◽  
American Law ◽  
Letters Of Credit ◽  
Legal Frameworks ◽  
Comparative Manner

Documentary letters of credit are among most popular trade finance instruments used in international business. Despite the fact that main purpose derived from application of documentary letters of credit is to reduce the risk of trade, their mere documentary nature makes them vulnerable to the problem fraud. There is a huge interest among legal scholars and academicians to analyse the nature of fraud in documentary letters of credit due to its important financial effect on smooth process of international trade and also diversified approach of different legal systems to this particular problem. However, majority of conducted studies are limited to most popular legal systems including British and American law. Need for studying the LC fraud in a comprehensive comparative manner among existing international legal frameworks is well noticed for long time. Due to their international nature, LC operation is subjected to substantial number of legal frameworks which most of them are either taking a silent position towards problem of fraud or do not show uniform approach to the it. In this paper, author tries to study di$erent sources of law in documentary letters of credit and their approach to the problem of fraud in a comparative manner. The main research question is what would be the position of fraud rule in applicable legal frameworks to the international LC operation and how do they approach the problem of fraud committed by beneficiary in documentary letters of credit? For this purpose, paper is divided into four main parts: After the introduction, second part will discuss the sources of law applicable to international LC transaction. Third section will analyse the legal nature of fraud in LC transaction. Fourth section will scrutinize the legal approach of different legal frameworks to fraud in documentary letters of credit and finally, the last section will sum up the discussion with concluding remarks.

scholarly journals Trade finance matters: evidence from the COVID-19 crisis

2020 ◽  
Vol 36 (Supplement_1) ◽  
pp. S397-S408 ◽  
Author(s):  
Banu Demir ◽  
Beata Javorcik
Keyword(s):  
Trade Finance ◽  
The Us ◽  
Annual Trends ◽  
Letters Of Credit ◽  
Substantial Decline

Abstract This study documents a substantial decline in the exports of major trading nations taking place in March 2020. Accounting for product-specific seasonality and annual trends, the data suggest a drop by 38 per cent in France, about a quarter in Turkey and Germany, and 12 per cent in the US, relative to their historical averages. Detailed export data from Turkey, disaggregated by financing terms, show another striking pattern. Flows using bank intermediation which eliminates or reduces the risk of non-payment or non-arrival of prepaid goods, such as letters of credit or documentary collection, appear to have been much more resilient to the current downturn relative to flows using other financing terms. These findings suggest that access to trade finance is vital during times of heightened uncertainty.

scholarly journals Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (in Administration) Court of Appeal [2011] EWCA Civ 347

2012 ◽  
Vol 24 (1) ◽  
pp. 191-205
Author(s):  
Robert Pearce ◽  
Jennifer Shearman
Keyword(s):  
United States ◽  
The United States ◽  
High Rate ◽  
Rate Of Return ◽  
Trade Finance ◽  
Ponzi Scheme ◽  
The Law ◽  
Law Reports ◽  
Court Of Appeal

THE PURSUIT OF PROPRIETARY REMEDIES FOR BREACH OF FIDUCIARY DUTYThere is an old adage that if an opportunity looks too good to be true, then it almost certainly is. Despite this, the law reports are filled with examples of people seeking redress for the fallout from “get rich quick” schemes that have gone wrong. One type of scam, exemplified by the fraudulent investment scheme run by Bernard Madoff from the United States and which collapsed in 2008, is known as a “Ponzi1 scheme”.2 The wrongdoer in such a scheme invites “investments” promising a high rate of return. The funds subscribed are not in fact invested (or if they are, they are invested in vehicles which produce a lower rate of return than that promised). Instead, the money from new subscribers is used to pay the rewards to earlier subscribers. In due course the scheme is bound to collapse, because there will be a point at which the new funds coming in are insufficient to make the payments to existing subscribers, and the bubble of new investment can continue only for as long as there is confidence on the part of subscribers, encouraging fresh deposits. When the scheme begins to unravel, it falls apart very quickly, since the assets held by the wrongdoer are inevitably inadequate to reimburse all of the subscribers in full. In the ensuing insolvent liquidation, subscribers stand to recover only a small fraction of their subscription as unsecured creditors unless they can demonstrate that they have a proprietary interest in some of the remaining assets. Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd is a case involving what the judge at first instance called a “classic Ponzi scheme”.

scholarly journals General Partnerships and the Fiduciary Duty in the US Legal System

Pro Futuro ◽  
2021 ◽  
Vol 10 (4) ◽  
Author(s):  
Márta Plásztán-Brehószki
Keyword(s):  
Common Law ◽  
Civil Law ◽  
High Standard ◽  
Company Law ◽  
Fiduciary Duty ◽  
Agency Relationship ◽  
The Us ◽  
The Common ◽  
The Law ◽  
The One

The law of fiduciary duty is as old as common law. It is the key element of the law of equity. The agency relationship creates a fiduciary relationship between the parties, which means that the fiduciary (agent) is subject to the direction of the one on whose behalf he acts (principal). This high standard of conduct – in the scope of the agency relationship – has become a separate liability form in the common law countries and has appeared not only in company law but in other parts of civil law as well. This paper presents the development and the basic elements of fiduciary duty in the field of general partnerships.

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