ICC Digital Library Forum

Article 2e of URR 525 states that: “Claiming Bank” shall include a bank AUTHORIZED to present a Reimbursement Claim to the Reimbursing Bank on behalf of the bank that pays, incurs a deferred payment undertaking, accepts draft(s), or negotiates.

The article doesn’t state that it is the duty of the bank that pays, incurs a deferred payment undertaking, accepts draft(s), or negotiates to advise the Reimbursing Bank of its authorization to the Claiming Bank to claim on its behalf.

Therefore, I would like to know the practice of Reimbursing Banks on whether:
1) they insist on receipt of such authorization directly from the bank that paid, incurred a deferred payment, accepted draft(s), or negotiated; or
2) would suffice by authenticated message from the Claiming Bank (most of the time embedded in the claim message –MT 742) that the Claiming Bank is so authorized;or
3) require the Reimbursement Authorization from the Issuing Bank authorizes receipt of claims from parties claiming on behalf of the bank that pays, incurs a deferred payment undertaking, accepts draft(s), or negotiates

regards
[edited 12/9/2003 12:45:26 PM]

Dear Abdulkader,

I’ve no practical experience of reimbursement authorities, but that’s no barrier to my responding to your query from a documentary business policy-setter’s perspective.

Overall, I find the wording you refer to from Art 2e rather odd. I would anticipate that any reimbursement authority, in line with Art 6d, would state the Claiming Bank, unless the credit was freely neg. (in which case this info should be included in the reimb auth). I would also expect any nominated bank to claim payment itself and not get some other bank to do it. Therefore, I cannot envisage situations where this part of Art 2e might be applicable or why a Reimbursing Bank would consider it necessary to consider if the Claiming Bank fell within it.

Regards, Jeremy

Dear Jeremy,
As for the nomination of the claiming bank in the reimbursement authorization, the first part of article 2e recognizes the fact that reimbursing authorization should indicate the name of the claiming bank. Abdul Qadir has only quoted the latter part of the article, which states that the claiming bank named in the reimbursement authorization includes the bank nominated as a collecting agent by the claiming bank.

Strange as it may seem but the practice of nominating a collecting bank for the purposes of reimbursement is quite common. In my limited experience of such transactions, the reimbursing banks generally do not question the authority of the collecting bank. This however does not mean that the reimbursing bank is prevented from obtaining a confirmation of the collecting agents authority from the claiming bank nominated in the reimbursement authorisation. I have also come across many documentary transmittal letters mentioning the name of the claiming agent authorised to claim on behalf of the bank that paid, incurred a deferred payment, accepted draft(s), or negotiated.
regards,
Khalid

Khalid,

I have to say I find this very strange indeed. If you can find the time, perhaps you could give an outline of such a transaction, please?

Thanks, Jeremy

Dear Jeremy & Khalid,

Thanks for your feedback. As Khalid stated the Reimbursement Authorization will mention the name of the Claiming Bank; however, in many cases, the authorized Claiming Bank nominates a bank (Collecting Bank / Agent) to claim reimbursement on its behalf. This nomination is not, usually, communicated to the Reimbursing Bank or to the LC Issuing Bank. Nevertheless, in some case, as Khalid mentioned, the document remittance letter that is sent to the LC Issuing Bank along with the shipping documents will state the name of the Collecting Bank. This practice is common with some banks in the Far East including China.

The Collecting Banks usually use MT 742 to claim payments and in field 58 will state that they are collecting, the payment, on behalf of the authorized Claiming Banks (mentioning the name of the banks). I understand that Reimbursing Banks usually effect such payments to the Collecting Banks for the account of the authorized Claiming Banks without questioning the authority of the Collecting Banks. I also understand that the authorized Claiming Banks usually maintain accounts with the Collecting Banks.

regards


[edited 12/13/2003 6:54:32 AM]

Following interesting and well thought of response received from one of my banking contacts & friend, Khalil Matar, who is not a member of DC-PRO. Thought of sharing it with DC-PRO members.

Quote

This is mind teasing!

Let us go for a diagnosis:

The strategies available to the Reimbursing Bank:

1- A straight no to the reimbursement claim.

2- A straight yes

3- A conditional yes based on:

3a- Authorization / agreement with the Claiming Bank

3b- Authorization from the Issuing Bank.

1- A straight no option is always available to the Reimbursing Bank as long it is not otherwise obligated. Obligations include Reimbursement Undertaking, correspondent agreement with the Issuing Bank.

2- A straight yes is risk borne. It could be undertaken if the Reimbursing Bank is ready to take the risk (after identifying, analyzing, classifying the risk). That could be based on its previous experience with the Claiming Bank and its agents, the amounts involved, etc. Another reason could be justified on the supremacy of local law if it endows the Reimbursing Bank, the right to reimburse a party which identifies itself as an agent (of the Claiming Bank). Article 13 of URR 525 reads as follows (The Issuing Bank shall be bound by and shall indemnify the Reimbursing Bank against all obligations and responsibilities imposed by foreign laws and usages).

3a- If the Claiming Bank informs the Reimbursing Bank of its agent that shall lodge the claim, then the Reimbursing Bank may reimburse that party. Article 11.d of URR 525 reads as follows: (Unless otherwise expressly agreed to by the Reimbursing Bank and the Claiming Bank, Reimbursing Banks will effect reimbursement under a Reimbursement Claim only to the Claiming Bank.)

3b- If an authorization is sought and received from the Issuing Bank, it is obvious that the Reimbursing Bank may reimburse that party (the so called agent of the Claiming Bank).

None of the above reflects a practical personal experience. It is only theoretical so I hope I am not off point again.

Uquote

regards

Dear Abdulkader,

While the subject of the theory of reimbursement claims is not something I can get that excited about (but nonetheless recognise I’ve learned a bit more about matters documentary as a result of this discussion), just a couple of comments:

1. Having dug out the ICC Commentary (pub’n 551) I can see, to my surprise, it supports what you and Khalid say (page 10 – 11). However, it does not seem to me to shed any direct light on the responsibilities of a Reimbursing Bank when in receipt of a claim from a ‘third bank’. I would therefore consider that a Reimbursing Bank would be perfectly entitled to approach the Claiming Bank (where specified) for verification in such a situation. However, if the claim instructs payment to an account in the name of the specified Claming Bank I can understand why the Reimbursing Bank might not bother.

2. The SWIFT rules do not appear to authorise Field 58a: Beneficiary Bank, of the MT 742 message, to be used to state the Claiming Bank where the claim is being made by its ‘agent’. The rules state:

“DEFINITION
This field identifies the branch or affiliate bank of the Sender, in favour of which the total amount claimed is to be transferred.”

“USAGE RULES
If the account of a branch or an affiliate of the Sender is to be credited by the Receiver, this field will be used to identify that branch or affiliate and its account serviced by the Receiver. In this case, field 57a should not be present. Additionally, where there are multiple account relationships between the Sender and the Receiver or the account with bank, this field shall specify the Sender's SWIFT address, i.e., option A, and in the account number line, the specific account to be credited.”

I think saying ‘affiliate’ could mean ‘agent’ would be stretching the meaning of ‘affiliate’ too far.

Regards, and festive sentiments, Jeremy