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А common topic of discussion among letter of credit practitioners these days is, “When are we going to start seeing electronic presentation of documents?” We have had rules in place specifically to support electronic documents since the first eUCP was formulated to supplement the UCP500 in 2002. Recently, the eUCP was updated to version 2.1 and rules were published for electronic presentation of documents for collection, called the “eURC”. Meanwhile, ISP98 was written, back in 1998, so as to accommodate electronic presentation of documents. Since we are still not seeing any electronic presentations (beyond questionable proof-of-concept cases), it seems these rules were all ahead of their time. They do not reflect actual practice, like ICC rules usually do. Rather, they are meant to create a roadmap. But, perhaps practice has decided to follow a different path.
At the most recent meeting of the ICC Banking Commission, I asked, if a URDG guarantee or an ISP or eUCP letter of credit allows for documents to be presented by fax or as scanned email attachments, would documents presented that way be considered to be electronic documents (called “electronic records” in the ISP and eUCP)? Although the response was not unanimous, I do believe that presentation of a fax or an email constitutes electronic presentation under all of these rules. So would such documents be compliant? The problem with these rules is that they all require that documents presented in electronic form be capable of authentication as well as verification that they are complete and unaltered in order to be acceptable. Although a fax or a scanned email attachment may be created using an original document that has been printed on paper and signed, there is a question as to whether this qualifies as authentication, and it is pretty definite that such documents fail the test regarding verification that they are complete and unaltered. This test is meant to be applied to documents that have digital signatures, created using digital certificates and private keys. SWIFT messages are a familiar example and they were common even back when the ISP was being drafted, but digital signing with and between companies has yet to emerge as a common practice.
At my own bank, our standard standby letter of credit application form allows applicants to choose to allow presentation by scanned email attachment and it is actually rare that they do not. Although we require the applicant to waive any requirement for authentication if they choose this alternative, we say nothing about this waiver in the LCs. Does that mean the drawings could be rejected for failure to meet the ISP/URDG/eUCP requirements for presentation of documents electronically? Note that, ironically, such documents would be more acceptable under a UCP letter of credit.
While I agree that we are not seeing electronic presentation of documents under commercial letters of credit (yet), I do not think my bank is alone in allowing drawings under standbys to be presented by fax and email. In fact, I know of several “power beneficiaries” who insist on being able to present by fax or email. Although I have heard many bankers object on the grounds that this increases the risk of fraud, I do not see how this is any more risky that paying against paper documents. We do not verify signatures on paper documents, so why should it be necessary to do so with electronic documents? Since we are not going to pay anyone other than the beneficiary (in my case, we do not allow for documents to be presented to other banks), how is a fraudster to gain? And, after all, who is taking the risk? The customer. They are trusting the beneficiary not to draw unless entitled to do so by the underlying agreement and so should trust the beneficiary to return funds received because of an unauthorized drawing. As long as they are agreeing to reimburse me, why should I tell an applicant I will not allow presentation by fax or email?
So I would argue that we are already seeing electronic presentation, in a very rudimentary form, under many standby letters of credit. The members of the Banking Commission agreed this is a complex issue that the Technical Advisors will consider. Do the rules need to be revised in order to accommodate practice or might a position paper or a Technical Advisory Briefing be issued that sets a different standard regarding authentication of documents presented by fax or email but that are copies of original, paper documents? We will see where this goes.
- Buddy Baker, Vice President, Investment Banking Goldman Sachs Bank USA