Article

The reasoning behind the UCP 500 transport articles

"The key feature of UCP 500 would therefore appear to be those provisions in the transport document Articles which provide clear identification of the carrier and list the requirements which, unless otherwise stated in the credit, are essential to make his document an acceptable presentation under a documentary credit. With the benefit of hindsight it could be seen that the UCP 400 approach was not sufficiently direct, or easy to understand."

- Bernard Wheble, Honorary Chair, ICC Banking Commission, Volume 1 No 1 Winter 1995

On negotiation in UCP 500

"We told the banks if you want to classify yourself as a negotiating bank, if you want to have the rights and protections under the laws of the respective countries as a negotiating bank, you must do something more than examine documents. You must buy those documents, you must purchase those documents, you must give value for those documents, you must become holder in due course, and we believe that indeed constitutes negotiation in most jurisdictions."

- Charles del Busto, Chair, US Banking Commission, Volume 1 No. 1, Winter 1995

On the new Collections Rules, URC 522

"The revision also makes it abundantly clear that banks will not examine documents, and certainly will not do so in order to look for instructions and to second-guess the intentions of the principal and/or the remitting bank. Unlike with documentary credits, there is no basis for examination of documents where collections are concerned."

- Lakshman Y. Wickremeratne, Chair, Working Party on the Revision of the Uniform Rules for Collections, Volume 1 No. 2, Summer 1995

On URDG 458

"A novel feature of the URDG [458], designed to give some protection to the principal against unfair calling of the guarantee while preserving the speedy recourse to payment which is essential for beneficiaries, is Article 20, which provides for a guarantee to be accompanied by a statement on the part of the beneficiary that the principal is in breach, and in what respect he is in breach. The idea underlying this requirement is that a beneficiary who would otherwise be tempted to call a guarantee without justification may feel somewhat inhibited in so doing if this involves furnishing a false statement of breach."

- Professor Roy Goode, Chair of the Drafting Group on the Revision of the URDG, Volume 2 No. 1, Winter 1996

On the Uniform Rules for Bank-to- Bank Reimbursements (URR 525)

"A great majority of reimbursements are processed without expiry dates today, and I expect that practice to continue. Where the issuing banks require expiry dates, it is a simple matter for them to agree on this with the reimbursing bank. As noted in the URR Commentary, experience has shown that a far greater number of reimbursement claims are paid on first presentation where expiry dates do not exist."

- Dan Taylor, Chair of the Working Party on Bank-to-Bank Reimbursements, Volume 2, No. 3, Summer 1996

On UCP 500 and confirming banks

"UCP 500 bolstered the integrity and reliability of the issuing or confirming banks' promise by implementing the certainty of the issuing and confirming banks' liability and the finality of their payment. First, UCP 500 reversed the long standing presumption of revocability of silent credits in favour of their irrevocability. Second, it provided that even though a credit may state that the beneficiary's draft will be accepted by a drawee bank other than the issuing or confirming bank, the latter must accept and pay themselves . Third, it proscribed credits in which drafts are drawn on the applicant and treated such drafts as additional documents.

- Boris Kozolchyk, Professor, Commercial and International Trade Law, University of Arizona, Tucson, Arizona (USA), Volume 3, No. 1, Winter 1997

On ISP98 and the statement of default

"One document characteristic of many standbys is a statement of default. The ISP does not require a default statement. It does contain provisions in the event one is stipulated and its terms are not specified (e.g. 'payable upon presentation of a statement of default').

Not only would this rule assist less sophisticated parties by indicating what might be contained in a default statement, but it would permit all parties to standardize and simplify their references to default statements."

- Professor James E. Byrne, Director, Institute of International Banking Law and Practice, Volume 3, No. 2, Spring 1997

On why bankers need to know Incoterms

"It depends how you consider the obligation of a banker advising a client. If the banker does not know about Incoterms, it is difficult for him to advise his client. He could simply give the client some sort of form which would list some terms and tell him to choose the appropriate one and indicate the documents he would expect to get from the seller when he comes for his money. I think that's unfortunate. There is a risk that the banker would tell his client, the buyer, to pick up the wrong document with the result that the buyer doesn't get the cargo. In that case, the bank would risk a lawsuit for professional negligence."

