Tuesday, November 29, 2016

UCP standards for the examination of transport documents[1]

Introduction
Transportation of goods is the lifeline that international trade depends on. It is a key segment of the logistics that connect the seller with the buyer across the globe. It includes several diverse elements.  A whole range of rules, regulations and practices apply to the process of transportation. One also need to know, among others, about marine insurance, and the rules governing documentary credit operations that relate especially to the transportation of goods.

Transport documents and the UCP
Several articles of UCP 600 (Uniform Customs and Practice for Documentary Credits) – a publication of the International Chamber of Commerce (ICC), Paris – deal with transport documents. Articles 19 to 24 explain the various forms of transport document. Article no. 25 describes receipts (however named) evidencing the acceptance of goods for despatch to a named destination. Articles 26, 27, 31 and 32 address other issues related to the transportation of goods. The examination of transport documents is ostensibly covered under a few sub-sections of Article 14 of the UCP.

I say ‘ostensibly’ because the norms and standards for the examination of transport documents are by no means limited to the UCP. A casual perusal of ISBP 745 (International Standard Banking Practice for the Examination of Documents under UCP 600 - another ICC Publication) is sure to throw up surprises aplenty – not only for the applicant, issuing or examining banks, exporters or importers - but for many of the documentary credit practitioners. As if the provisions in the UCP were not enough of a problem for those dealing with original transport documents, anyone seeking to include copies of transport documents in documentary credit operations better read the ISBP very carefully before proceeding further. (The UCP itself does not address issues relating to copies of transport documents.)
The following is a collation of the more important provisions of the UCP and the ISBP with regard to transport documents (original and copy), and the rules for their examination under documentary credits.

Original transport documents
Article 14(c) of the UCP reads thus:
A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

What remains unstated (clarified only in ISBP 745), is that the 21-days stipulation is the default option. Under the UCP, the issuing bank is free to modify this period to lesser or more number of days. (Caution: If last date is set to beyond 21 days, it may invite unintended consequences!)

Sub-article 14(f) excludes transport documents from matters relating to issuer’s name and data content. These are addressed elsewhere, under sub-article 14(l), quoted below:
A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23, or 24 of these rules.

As stated earlier, several UCP articles – from article number 19 onwards – are devoted to transport documents. Important components like who can issue a transport document, what constitutes shipment date and so on are defined in detail.
But what about copies of transport documents? How are these to be handled or processed? What are the responsibilities and obligations, if any, of the applicant, the scrutinising banks or other related parties as far as copies of transport documents are concerned? Nothing can be found in the UCP on these issues. In fact, references to transport documents is qualified only at one place (sub-article 14.c) to state that the UCP provision applies to ‘original’ transport document. More often than not, this subtle, low key reference is likely to be overlooked by a reader. Other references to transport documents in that article do not state that the provisions apply only to originals, not to copies.

Copies of transport documents
The clarification that one seeks is to be found only when one refers to the provisions of the ISBP. Here are the relevant provisions from Article A6 of ISBP 745:
a.      When a credit requires the presentation of a copy of a transport document covered by UCP 600 articles 19-25, the relevant article is not applicable, as these articles only apply to original transport documents. A copy of a transport document is to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f).
b.      Any data shown on a copy of a transport document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.
c.      Copies of transport documents covered by UCP 600 articles 19-25 are not subject to the default presentation period of 21 calendar days stated in UCP 600 sub- article 14(c) or any presentation period stated in the credit, unless the credit explicitly states the basis for determining such presentation period. Otherwise, a presentation may be made at any time, but in any event no later than the expiry date of the credit.

Sub-article A18.b.ii of the ISBP practically repeats what is already stated in Article A6.a above, thus:
The default presentation period of 21 calendar days stated in UCP 600 sub-article 14(c) only applies to a presentation including one or more original transport documents covered by UCP 600 articles 19-25.

I wonder why the provision quoted immediately above was not added to article 14(c) in the UCP where it really belongs. Apart from acting as a trigger, it could have been of immense help to those for whom the ISBP is yet another mountain to climb.

