Recently the Central Bank of Russia issued its regulations concerning clearing settlements in the Russian Federation which came into force on November 1, 2000 ("Vestnik Banka Rossii" Num. 49-50, September 19, 2000). Chapters 4-6 of the regulations outline the procedures for the handling of L/C operations.

These regulations relate to settlements between domestic banks in local currency, but some of them may be of interest to understand the influence of internal rules on the international L/C transactions of Russian banks.

First, in the regulations the definition of the letter of credit only applies to documentary letters of credit available by sight payment. The letter of credit is qualified as a conditional undertaking of the issuing bank (at the same time the difference between revocable and irrevocable letters of credit is described along with the possibility of cancelling the irrevocable L/C with the sole agreement of the beneficiary without mentioning other parties concerned).

The regulations mention the following possible types of letters of credit:

- "with collateral" (the issuing bank constitutes a collateral with the applicant's funds or by granting a special credit facility to the applicant and then transfers this collateral to the nominated bank for the full period of the validity of the L/C);

-"without collateral" or "guaranteed" (the issuing bank authorizes the nominated bank to debit its current account opened with the nominated bank);

-revocable letter of credit; and

-irrevocable letter of credit with possible confirmation.

In the absence of an indication of its irrevocability, the letter of credit is considered to be a revocable one. This disposition is taken from the Civil Code of the Russian Federation and is in contradiction to sub-Article 6(b) of UCP 500.

-There are also some other provisions that are unusual in international L/C practice: every letter of credit is designated for settlement with only one beneficiary (there is no mention of transferability);

-During the validity of the L/C the beneficiary may renounce it s utilization if such a possibility is provided for in the L/C conditions;

-The L/C conditions may provide for an acceptance (the context suggests that the legislation is probably speaking of the acceptance of the documents) by the person authorized by the applicant. This act of acceptance takes place at the premises of the nominated bank, which is responsible for verification of this person's identity;

-Inter alea, the nominated bank bears the responsibility for verification of the genuineness of the signatures and seals of the beneficiary on the presented documents (which is contradictory to Article15 of UCP 500);

-The applicant should be informed of the number of the account opened by the nominated bank to book collateral relating to the L/C;

-The indication of the date and the number of the underlying contract in the credit application is mandatory for the opening of the letter of credit;

-In case of incomplete or unclear instructions, the nominated bank is obliged to make an enquiry of the issuing bank not later than on the working day following the receipt of the L/C (without taking any other action in respect of the L/C or giving any notice to the beneficiary- in contradiction to Article 12 of UCP 500);

-There is the possibility of a second presentation of previously rejected documents to the nominated bank by the beneficiary without any mention of notice to be given by the nominated bank to the issuing bank and/or possibility of waiver of the discrepancies (Article 14 of UCP 500).

Acting as a confirming and nominated bank under Russian letters of credit, the BCEN-EUROBANK, Paris has substantial experience in resolving possible disputes provoked by the application of internal Russian practices. Some Russian issuing banks feel that it is difficult to open transferable credits.

Other issuing banks contest the documents in case there is an absence of a contract number and date in every document, or in case of doubts concerning certain signatures, referring, as they do so, to Article 13 and sub-Article 37(c) of UCP 500. Sometimes applicants try to intervene directly in order to obtain details of collateral constituted by the issuing bank.

With regard to the large number of small and medium-sized Russian banks making efforts to become involved in international activities, one has to admit that their international L/C practice may be affected by Russian internal regulations ¯ in spite of their L/Cs being subject to UCP 500.

G. Kobakhidze is Directeur, BCEN-Eurobank, Paris. His e-mail is kobakhidze@bcen-eurobank.com. The views expressed in this article are those of the author and not necessarily those of ICC or of the other partners in DC-PRO.