Definition and characteristics of 1 letter of credit
1. 1 Definition of Letter of Credit The Uniform Customs and Practice for Documentary Credits (revised in 2007), that is, the publication No.600 of the International Chamber of Commerce (Uniform Customs and Practice for Documentary Credits, revised in 2007, ICC Publication No.600, UCP600) defines a letter of credit as: "A letter of credit refers to an agreement, no matter its name or description.
In short, a letter of credit is a written document issued by a bank with a conditional payment commitment. Some of the conditions mentioned here are that the beneficiary submits documents that meet the terms of the letter of credit.
1.2 letter of credit has three characteristics:
1.2. 1 The issuing bank bears the main payment responsibility. Letter of credit is a kind of bank credit. The issuing bank makes payment guarantee with its own credit and bears the main payment responsibility. As long as the documents submitted by the exporter meet the requirements of "consistent and simple documents", the issuing bank must pay, and its payment is not based on the importer's payment.
1.2.2 the letter of credit is an independent document. Although the letter of credit is based on the sales contract, once it is issued, it becomes an independent legal document and is not bound by the contract. Banks only examine the consistency of documents and letters of credit, not contracts. If the applicant finds that the goods are not in conformity with the documents after paying the qualified documents, he can only negotiate with the beneficiary and the responsible party according to the sales contract and the relevant documents received, which has nothing to do with the bank.
1.2.3 letter of credit is a pure documentary business. UCP600 stipulates: "Banks deal with documents, not goods, services or other behaviors involved in documents."
2 Risks of importers under the mode of payment by letter of credit
The characteristics of letter of credit transactions often make it the main tool for fraudsters to use and engage in fraudulent activities.
Under the payment method of letter of credit, the payment responsibility of the bank is separated from the performance responsibility under the contract between the buyer and the seller, and the bank cannot effectively monitor the basic transaction process. The premise for the bank to perform the payment responsibility is that the documents submitted by the exporter are "seemingly" consistent with the provisions of the letter of credit. For example, UCP600 stipulates: "The bank is not responsible for the form, sufficiency, accuracy, authenticity, falsehood or legal effect of any documents, nor is it responsible for the general or special conditions stipulated or added in the documents; The bank is not responsible for the description, quantity, weight, quality, condition, packaging, delivery, value or existence of the goods, services or other performance behaviors represented by any document, nor for the honesty, omission, solvency, performance or credit status of the consignor, carrier, freight forwarder, consignee, cargo insurer or any other person. " When the applicant pays the bill to pick up the goods, it is found that there is no goods to pick up, or the goods are not in conformity with the contract, and the exporter has safely collected the foreign exchange. Importers can no longer ask the issuing bank to refund the payment or ask the issuing bank to recover the payment from the exporter, but only to recover the payment from the exporter according to the provisions of the contract for the sale of goods, and the fraudster has long since disappeared, so it is difficult to claim successfully.
Importers may suffer from the following types of fraud:
2. 1 forging documents. Fraudsters take advantage of the independence of the letter of credit in cash against documents to defraud the payment by forging a full set of documents required by the letter of credit. Its typical characteristics are that there is no basic transaction, "fake buying and selling" and "fake goods are not available", aiming at obtaining a deposit or advance payment from bank financing or an unsuspecting third party.
Letters of credit usually require the beneficiary to submit transport documents, such as commercial invoices, insurance policies and bills of lading. Among them, commercial invoices are made by exporters and are easy to forge; Although the insurance documents are issued by the insurance company, the insurance company completely relies on the honest notification of the insured when issuing them, and it is impossible to know them on the spot. Therefore, if the seller is dishonest, the content of the insurance policy is not true; Generally, the carrier issues transport documents according to the description and appearance on the package, and the shipper's dishonest statement will lead to the untrue contents of the transport documents. For example, after receiving the letter of credit, the exporter puts the defective products or waste products into a forged bill of lading, but the bill of lading meets the requirements of the letter of credit on the surface, and the issuing bank must pay, causing losses to the importer.
2. Exchange the letter of guarantee for a clean bill of lading. UCP600 stipulates that banks can only accept clean transport documents, which refer to transport documents that do not contain clauses or notes that clearly state that goods or packaging are defective. If the goods are defective, an unclean notation should be made on the bill of lading. However, some exporters have issued letters of guarantee to the carrier to guarantee compensation for the possible losses caused by the clean bill of lading issued by the carrier, and asked them not to make the above bad comments in order to collect foreign exchange smoothly. From a legal point of view, this is a fraudulent act of collusion between exporters and carriers and consignees.
2.3 Counter-signed bills of lading, pre-signed bills of lading and pre-borrowed bills of lading
2.3. 1 Concepts of reverse bill of lading, forward bill of lading and advance bill of lading
① Counter-dated bills of lading and advance bills of lading are both bills of lading issued by the carrier or agent at the request of the shipper, which are earlier than the actual loading date of the goods. Backdated bills of lading are issued after the goods are shipped, while advance bills of lading are issued before the goods are shipped or not. (2) Straight bill of lading refers to the bill of lading issued by the carrier or its agent at the request of the shipper after the goods are loaded.
These bills of lading are issued illegally.
