scholarly journals Risk Analysis in Documentary Letter of Credit Operation

2017 ◽  
Vol 0 (0) ◽  
Author(s):  
Hamed Alavi
Keyword(s):  
Risk Management ◽  
International Trade ◽  
Risk Analysis ◽  
Current Paper ◽  
Management Theory ◽  
Letter Of Credit ◽  
Legal Principles ◽  
Strict Compliance ◽  
Letters Of Credit

Abstract Documentary Letters of Credit are among most popular methods of payment used in international trade. They function as an irrevocable promise of issuing a bank to pay instead of an applicant buyer to a beneficiary seller under the condition that the beneficiary presents complying documents with terms and conditions of the credit to the bank. One of the reasons for the popularity of the LCs in international trade is shifting the payment risk from an individual buyer to a bank with a much stronger financial standing. However, LC operation in international trade is not free of risk. Despite the fact that two main principles of the Documentary Letter of Credit’s Operation (Principle of independence and principle of strict compliance) facilitate the process of international trade significantly, but still all parties involved in LC operation are supposed to be cautious about the existing risks relevant to their role in LC operation. Current paper tries to use legal principles of documentary credits and risk management theory in order to define existing risks to each party (beneficiary, applicant and bank) in international LC transaction and find an answer to the question of what are exposing risks for involved parties? For this purpose, the paper starts with an explanation of the two main principles of LC operation and moves forward with using the risk management theory to explain existing risks for each party in detail.

scholarly journals Mitigating the Risk of Fraud in Documentary Letters of Credit

2016 ◽  
Vol 6 (1) ◽  
pp. 139-156 ◽  
Author(s):  
Hamed Alavi
Keyword(s):  
Risk Management ◽  
International Trade ◽  
Preventive Measures ◽  
Research Question ◽  
Management Theory ◽  
Main Method ◽  
Fraud Risk ◽  
Method Of Payment ◽  
Letters Of Credit ◽  
Fraud Risk Management

AbstractDespite the fact that documentary letters of credit (LC) are meant to facilitate the process of international trade, their specific characteristics may increase the risk of fraud while being used as the method of payment in the process of international transaction. Many factors like exclusive use of documents, geographical distance, absence of efficient prosecution, the diversity of legal system at the global level and restricted application of fraud rule can be considered as reasons for LC fraud. While billions of dollars are lost annually due to fraud in the course of LC operations, such vulnerability can result in reducing the global popularity of documentary letters of credit as the main method of payment used in international trade. Meanwhile, it is worth mentioning that fraud risk management is an unexplored territory in the practice of documentary letters of credit operation. Existing research tries to fill the gap in the study on comprehensive methods for mitigating fraud risk in operations with documentary letters of credit by using risk management theory in order to answer the question of how to manage fraud risk in LC transactions? In a quest to answer the research question, the paper is divided into two parts: the first part is dedicated to preventive measures while the latter explores responsive measures of an enterprise to manage fraud risk in LC transactions.

scholarly journals Remedies to Fraud in Documentary Letters of Credit: A Comparative Perspective / Opravné Opatrenia Pri Podvodoch S Dokumentárnymi Akreditívami: Komparatívna Perspektíva

2016 ◽  
Vol 5 (1) ◽  
pp. 1-13
Author(s):  
Hamed Alavi
Keyword(s):  
International Trade ◽  
Legal System ◽  
Current Paper ◽  
Comparative Perspective ◽  
Legal Systems ◽  
Letters Of Credit ◽  
Legal Frameworks ◽  
American Legal System ◽  
Article 5

