Excessive Details

[serenachang]

Credit issued by a major French bank in Hong Kong has the following description in Field 45 A:-

Keranji Prefinished Floor Strips
FOB Port Klang

1. T & G End-matched with bevel on 4 sides
2. Product:14 MM(T) X90MM(W)X600/900MM(L)
3. Inspection Plan:
3.1 Bending: 600MM -Not to exceed 2MM
900MM -Not to exceed 3MM
Bending not to exceed 20% of total container load
3.2 Finished Product Width: 80% -90MM +/-0.30MM
Tolerance: 20% -90MM+/- 0.40MM
Thickness: 14.00MM+0.35/-0.00MM
Length: XXXX
Bevel edge: XXX
3.3 M.C.: 9-11% Min 60% XXX
3.4 Allowed: Sapwood on Back
3.5 Not allowed on face: Sapwood/Pinholes/Blue-Stain/Chipping/Cracks
3.6 Finish must be free from scratch
3.7 Coating for 60% gloss-4 layers by roller & last layer by lacquer

Credit did not call for any documents to evidence the above. We seek your advice as to whether we should treat it as forming part of the description of the goods & repeat the whole list in the invoice or ….

Thank you.

[larryBacon]

This is assumed to be a SWIFT L/C because you mention field 45A. As field 45A of any SWIFT L/C specifies description of the goods, the full description is required as appropriate in the invoice, with the general description for other documents.

Laurence A. J. Bacon

[T.O.Lee]

Sub Article 5 (a) (i) of the UCP 500 discourages putting excessive details in the LC because LC is a payment mechanism and should be used as such (a famous saying of the late Bernard Wheble). It is not appropriate to use the LC to police the underlying transaction (although many traders do), which is the purpose of a sales or purchase contract.

From our experience in dealing with international trade frauds, putting all these excessive details in the LC only creates a false sense of comfort because the beneficiary may get full payment by presenting compliant documents whilst there may be no goods being shipped or junks are being shipped.

It is more effective to ask for a certificate of inspection from an independent inspection agent, nominated and paid by the applicant himself (an inspection agent would work for the best interest of the one who pays him) or hiring a "super cargo" to supervise loading and discharge of the goods, as we have recommended in our frauds prevention workshops.

In our view the reasonable length of an LC should be about one to one and a half page. An LC of five or more pages has excessive details, and many wordings are either repetition of the UCP 500 Articles or superfluous. This would only lead to confusions, or even create "non-documentary conditions" unintentionally by forgetting to put the excessive instructions in the form of certificates.

We are from www.tolee.com

[edited 4/2/02 8:15:07 PM]

[PeterOberding]

Although I agree with the gist of Mr. Lee's comments, I feel compelled to point out that sub article 5 (a.i.) does not "prohibit" excessive detail in Credits or amendments. Instead, it states that banks should "discourage" this. And, for all we know, that may have actually happened in this case. The issuing bank might have tried to discourage the excessive detail in the merchandise description by charging an "excessive wording" fee (a practice at my bank), but if the applicant was willing to pay the fee, the credit was issued as such.

-Lisa Chin (under the ID of Petr Oberding)

[T.O.Lee]

We thank Ms Lisa Chin (under ID of Mr. Peter Oberding) for her careful reading of our comments to find out that "prohibit" should be "discourage" in Article 5 (a) (i) of UCP 500. In a free discussion, we tend to be more relaxed in our terminology. However we have already amended our comments as a follow up action.

Another interesting point raised by Ms Chin is that her bank would add excessive details in the LC if the applicant agreed to pay an "excessive wording" fee whilst her bank knows very well that this practice is to be discouraged by the ICC Banking Commission.

A bank should have a duty to uphold the good banking practice as recommended by the ICC Banking Commission in order to gain respect and trust from the trading community. Doing what the ICC Banking Commission discourages for a fee would lead others to think that the bank is trying to take advantage of the ICC Rules as an opportunity to make an inappropriate profit.

"Discrepancies" fee is deemed to be unreasonable by certain LC experts and the "excessive wording" fee here should be even worst.

On top of due deligence in operations as required by local law, and maintaining a bank's integrity in the marketplace, a bank should have educated its customers to improve their documentation skills. This is a win-win situation and the bank ultimately will reduce its operating costs and gain more profits than from charging "excessive wording" fee. Its customers should also be unhappy about this charge. This appears to be a lose-lose situation.

Strong market competition should not be an excuse to work against the UCP 500 recommendations.

We would like to hear other opinions from the bankers and the non-bankers on this issue.

We are from www.tolee.com

[edited 4/2/02 8:11:59 PM]

[larryBacon]

I agree with T. O. Lee's comments. The reason the ICC discourages these practices is that they are bad practices. Charging a fee for this implies that this legitimises the practice, but in fact this compounds the malpractice. The greater the unnecessary detail, the greater the risk of errors in documents presented, causing problems for the beneficiary. I have often seen this cause problems for the applicant also due to misspellings, lines left out etc in his application or transcripted L/C.

[PavelA]

Banks should discourage any attempt to include excessive detail, in fact this is something that we strive to achieve. Ms Lisa Chin's comments are very interesting in that it is clear that her bank takes an active part in encouraging applicants to avoid the use of excessive detail.I see her bank taking a positive step towards encouraging the correct application of UCP in this regard. However, her bank is still providing the applicant with the option to include excessive detail (which we all agree should be discouraged) and in my view it is quite equitable to charge a fee if the customer opts to include excessive detail.Charging a fee for excessive detail can be seen as a step towards “discouraging” excessive detail in the L/C.

Pavel Andrle

[T.O.Lee]

CHARGING FEES FOR WRONGS DONE MAY GIVE A WRONG MESSAGE TO CUSTOMERS

A banker knows very well that he has a duty to discourage the practice of putting excessive details in a DC, and yet he is very glad to do so provided he is paid an extra fee. This may give his customer a wrong message that:

(1) This may be interpreted as an ENCOURAGEMENT to a rich customer that he can do whatever he wants provided he is willing to pay.

(2) This practice may lead to corruption. I can do more if I pay you. How about money laundering? You may pretend not to know and may not stop me if I am willing to pay you handsomely.

(3) This practice may be interpreted as that the banker is trying to take advantage of the situation and gets more profits for his bank, rather than doing his duty to educate the customer, but for no income. His banker image may suffer. If you give a dog a cookie, it would wag its tail.

INCONSISTENT COMMENTS ON TWO ISSUES

We also note that Mr. Pavel Andrle's comments on this "excessive details" issue appears to be inconsistent with his comments on "insured amount to be 110% of CIF value" where he insists that the customers should understand the Articles clearly or be educated instead of changing the Articles to accommodate. We hope he would share with us his reasons behind his apparent inconsistent stance on these two issues.

We are from http://www.tolee.com

[edited 8/18/01 3:57:23 PM]