2.3.2 The shipper's purpose is to exchange counter-signed, forward-signed and advance-borrowed bills of lading. The shipper requires the carrier to do so in order to make the date of issuance recorded in the bill of lading conform to the provisions of the letter of credit on the time of shipment, so as to settle foreign exchange. The carrier concealed the exporter's violation of the shipment conditions of the letter of credit by forging the shipment date.
2.3.3 Damage to importers caused by counter-signed bills of lading, forward-signed bills of lading and advance-borrowed bills of lading. For the goods that sold well at the time of signing the contract, because of the late arrival date, the price fell after arrival, which made the importer unprofitable and even possible to lose money; For seasonal goods, if they cannot arrive before the importer's expected delivery date, the importer will suffer huge losses. In addition to financial losses, importers have to spend a lot of time and manpower to deal with the problem of untimely replenishment of goods caused by counter-signing of bills of lading. For importers, the date of issuance of the bill of lading is the proof of the time of shipment. The carrier shall provide the countersigned bill of lading at the request of the exporter. If the importer cannot find evidence to prove that the bill of lading has been countersigned, he will lose the right to claim compensation from the exporter or cancel the contract. It can be seen that it is an infringement of the importer to sign the bill of lading.
2.4 Reverse the date of presentation. The beneficiary shall submit the documents within the time limit stipulated in the letter of credit. If the beneficiary fails to submit the documents within this time limit, the issuing bank has the right to refuse to pay the payment under the letter of credit. Therefore, the beneficiary can ask the bank at the place of export to reverse the date of payment, acceptance or negotiation.
This is the usage of UCP600: "Banks should have reasonable working hours, that is, they should review documents within five working days from the day after receiving them". For example, a letter of credit is due on June 30, but the beneficiary sent the documents to the bank for negotiation on July 4, and the letter of credit has been overdue for 4 days. Banks should note "overdue presentation" or "expired letter of credit" (late delivery of documents or expired letter of credit), but this will cause "document discrepancy" and hinder exporters from receiving foreign exchange safely. Therefore, a few beneficiaries require the negotiating bank to reverse the date, that is, the beneficiary's "presentation date" is still written as June 30, while the bank's "posting date" is written as July 4, which makes the documents appear consistent. This kind of cheating will inevitably cause losses to importers.
2.5 Short shipment or short shipment of goods. UCP600 stipulates: "Transport documents with clauses such as' shipper's loading and counting' or' contents of shipper's report' are acceptable." Some criminals take advantage of the carrier's failure to check the goods in the container and cheat by means of inferior goods, fake goods and short shipment. It is characterized by the existence of basic transactions, "really buy and really sell", but "the real goods are inferior" and the seller has fraud. Banks only care about documents, and no matter what happens to the goods related to documents, the interests of buyers will be harmed. In this kind of fraud, sellers often cheat buyers by selling goods below the market price as bait.
3 risk prevention of importers under the payment method of letter of credit
China's import enterprises in the use of letters of credit payment, the preventive measures should mainly include:
3. 1 Carefully select the transaction object and conduct credit investigation. Through overseas institutions of CCPIT, overseas offices of Bank of China or foreign cooperative banks, cooperative law firms and cooperative investigation institutions, credit evaluation agencies of exporting countries, commercial industry associations and other organizations, we will conduct an all-round investigation on the local registration, actual office, communication and bank credit of foreign businessmen, and establish a complete supplier file for future inquiry.
The issuing bank should be selected to prevent banks with low international reputation and low international settlement level from encountering problems and lacking processing capacity.
3.2 Strict examination of documents. Importers should not only check whether the documents and bills are consistent, but also pay attention to whether the single goods are consistent, and whether the date of filling in the documents and the arrival time of the goods are reasonable. If it is found that the bill of lading is likely to be countersigned, they can consult the voyage diary and claim compensation from the exporter and carrier after obtaining the evidence.
3. Apply for opening letters of credit with different terms for different customers. When signing an import contract for bulk commodities, clear and specific requirements should be put forward in the letter of credit for bills of lading, insurance policies, commercial invoices, commodity inspection certificates, etc. For example, exporters are required to provide commodity inspection certificates issued by authoritative commodity inspection authorities to ensure the quality of goods.
For exporters who don't know much about it, the contract amount should not be too large, and the forward payment method should be adopted as far as possible. Even if the fraud is exposed, as long as the exporter has not received the payment, the importer will have enough time to obtain evidence and apply for a court order to stop payment, and at the same time, the fraudster will feel guilty and retreat.
3.4 Choose appropriate trade terms and strive for our own choice of shipping company. When choosing the price terms, we should try our best to conclude the business with Group F trade terms, and we will charter the ship and book the space ourselves. In this way, the importer can choose a well-known and reputable shipping company to deliver the goods, so as to prevent the exporter from colluding with the ship, and can also send someone to the loading port to check whether the goods meet the contract requirements and prevent the seller from cheating the goods.
If there is only doubt about the transport ship when it is not transported by itself, the shipping company, bank or international organization shall be entrusted to assist in the investigation of the ship.
3.5 Develop a strict internal operating system to improve the professional quality of enterprise personnel. Enterprises should provide various training opportunities for business personnel, actively understand the new policies and regulations of banks, and advocate electronic bills of lading for transactions. Business people themselves should constantly learn and understand all aspects of information.