Abstract Article 4 of the Unified Customs and Practices of Documentary Letters of Credit establishes the notion of autonomy principle by separating credit from underlying contract between account party and beneficiary. Article 5 by recognizing the autonomy principle confirms that effectuate the payment under credit, banks only deal with documents and not with goods. As a result, while documentary letters of credit are meant to facilitate the process of international trade, their sole dependency on compliance of presented documents to bank by beneficiary to actualize the payment will increase the risk of fraud and forgery in the course of their operation. Interestingly, UCP (currently UCP600) takes a silent status regarding the problem of fraud in international LC operation and leaves the ground open for national laws to provide remedies to affected parties by fraudulent beneficiary. National Laws have different approaches to the problem of fraud in general and fraud in international LC operation in particular which makes the access of affected parties to possible remedies complicated and difficult. Current paper tries to find answer to the questions of (i) what available remedies are provided to affected parties in international LC fraud by different legal systems? (ii) And what are conditions for benefiting from such remedies under different legal systems? In achieving its objective, paper will be divided in two main parts to study remedies provided by intentional legal frameworks as well as the ones offered by national laws. Part one will study the position of UCP and UNCITRAL Convention on Independent Guarantees and Standby Letters of Credit (UNCITRAL Convention) and remedies, which they provide to LC fraud in international trade. Part two in contrary will study available remedies to LC fraud and condition for access them under English and American legal system.

scholarly journals THE TWO IMPORTANT DOCTRINES UNDERLYING DOCUMENTARY LETTERS OF CREDIT AND THE FRAUD EXCEPTION

2008 ◽  
Author(s):  
Tenielle Appanna
Keyword(s):  
International Trade ◽  
Letter Of Credit ◽  
Fraud Exception ◽  
Letters Of Credit

Documentary letters of credit are important tools in relation to international trade. The parties who make use of these instruments usually come from different countries and usually have different views on trade and customs. The parties generally do not know each other personally and have opposite interests in relation to the contract of sale. There is a sense of distrust towards each other, as both parties have serious concerns as to the other’s performance in terms of the contract. While the purchaser has a fear of receiving goods of an incorrect quantity or quality, or not receiving goods at all, the seller fears non-payment, or that the buyer refuses to accept the goods on a mere technicality. Coupled with the abovementioned is the fact that legal recourse will be expensive and may be complex taking jurisdiction into consideration. A documentary letter of credit eases some of these fears due to the unique doctrines which form the foundation of this instrument, and these will be discussed at length. The most frequently encountered exception to documentary letters of credit not being fulfilled is that of fraud, which will also be discussed at length.

scholarly journals Autonomy Principle and Fraud Exception in Documentary Letters of Credit, a Comparative Study between United States and England

2015 ◽  
Vol 15 (2) ◽  
pp. 47-68 ◽  
Author(s):  
Hamed Alavi
Keyword(s):  
International Trade ◽  
Common Law ◽  
Legal Aspects ◽  
International Operation ◽  
Legal Personality ◽  
Letter Of Credit ◽  
Law System ◽  
American Law ◽  
Standards Of Proof ◽  
Letters Of Credit

Abstract Despite the fact that Documentary Letters of Credit are involved in process of International Trade for many centuries, but their legal personality is very new and their life span is much shorter than their existence. In the middle of Eightieth Century, Lord Mansfield introduced legal aspects of LC operation for the first time to the Common Law System. Later, International Chamber of Commerce started to codified regulations regarding international operation of Documentary Letters of Credit in 1933 under the title of Uniform Customs and Practices for Documentary Letters of Credit and updated them constantly up to current date. However, many aspects of LC operation including fraud are not codified under the UCP which subjects them to national laws. Diversified nature of National Laws in different countries can be source of confusion and problem for many businessmen active in international operation of Documentary Letters of Credit. Such differences are more problematic in Common Law countries as a result of following precedent. For Example, legal aspects of International LC transactions under British Law are only based on case law, however, American Law addresses Letter of Credit Operation under Article 5 of Unified Commercial Code. Due to important role of English and American law in practice of international trade, current paper will try to compare their approach to autonomy principle of in LC operation, fraud rule as a recognized exception to it and search for answer to following questions what is definition of fraud, and what are standards of proof for fraud in LC operation, under English and American law?

scholarly journals The Link Between Incoterms 2000 and Letter of Credit Documentation Requirement and Payment Risk

2006 ◽  
Vol 1 (4) ◽  
Author(s):  
Roberto Bergami
Keyword(s):  
International Trade ◽  
Preliminary Data ◽  
Letter Of Credit ◽  
Preliminary Results ◽  
Data Content ◽  
Industry Survey ◽  
Letters Of Credit

