Settlement / Payment or Transfer Charges by the Issuing Bank

[AbdulkaderBazara]

Despite that fact that many Domestic / Local and International LC’s contain a condition such as “ All charges other than the Issuing Bank charges are on Beneficiary’s Account” or “ All bank charges outside the Issuing Bank Country is on Beneficiary’s account”, Issuing bank’s, started deducting an amount ranging from USD 60 to USD 150 from the proceeds due as either payment / settlement or transfer charges. I am not talking abt reimbursement charges where the credit states that such charges are on Beneficiary’s account. These are LC’s where payments are effected after the Issuing Bank checks documents. Would like to know if this is common? In addition, your opinion (without responsibility on your part) whether the Issuing Bank has or has no legitimate right to do so?

Thanks

[NigelHolt]

Abdulkader,

No one seems inclined to give you a reply, so I shall do my personal best, without responsibility/liability as usual.

If it truly is the issuing bank that is deducting the charge, I cannot see any legal justification for this. It would seem to me to be in direct breach of the credit contract, given that the words used clearly suggest that those charges which do not fall into the express category to be borne by the beneficiary will be borne by the issuing bank..

However, as I’m sure you appreciate, where the issuing bank and presenting bank do not have an a/c relationship or, if they do, an a/c relationship in the currency concerned, settlement will usually have to be via a third bank, often in a third country, which may levy a charge. Deduction of this from the proceeds would seem legitimate to me where they fall outside the category of charges to be borne by the issuing bank per the credit provisions.

Regards, Jeremy

[AbdulkaderBazara]

Jeremy,

Thanks.

[ALISTAIRO]

I suppose you could argue that payment charges are not L/C charges as such but are the culmination of the L/C function i.e the payment to the beneficiary. As such the beneficiary pays for getting their money!

A shaky arguement I know!

[larryBacon]

It is difficult to see what is being charged for here and perhaps that is deliberate. If the charges relate to discounting or foreign currency transfer costs, these may be justifiable, but otherwise it would appear that the charge is unjustified.

If the charge remains unchallenged, it may ultimately become as commonplace as the (unwarranted) discrepancy charge is now.

Laurence

[hatemshehab]

I want to make a confession, which may provide a clue for this query.

When I was working for a bank in XYZ country (not Saudi Arabia) my manager, a senior respectable banker used to encourage me to think how best we can increase our revenues. In that process we used to debate which are the eligible charges and which are not. Some of those we used to take are

1. Post charges. “Although the credit is transmitted by swift.” These charges used to be taken from the applicant because the credit is sent by mail, and it continued as such because it is part of the “procedures.”

2. Cancellation charges. If the credit remained unutilized we will send a request normally after 30 after shipment date and we will debit the account of the applicant.

ONCE ONE BANK INCLUDED IN HIS CLAIM OF CHARGES "CANCELLATION CHARGES" WE ARGUED WITH HIM THAT THERE IS NO QUESTION OF CANCELLATION SINCE THE CREDIT HAS NOT BEEN UTILIZED AND THAT WE DID NOT ASK YOU TO CANCEL THE CREDIT. THE BANK WAIVED THE SIXTY-DOLLAR WE DID NOT WAIVE OUR CANCELLATION CHARGES, WHICH WAS LITTLE BIT LESS THAN THAT.

3. Cross-rate charges. If the credit is established in USD and the applicant wishes to settle the documents value from his DEM account then we will takes “cross rate charges” in addition to exchange rate charges of course.

This is how we survived under the tense environment of having to manufacture charges to increase revues. I hope this is not the case inhere.