Four senior bank officials in Pakistan have reportedly been dismissed for violating banking rules for their part in a letter of credit (L/C) deal that apparently leaves the Allied Bank Ltd (ABL) waiting for a considerable amount of money.

The sacked ABL employees played a part in opening a L/C worth approximately US$3.8 million for a local firm to import 10,700 metric tons of galvanized coils from Saudi Arabia. The importer subsequently disappeared after swindling the whole amount according to a Lahore-based journal.

Branches

According to The News, a firm named Arshad Associates approached the Gondlanwala branch of ABL bank with a request to open the L/C. The branch then forwarded the importer's request in July 2001 to ABL's regional office with a view to obtaining approval. The branch also sent its regional office a copy of Arshad's sales contract with Kaido Trading Holding Co Ltd of Jeddah, Saudi Arabia. The importer had not signed this contract, neither was the beneficiary's signature verified.

ABL's regional office nevertheless forwarded the case to ABL's central office in Karachi for approval, without checking the credit worthiness of the exporter, according to the newspaper. It goes on to report that ABL's central office ultimately sanctioned the L/C, which included in its terms for the shipment to be delivered in 7 to 8 parts. The L/C would be established at the ABL regional office, because the bank's branch office was not authorised to deal directly in foreign exchange.

Jersey connection

On the recommendation of the regional and central offices, the ABL branch also arranged another sales contract - this time made between the importer and Kaido Trading Holding Co. Ltd Hoffer of Jersey UK for the supply of galvanised coils at the rate of US$325 per metric ton for the total amount of US$3,477,500, according to The News.

The contract reportedly specified coils from the Saudi Iron & Steel Company in Saudi Arabia, that the L/C must be advised through the BHF-Bank in Saudi Arabia and for the goods may be shipped in 7 to 8 stages with a one-month interval.

One shipment

According to The News, the importer confirmed that the reimbursement would be made on the same day to the negotiating bank on presentation of a complete set of the original documents. In October 2001, the negotiating bank - Habib Allied International Bank in London - informed the ABL regional branch that documents for $3,355,706 had been negotiated and that the account of ABL central office had been debited accordingly.

According to the shipping documents, about 96 per cent of the coils had been shipped, whereas the L/C specified that 7 to 8 shipments should be made at roughly monthly intervals. When this was brought to the attention of the negotiating bank, it said the telex it had received did not contain a clause specifying shipments in 7 or 8 parts according to the newspaper. It reports that investigations revealed that ABL branch officials had deliberately kept the telex copy bearing that clause and 'privately' transmitted another telex that did not bear the staged shipment clause.

Price discrepancy

Amongst other discrepancies revealed in investigations, The News reports that the branch had initially requested an L/C based on a price for steel at a rate of US$260 per metric ton, but after obtaining authorisation for the L/C changed the rate to US$325 per metric ton

The newspaper report suggests that ABL's exposure in this matter is reflected in the difference between the amount debited from its account and the amount after expenses for which the apparently slow moving goods are ultimately sold.

This article represents the view of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.