Letters of credit are an important finance instrument for international trade. These instruments are particularly useful in trade where the transactional values and trading risks are high. Essentially the letter of credit is a substitute for a buyer’s risk with that of his bank, as it underwrites the transaction. Exporters experience difficulties in achieving documentary compliance to the bank’s satisfaction and therefore run the risk of not being paid. Compliance is based on the accuracy and form of data content on documents required by the letter of credit. The more voluminous and complex the documentary requirements, the higher the non-compliance risk. This paper explores the link between international delivery terms and documentary requirements of the letter of credit. Preliminary data from an industry survey suggests that exporters are contracting on international delivery terms that may leave them unnecessarily exposed to non-payment risks. Although further investigation is required to determine whether alternate delivery terms would diminish the exporter’s risk, preliminary results indicate that it is possible to reduce payment risk by the strategic use of international delivery terms.

24. Documentary payments

2019 ◽  
pp. 645-690
Author(s):  
Eric Baskind ◽  
Greg Osborne ◽  
Lee Roach
Keyword(s):  
International Trade ◽  
Legal Issues ◽  
Letter Of Credit ◽  
Payment Mechanism ◽  
Letters Of Credit ◽  
Bill Of Exchange ◽  
International Sales

This chapter is divided into two main parts. First, it aims to provide an introduction to the concept of an important piece of property called an instrument, principally by focusing on one specific example: the bill of exchange. Second, the chapter considers a bank payment mechanism called the letter of credit, especially in conjunction with bills of exchange. Bills of exchange, of which cheques are a particular type, although declining in importance in domestic sales, remain important in international sales. While bills of exchange are not the only instruments, and letters of credit are not the only mechanism supporting the financing of international trade, focusing on these two important commercial documents makes it possible to obtain a good understanding of the types of legal issues involved in documentary payments.

scholarly journals RISKS AND REMEDY IN ISLAMIC AND CONVENTIONAL LETTER OF CREDIT: JORDANIAN PRACTICES

2020 ◽  
Vol 2 (01) ◽  
pp. 54
Author(s):  
Emad Mohammad Al amaren ◽  
Mohd Zakhiri bin Md. Nor ◽  
Che Thalbi Bt Md. Ismail
Keyword(s):  
International Trade ◽  
Foreign Trade ◽  
Letter Of Credit ◽  
Letters Of Credit ◽  
Conventional Banks

International trade and the movement of goods between parties living in different countries have spread in the last century and have become one of the fundamental features of the current trade. This proliferation of international contracts, of course, has its own problems. The problems of external Islamic or conventional letters of credit affect export, since letters of credit are considered a valuable tool used in financing foreign trade operations. Therefore, the problems faced by exporters in letter of credit reflect on and impact trade in general. Thus, the fewer the credit problems are, the more active foreign trade especially export will be. But if problems are relatively large, exports will contract. This study attempts to identify the problems of external and internal letters of credit facing the Jordanian traders and Jordanian Islamic and conventional banks, and to analyze them in an organized scientific manner, then proposing the appropriate recommendations to address these problems.

scholarly journals Comparative Study of Issuing Bank’s Obligations towards Beneficiary of the Letter of Credit under UCP and English Law

2016 ◽  
Vol 2 (3) ◽  
pp. 289
Author(s):  
Hamed Alavi
Keyword(s):  
International Business ◽  
Common Law ◽  
Legal Person ◽  
Letter Of Credit ◽  
Business Partners ◽  
Strict Compliance ◽  
Letters Of Credit ◽  
Credit Law ◽  
Shed Light

Process of international trade is complicated and risky. Risks will be more considerable when times come to deal with receiving/sending payments from/to unknown business partners in remote geographic areas. Employing documentary letters of credit (LC) is one of the ways to reduce payment risk in international business especially when partner’s financial standing is unknown to each other. By using the LC as method of payment, parties will shift payment obligation from buyer as a natural person to the guarantee of bank as a legal person. The process of using LC is complicated and involves different players and relations between them. Amongst all relations in process of LC transaction, relation between issuing bank and beneficiary is the most complicated and least clear from legal stand point. This article tries to shed light on vague aspects of relations between issuing bank and beneficiary by studying obligations of the issuing bank towards beneficiary under the law of documentary letters of credit while comparing provisions of UCP with English Common Law on subject matter. Main objective of paper is providing answer to the question of what is the role of issuing bank in the process of LC transaction and which liabilities does it have towards beneficiary? Article consists of five main parts. Part one will provide an introduction to function and relation among different parties in process of an international LC transaction. Further, it endeavours to tap on principle of autonomy and strict compliance as governing principles of documentary letters of credit. Part two and three will take a comprehensive look at legal basis of relations between issuing bank and beneficiary, as well as bank’s obligations under documentary credit law. Part four will discuss liabilities of issuing banks towards beneficiary and finally part five will touch upon situation in which bank will right to recourse against beneficiary.