- Professor Jan Ramberg, Chair of the Incoterms 2000 Drafting Group, Volume 5 No. 3, Summer 1999

On the future of electronic trade

"In the near future, purchasers in one country will buy from sellers in another country and the transactions will be entirely processed over electronic networks. The trading partners will strike a deal and digitally record it in a secure electronic filing cabinet. Third party providers of ancillary services - such as shipping, insurance, financing etc. - will be contacted and engaged electronically. All records of these activities will be digital and available only through an electronic medium. Payment will pass from buyer to seller over computer networks and all parties will receive notice electronically. Verification of compliance will be handled by computer systems."

- Bill Cameron, General Manager of Trade Finance, CIBC in Toronto, Canada, Volume 4, No. 3, Summer 1998

On plans for the Certified Documentary Credit Specialist (CDCS) exam

"I understand that the reason for the ICC's existence in this area was to create a body of rules in the form of international trade customs and practice. Therefore, if you are going to do business that involves writing documentary credits in a particular way, this is the benchmark, these are the rules and regulations, these are the procedures you need to follow. And that is what we are testing. We are not testing an American system, a British system or a French or a Russian or a Mongolian system. We are testing what is being laid down by the international community under the auspices of the ICC."

- Gavin Shreeve, Chief Executive, Chartered Institute of Bankers, Volume 4, No. 4, Autumn 1998

On the completion of the first ISBP (ISBP 645)

"The authors recognize the primacy of the UCP and do not expect that credits will be written subject to both the UCP and the ISBP. They do, however, expect that ISBP will be widely used in the day-to-day practice of documentary practitioners. It is the hope of its authors, as well as the ICC, that its widespread use will greatly facilitate uniformity in the preparation and review of documents under letters of credit - dramatically reducing the number of documents rejected for discrepancies on first presentation."

- Donald Smith, Co-Chair of the Drafting Group on ISBP 645, Volume 8, No. 4, Autumn 2002

On high hopes for the future of the eUCP

"If my crystal ball is correct, the future will look like this: in the first two years of eUCP the level of transactions using these rules will be relatively modest, although towards the end of the second year there will be a significant increase in electronic presentations. From the last half of the second year until the end of the fifth year, the use of electronic documentation will grow at an exponential rate. Most OECD and Southeast Asian trade will be in electronic format, with little or no paper documents involved. After 10 years there will be virtually no paper-based trade documentation."

- Neil Chantry, Member of the Working Group on the eUCP, Volume 8, No. 2, Spring 2002

On why an early revision of UCP 500 was unnecessary

"After an analysis and discussion of issues that have arisen since UCP 500 became effective, we see no significant reason to undertake a revision at this time. The majority of the issues brought before the Banking Commission are issues that are educational in nature or involve interpreting the provisions of UCP 500. With the exception of the issues surrounding original documents, no other single issue has the significance to warrant a revision."

- Statement of the ICC Banking Commission, Volume 6 No. 1, Winter 2000

A contrarian view concerning eliminating "reasonable time" from the revision of UCP 500

"I still think the 'reasonable time' concept should be retained, because without it banks will have no incentive to look at presented documents and pay until the fifth banking day (fifth, that is, as the draft stands today) following the receipt of the presentation. And if they do pay earlier, they will have a problem explaining to the applicant why he was debited earlier than the fifth banking day!"

- Ole Malmqvist, Member of the UCP 600 Drafting Group, Volume 12 No. 2, Spring 2006

On what the eUCP needs to succeed

"For the eUCP to succeed, the reality is that bankers and customers have very little to do with it, while parties not on the team have a lot to do with it. Consequently, the challenge is to discipline the spectators and get them to agree on a format, a code of conduct. One only has to watch a match between traditional rivals such as France and England to see how unruly the spectators are and how difficult that task would be. The spectators in the documentary credit business are chambers of commerce, freight forwarders, insurance companies, vessel owners, inspection agencies, port authorities, Customs authorities, etc. Getting them on board is the challenge and, until it is accomplished, eUCP has little scope to make progress."

- N.D. George Head of Trade Finance, Arab Banking Corporation, Bahrain, Volume 12, No. 2, Spring 2006

On the positive features of the new UCP 600

"I like the new wording in the rules which, in my view, makes it easier to read and understand them, especially for non-bankers or for people whose daily jobs do not bring them into close contact with credits and the UCP. And I am also happy about articles 2 and 3 on 'Definitions' and 'Interpretations'. The UCP are easier to read now that they include, in one place, definitions of a large number of expressions used in the rules. In particular, the definition (and introduction) of the word 'honour' is very useful."

