International Banking Practice versus International Banking Practice
Last week I
had the privilege of discussing the new ISBP with banks trade finance
departments. This is always a great and fun experience. I do not have the right
words to express my total and utterly respect for those LC officers that are in
the front line – helping the buyers and sellers making their transaction work
out smoothly. It is indeed a balancing act … telling people they are making
mistakes – that they need to change what they have done – in a way they have
the feeling that they are in fact being helped.
What always
strikes me is how easy it is for me to give the “right” answer – with UCP 600
in one hand and ISBP 745 in the other; and how hard it is to give the “right”
answer with all of the LC rules and practices in one hand, the customer and the
banks relationship with that customer in the other hand, the banks procedures
(including compliance, AML ect.) in the third hand and the banks relationship
with the bank in the other end in the fourth hand … it is few people that have
4 hands …
Still it
seems to me that the LC officers manage this balance well. This blog post offers
a few examples of how International Banking Practice as per ISBP 745 works
together with International Banking Practice as per the LC department in real
life … and how it need not conflict ….
Take for
example paragraph ISBP A26 that reads:
Quote
When a
credit contains a condition without stipulating a document to indicate
compliance therewith (“non-documentary condition”), compliance with such
condition need not be evidenced on any stipulated document. However, data
contained in a stipulated document are not to be in conflict with the non-
documentary condition. For example, when a credit indicates “packing in wooden
cases” without indicating that such data is to appear on any stipulated
document, a statement in any stipulated document indicating a different type of
packing is considered to be a conflict of data.
Unquote
Here I
focus on the first part of the paragraph i.e.: “such condition need not be
evidenced on any stipulated document.” This means that a non-documentary
condition may be disregarded i.e. not stated in any of the presented documents.
So my starting point would be not to state it at all. However the LC officer
knows that since it is stated in the LC, it is most likely that buyer really
would like the documents to reflect this condition. Therefore a number of LC
officers advice their customer to make sure that the condition is reflected in
the document most relevant for the condition. Not stating the condition in
document may actually cause problems. The issuing bank may (wrongly) refuse the
presentation because the condition is not stated. Of course such refusal is “wrong”
– but it does not change the fact that the refusal is made, and a “trouble
shooting exercise” must begin.
The tricky
part is that once the condition is stated in any of the presented documents it
will be compared against the LC requirement and the other documents.
Another
example down the same alley is where the LC calls for all documents to mention
the LC number. It is a given fact that the presentation cannot be refused for
that reason. However in many cases it may well make good sense adding it. It
may mean that many problems are avoided.
The third
example I will mention here is ISBP 745 paragraph A40 that reads:
Quote
Documents
required by a credit are to be presented as separate documents. However, and as
an example, a requirement for an original packing list and an original weight
list will also be satisfied by the presentation of two original combined
packing and weight lists, provided that such documents state both packing and
weight details.
Unquote
It is
allowed to combine documents – as long as it is done in accordance with the
paragraph. And in some cases it may be a really good advice; e.g. when the LC
calls for 5 x “beneficiary certificates.” There may however also be cases where
combining documents causes so many problems that the time saved in combining the
documents is used tenfold afterwards doing troubleshooting.
The point I
am making – is that when the LC officer is advising the customer about LC
practice – then the best advice may NOT be simply to inform what the ISBP 745
says; it must be “adjusted” to the specific case, customer, market etc. Many
factors need to be taken into account – and a straight line must be walked.
So am I
promoting a “local” practice? No no no … of course not! I see it so that the
ISBP 745 offers a framework for what a presentation can be refused on – and
what it cannot be refused on. So the ISBP 745 is crucial – and really practical
when discussing a refusal with the issuing bank. But even though something is
“allowed” according to the ISBP 745 – it may be that the best advice may be NOT
to do it!
Always
remember that it is better to get the money than be proven right!
Take care
of each other and the LC!
Best
regards
Kim