Article 38 j.

ChantalDuguay · Post by **ChantalDuguay** » Wed Sep 12, 2012 1:00 am

Dear all

Your insights would be highly appreciated on a.m mentioned article.

I am a transferring bank under a credit available 90 days from BL.
For compliance reasons I cannot negotiate/prepay to a second bene
because of lack of KYC.

Would article 38j help in that context and how.

If requested by the first bene, how a negotiation/honour will be possible with the second bene bank, will this imply modifications of the field 41D or other modifications?

Thanks
[edited 9/12/2012 5:28:17 PM]

GlennRansier_olsABN · Post by **GlennRansier_olsABN** » Wed Sep 12, 2012 1:00 am

Not sure I understand the question. If you processed a transfer, the second or new (if transferred in full) beneficiary is the only party who can draw. If you confirmed or otherwise provided a commitment then you'd be obligated to honour/negotiate. The KYC should have been done at the time of executing the transfer.
Prepayments under partial transfers add complexity and risk. My suggestion in these cases is to have both beneficiaries agree or, if not possible, the amounts due to each must be separated (separate drafts or otherwise) and prepay only the beneficiary who authorized it.
A second beneficiary could utilize a bank to present documents. However, if that presenting bank is not a nominated bank then j. is not applicable.

GSham · Post by **GSham** » Thu Sep 13, 2012 1:00 am

I am still finding it difficult to understand 38j - what "honour or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred" actually means.
Whilst a transferring bank must be a nominated bank under the original LC, does 38j mean that at the request of the first beneficiary, the transferred LC may nominate a bank in the second beneficiary's location as nominated bank, so that the transferred LC can be negotiated in the second beneficiary's location?

GlennRansier_olsABN · Post by **GlennRansier_olsABN** » Thu Sep 13, 2012 1:00 am

Presuming that a transferring bank is nominated to honour or negotiate, they have the right to nominate another bank to perform that same function. The newly nominated bank is generally located in the same country of the second beneficiary. Banks need to consider places of expiry and payment obligations when allowing this.

ChantalDuguay · Post by **ChantalDuguay** » Thu Sep 13, 2012 1:00 am

Thank you all

Sorry I posted this without seeing the last comment

Glenn you comments on compliance are very pertinent however our bank makes make a difference KYC for honoring/negotiating and prepaying as we consider prepaying to be a loan and thus requires an enhanced due diligence which we dont do on the second bene
As the credit is restricted to the transferring bank, I thought that 38 j would solve the issue by allowing the transferring bank to change the place of negotiation to make it available with the bank advising the transfer (second bene bank)
If this not the case, what is 38 j for. Thanks
[edited 9/13/2012 4:37:38 PM]

ChantalDuguay · Post by **ChantalDuguay** » Thu Sep 13, 2012 1:00 am

After your last comment I see that my understanding was correct. So I go back to my first comment and ask how do you make it available with the second bene's bank
by modifying 41d

DanielD · Post by **DanielD** » Mon Sep 17, 2012 1:00 am

Quite simple.
The transferring bank will give the bank of the second bnf the means to honour or negotiate and will request to be advised accordingly. As soon as the transferring bank is advised, it will also honour or negotiate.

Daniel

ChantalDuguay · Post by **ChantalDuguay** » Wed Sep 19, 2012 1:00 am

Thank you all for your input.
Regards

KBalasubramanian · Post by **KBalasubramanian** » Sun Jan 20, 2013 12:00 am

Sorry coming bank on this query after several months

A transferring bank's role is similar to that of an issuing bank and not the advising bank. Here the 1st beneficiary who is the bank's customer will become the applicant of the transferred credit and the 2nd beneficiary is comparable to any beneficiary under a non-transferrable credit. A bank's responsibility is to have a KYC in place for on the applicant when it issue its letter of credit and not possible to have KYC on beneficaries.

Secondly on Art.38j my understanding is that transferring bank at the request of the 1st beneficiary can nominate some bank in the 2nd beneficiary's country to honor or negotiate the presentation under the transferred credit. It is kind of a permitted alteration which UCP does not clearly identify as such.