1. Introduction
    This chapter explains the role of the confirmer, the bank that confirms the issuer’s undertaking by assuming that undertaking as its own (see UCP 600 art. 8).

  1. Making the Obligation Local
    In some cases, it is not the creditworthiness of the buyer that the seller is concerned about so much as the economic, political and legal situation in the buyer’s country. When a seller receives a letter of credit from a foreign bank, the credit risk shifts from that of the buyer to that of the buyer’s bank. This shift does not mean the credit risks have been removed entirely. Although the vast majority of banks are financially dependable, banks do occasionally fail or may even refuse to pay their letters of credit, even when they receive compliant documents. In some countries, banks are not well-regulated and therefore may not be sufficiently capitalized to sustain significant losses in their loan portfolio. In the event of an economic downturn in the buyer’s country, multiple banks may fail. Even in developed economies with strong bank oversight, a number of banks will fail in a downturn. Moreover, even if the buyer’s bank is strong, some countries are prone to economic instability, political interference with trade and other domestic situations that can disrupt the payment system. Examples of such risks include foreign exchange shortages and legislative controls, discharge of debt legislation, boycotts and other trade restrictions, and wars and coups. Even natural disasters, like earthquakes and typhoons, can lead to payment slowdowns and bank failures, especially in countries where insurance against such disasters is not widely available.
    If a bank close to the seller is obligated to honour the seller’s presentation of documents, these risks can be eliminated by shifting them out of the buyer’s country altogether.

  1. Ease in Resolving Disputes
    Another concern of the seller/beneficiary of a credit is that, at times, the issuer and the seller may disagree on the compliance of the seller’s documents. Under credit law, the UCP and International Standard Banking Practice (ISBP), as a general rule, the documents that the seller presents to satisfy the credit’s documentary conditions must comply strictly with the terms of the credit (see chapter XI). A seller will not usually have time to correct defects after the issuer rejects the documents. In that case, there may be a dispute between the seller and the credit issuer. If the issuer is in a distant country, many sellers will find that it is necessary to litigate the dispute in court proceedings conducted in a foreign tongue and under a legal regime different from that of the seller.
    In addition, a foreign bank is less likely to care if it offends a credit beneficiary than a local bank.


  1. The Confirmation Requirement
    The seller/beneficiary can avoid these problems to some extent by stipulating in the underlying sales contract that payment be by confirmed documentary credit. Under a confirmed credit, the issuer asks a bank in the seller/beneficiary’s market to add its confirmation to the credit undertaking. That confirmation renders the confirmer liable to the beneficiary to the same extent as the issuer. In effect, it turns the confirmer into an issuer (see UCP 600 art. 8). In addition, if properly drafted, the confirmation will call on the seller/beneficiary to present its documents at the counter of the confirmer, which should be located in the seller’s country.

  1. Silent Confirmations
    Sometimes the issuer does not nominate a bank in the seller’s country to confirm, and the seller arranges for a local, nominated bank to purchase the documents without recourse instead. This arrangement is usually documented by a commitment to make such purchase that is issued in advance by the bank, an engagement often referred to as a “silent confirmation”. It is based on rules in the UCP that obligate issuers to reimburse nominated banks for such purchases. The main difference between a bank being asked by the issuer to add its confirmation, on the one hand, and being authorized by the issuer to negotiate or honour drafts and documents, on the other, is that a confirmer becomes a party to the letter of credit, whereas a nominated bank is entitled to reimbursement for any payment it effects. (Indeed, a confirmer will want to make certain it is also a nominated bank, as the UCP does not discuss what reimbursement rights are accorded to a confirmer.) But what other rights does a confirmer enjoy? Being a party to the credit, the confirmer is entitled to reject amendments. Since a nominated bank has no such right, a silent confirmation will include language that voids the commitment if the beneficiary fails to obtain the silent confirmer’s agreement to any amendments before the beneficiary accepts them.
    A major advantage is provided to the beneficiary that obtains a silent confirmation: a confirming bank is chosen by the issuing bank, whereas the beneficiary can work with the nominated bank of its choice to obtain a silent confirmation. Since most unconfirmed letters of credit country state that they are available with any bank, the beneficiary is free to shop around for the best deal in terms of service and price.