Development of Food Safety Risk Assessment Guidelines for Foods of Animal Origin in International Trade†

1997 ◽  
Vol 60 (11) ◽  
pp. 1432-1438 ◽  
Author(s):  
STEVE C. HATHAWAY
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
International Trade ◽  
Food Safety ◽  
Risk Analysis ◽  
Safety Evaluation ◽  
Animal Origin ◽  
Safety Risk ◽  
Assessment Approach ◽  
Food Safety Risk

The international food safety environment is currently in a unique period of reevaluation and change. In an emerging trading environment regulated more according to food safety requirements than nontariff trade protection barriers, food safety risk analysis is pivotal to future Codex activities and implementation of the World Trade Organisation (WTO) Sanitary and Phytosanitary (SPS) Agreement. Development of guidelines for food safety risk assessment requires determination of scope, internationally agreed definitions, general principles, guidelines tailored for each class of foodborne hazards, and linkages and interactions with risk management and risk communication. Food safety risk assessments need to be soundly based on science, should incorporate the four analytical steps of the risk assessment paradigm, and should be documented in a transparent and readily understandable form. The particular needs of Codex, the WTO, national governments, industry, and consumers need to be taken into account, and this includes identification of the essential linkages between risk assessment and the design of HACCP plans. With respect to chemical hazards in food, a risk assessment approach provides the opportunity to broaden the understanding of acceptable daily intakes, maximum residue levels, and their public health significance. Guidelines for chemicals in foods will inevitably have to address the differences between safety evaluation and a genuine risk assessment approach. With respect to microbiological hazards, the unique problems associated with risk assessment of living organisms in food make it likely that application of guidelines in the medium term will more commonly use qualitative approaches. In the absence of a history of safety evaluation according to a notionally zero risk baseline, as is the case with chemicals, the objective of microbiological risk analysis to reduce microbial risks to “the minimum which is technologically feasible and practical” represents a genuine focus for risk assessment. As risk assessment is increasing applied and internationally accepted guidelines become established, decision criteria for risk management arguably present the greatest challenge in establishing and maintaining quantitative SPS measures for food in international trade and judging their equivalence. However, the desire of all interested parties for scientifically justified food safety measures may be tempered according to the ability of the global scientific community to generate the necessary data and the political will to accept food safety programmes in different countries that have equivalent outputs.

Research of Innovative Risk Management in L/C Settlement - Based on Quality Control of Import Goods

2014 ◽  
Vol 472 ◽  
pp. 1037-1041
Author(s):  
Hao Zhou
Keyword(s):  
Risk Management ◽  
Quality Control ◽  
International Trade ◽  
Letter Of Credit ◽  
Fraud Risk ◽  
Soft Term ◽  
Quality Risk

Quality of import goods is possibly not up to standard in letter of credit settlement. In order to control the quality of import goods and to prevent exporter from fraudulent credit, importer takes some of the most effective terms that will be considered as soft term fraud by exporter. This paper analyzed the reason for the existence of such risks, and proposed innovative ideas on how to effectively control the quality of import goods in letter of credit settlement. Letter of credit (hereinafter referred as L/C) settlement serves as a more effective, timely and safe transaction way for both sellers and buyer in international trade, but there is still the risk of fraud [. Fraud risk is the greatest one in letter of credit settlement. Buyers will attach great importance to the quality of import goods, but exporter fraud will lead import goods not up to standard. In order to prevent such a quality risk, the importer will set some terms in the L/C, but these terms may be considered as soft term fraud by exporter. Research of risk management in L/C settlement will help importer effectively control the quality of import goods, and promote the L/C settlement.

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