- Reinhard Längerich Former Trade Finance Manager, Nordea, Denmark, Volume 13 No. 1, Winter 2007

On the issue of "inconsistent data" in UCP 600

"If one were to categorize types of discrepancies identified globally, 'inconsistent data appearing in documents' would probably be number one by volume. The problem I have with this is that much of that data is not required by the credit or by the UCP, but banks will steadfastly reject presentations on the grounds that the data is inconsistent between documents. The Drafting Group sought to remove this obstacle to compliance by stating that data in a document should only be reviewed against the requirements in the credit for that document (thereby making issuing banks responsible for making sure their credits clearly expressed the requirements per document) and any applicable rules of the UCP. This suggestion, when put to a vote, was resoundingly defeated by national committees. Personally, I see this as a missed opportunity ... "

- Gary Collyer Technical Advisor to the ICC Banking Commission, Volune 12 No. 4, Autumn 2006

On managing trade finance risk

"As fraudsters become more sophisticated, it is important to devise strategic responses to deal effectively with new types of risk. One response may be to pick out a representative sample of transactions for verification. These are checks designed, not to prevent a single fraud, but to identify long-term patterns of client fraud. The parameters of the transactions to verify should be carefully drawn up and should be varied from time to time without notice. When the parameters remain unchanged over time, fraudsters tailor their transactions to bypass them."

- P.K. Mukundan, Director, ICC Commercial Crime Services, Volume 13 No. 3, Summer 2007

On the issue of "exclusions" of certain UCP 600 articles

"The whole issue of exclusions is compounded by the fact that it is a practice by a large number of banks, when they receive a letter of credit and have not been asked to confirm it, not to carry out a complete review of the credit before forwarding it to the beneficiary. Therefore, any exclusions that an issuing bank may make in the credit may not be apparent until very late in the process, i.e., when the documents are presented. By that time, it may well be too late to rectify or clarify the issue(s). This may adversely affect the beneficiary, because the nominated bank could say: 'Hold on, with this exclusion, we do not know whether we can accept a, b or c', and therefore it will not do anything. This can have a detrimental effect on the letter of credit as a viable settlement means and may also have an effect on the beneficiary being able to receive financing."

- Gary Collyer, Technical Advisor to the ICC Banking Commission, Volume 14 No. 2, Spring 2008

On the first revision of the ISBP (ISBP 681)

"The ISBP explains how the rules articulated in the UCP are actually applied by professional letter of credit practitioners, not just by bankers, but also importers and exporters, carriers, forwarders and insurers. In addition, the introduction to the UCP 600 says that the ISBP has evolved into a necessary companion to the UCP for determining compliance of documents with the terms of letters of credit."

- Donald Smith, Chair of the Working Group revising the ISBP, Volume 13 No. 3, Summer 2007

On the case for using L/Cs during the financial crisis

"In many ways, the financial crisis came as a shock to trade finance departments in Europe, causing fear and leading to extreme care in examining documents. Though predictions on how the crisis will evolve would only be guesswork, I will hazard a few comments. One is that a balance may well be established, wherein trade finance banks will act, not based on feelings and fear, but on the basis of information and knowledge. If that is the case, the crisis will have had a positive side. It may also reinforce bankers' claims that the benefits of L/Cs, which banks have been telling their customers about for years, are, in fact, relevant and real."

- Kim Christensen (Sindberg), Vice President of Nordea Bank, Denmark, Volume 15 No. 2, Spring 2009

On the need to revise the first URDG

"When considering the use of the URDG in daily business, we have to admit that amendments to guarantees have not been dealt with carefully enough. Also, we have no regulations concerning how to handle documents presented under a guarantee (besides the 'demand' itself ). And finally, there is a lot of misunderstanding/misinterpretation with regard to counter-guarantees. With regard to the latter, we absolutely need to have some clarification."

- Andrea Hauptmann, Member of the URDG 758 Drafting Group, Volume 13 No. 4, Autumn 2007

On the "fraud exception"

"There is a difference between 'manifest fraud' on the one hand and an 'alleged fraud' or a 'commercial dispute' on the other. Courts are expected to draw a line between these different situations. A further convergence of laws and their interpretation in relation what constitutes a fraud in the context of independent banking undertakings would be very welcome. In any event, an injunction should be granted only in very exceptional cases of fraud to prevent payment to the beneficiary."

- Pavel Andrle, Secretary of the Banking Commission, ICC Czech Republic, Volume 15 No. 3, Summer 2009

On silent confirmation

"Silent confirmation/without recourse arrangements entered into between the nominated negotiating bank and the beneficiaries are outside the terms of the credit and do not affect or change in any way the issuing bank's reimbursement obligation to the nominated bank that has negotiated the credit. This view endorses the L/C independence principle that each of the contracts related to an L/C is separate from and independent of one another."

- King-tak Fung, Member of the Consulting Group on the UCP 500 revision, Volume 16 No. 1, Winter 2010

On the new URDG 758

"Gandhi said: 'We must become the change we want to see in the world.' It is up to us, up to each of your readers, be they bankers or businesses, to step in the right direction. This direction is towards terminating biased model guarantee forms and win-lose negotiation. Instead, the new URDG 758 offer the only set of international rules fully dedicated to demand guarantees that foster a balance amongst the legitimate interests of the parties."

- Georges Affaki, Chair of the URDG 758 Drafting Group, Volume 16 No. 2, Summer 2010

On supply chain finance

"By focusing on the supply chain, we gain visibility of business processes and understand at what point responsibilities begin and end among the parties and when there is contractual or process-driven 'commitment' to pay. Looking at commercial risks provides better understanding of when mitigants are required and how they can best be applied as a by-product of the commercial transaction. Success in global trade lies not only with buyers and sellers, but also with servicers and other parties whose coordinated effort is required to deliver value to the end user/consumer."

- Michael Quinn, Managing Director, J.P. Morgan Global Trade, Volume 16 No. 4, Autumn 2010

On the phrase "forwarder's bill of lading not acceptable"

"In sum, the phrase 'forwarder's bill of lading not acceptable' is too vague to be effective in L/C operations. Based on the current ICC opinions, to incorporate this term in an L/C is insufficient to prevent a bill of lading from being signed by a forwarder; it only leads to confusion due to the parties' different concerns and misinterpretations."

- Sheilar Shaffer, Senior Documentary Manager, Agricultural Bank of China, Volume 16 No. 2, Summer 2010

On the endorsement issue in insurance documents

"When referring to the 'endorsement' issue, it's important to note that 'negotiable' and 'transferable' are different concepts. This has been misunderstood for a long time. A bill of lading should be deemed a 'transferable' rather than a 'negotiable' document. It is transferable in that the endorsement of the bill of lading can pass title to the goods and the rights under the contract of carriage. But unlike a negotiable instrument, such as a bill of exchange, the new holder's rights in the bill of lading cannot be protected if there are flaws in obtaining it. This means that the new holder can have no better rights than the previous holder with regard to the bill of lading, whereas the new holder can have better rights in a bill of exchange."

- Xuehui Wang (Ofei), Volume 17 No. 1, Winter 2011

A contrarian view of the L/C as a financing instrument

"A letter of credit is essentially a contract between the issuing bank and the beneficiary, calling on the latter to specific performance through presentation of documents in compliance with the terms of the credit. Examined closely, issues regarding lending (money) are actually outside the domain of letters of credit. Therefore, lending decisions and risk management are matters that are best left to the lender and the borrower. In my opinion, the UCP should focus solely on the operations of documentary credits."

- Rupnarayan Bose, Director, Institute of Banking Studies, India, Volume 17 No. 1, Winter 2011

On discounting the deferred payment undertaking

"Sub-article 12 (b) [of UCP 600] responds to the April-June 2012 decision in the Banco Santander case that a nominated bank that discounted its own incurred deferred payment undertaking thereby exceeded its authority under UCP 500. The intent of UCP 600 (reflecting the views of the majority of participants) was to undo that aspect of Banco Santander. Even without sub-article 12 (b), the new sentence in sub-articles 7 (c) and 8 (c) that declares an issuing bank's reimbursement obligations to be 'independent' should have the effect of undoing Banco Santander."

- Jim Barnes, Senior Counsel at Baker & McKenzie LLP, USA, Volume 18 No. 2, Spring 2012

On the new Bank Payment Obligation (BPO)

"By addressing cost pressures in the face of increased automation and changes in the regulatory environment, ICC and SWIFT believe that by working together and leveraging their respective positions in trade finance, the BPO will play a key role in the development of international trade in the 21st century. Using electronic transaction data, the banking industry can better respond to their corporate clients' need to accelerate financial processes and optimize working capital."

- André Casterman, Head of Banking and Trade at SWIFT, Volume 18 No. 2, Spring 2012