Reverting to the ISBP provisions quoted above:
  1. ISBP clarifies that the 21 calendar days limit stated in UCP 600 sub-article 14(c) is the default period which is applicable only to original transport documents.
  2. In a credit the presentation period is usually stipulated using the date of shipment as the point of reference, thus: ‘Documents should be presented within X days from the date of shipment, but no later than etc….’. This stipulation of the presentation period in the credit does not apply if the transport document does not include an original but is only a copy.
  3. The concept of ‘data-conflict’ (sub-article 14.d of UCP 600) applies to all transport documents, not only to originals but also to copies.
  4. Documents which are not defined by the UCP as ‘transport documents’ are to be examined only under sub-article 14(f) of the UCP.
These are NOT transport documents
Certain documents commonly used in relation to the transportation of goods should not be confused with what the UCP defines as ‘transport document’. Those are not ‘transport documents’ as defined in UCP 600 articles 19-25. Such documents include (but are not limited to) delivery note, delivery order, cargo receipt, mate’s receipt, forwarder’s certificate of receipt, forwarder’s certificate of shipment, forwarder’s certificate of transport, forwarder’s cargo receipt (ref.: sub-section A18 of the ISBP). Therefore:
a.      The default provision of 21-calendar days (as laid down in sub-article 14.c of UCP 600), or limiting the presentation period using the date of shipment as the basis for its calculation, does not apply to the documents such as mate’s receipt etc. referred above.
b.      Hence, these documents are to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f).

With regard to presentations based on these documents (not defined as a transport document by the ISBP) sub-article A18.b.i states:
… a condition of a credit that presentation is to occur within a certain number of days after the date of shipment will be disregarded, and presentation may be made at any time, but in any event no later than the expiry date of the credit.

Of course, if the issuer still wishes to limit the period of presentation, sub-article A18.c of the ISBP offers a solution, thus:
For a presentation period to apply to a document referred to in paragraph A18(a), the credit should specify that presentation is to be made within a certain number of days after the issuance date of the respective document, or a date that is to be mentioned in the document (for example, when a credit requires the presentation of a document titled cargo receipt, ‘documents to be presented no later than 10 days after the date of the cargo receipt’, or, ‘documents to be presented not later than ddmmyy’).

The purpose of a courier receipt
Regarding courier receipts, postal receipts or certificate of posting certain clarifications may be in order. Article 25 of UCP 600 defines these documents as transport documents. However, credits often require the presentation of courier receipts etc. for other purposes as per the LC terms – say, for example, as proof of having despatched copies of documents A, B, C direct to the applicant within ‘x’ days of shipment. In such situations, it is obvious that these documents then are not fulfilling the function of a transport document. Article A10 of the ISBP therefore stipulates that:
When a credit requires the presentation of a document as evidence of sending documents, notices and the like to a named or described entity, in the form of a courier receipt, post receipt or certificate of posting, such document is to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f) and not under UCP 600 article 25.
Scrutinising banks and beneficiaries are advised to take note of this distinction.

Presentation of original transport documents
With regard to presentation of original transport documents, the rules (under A29 of the ISBP) are as follows:
  1. The number of originals to be presented is to be at least the number required by the credit or UCP 600.
  2. When a transport document or insurance document indicates how many originals have been issued, the number of originals stated on the document is to be presented, except as stated in paragraphs H12) and J7)(c) of the ISBP.
  3. When a credit requires presentation of less than a full set of original transport documents, (for example, “2/3 original bills of lading”), but does not provide any disposal instructions for the remaining original bill of lading, a presentation may include 3/3 original bills of lading.
Article A.30.b
When a credit requires the presentation of a copy of a transport document and indicates a disposal instruction for all originals of that document, a presentation is not to include any original of such document.
Article A37
The fact that a document has a box, field or space for a signature does not in itself mean that such box, field or space is to be completed with a signature. For example, a signature is not required in the space titled “Signature of shipper or their agent” commonly found on an air waybill or “Signature of shipper” on a road transport document. Also see paragraph A17) in respect of the requirements for data to appear in a box, field or space.

‘Transhipment prohibited’ - really?
Finally, about transhipment. Credits often prohibit transhipment (SWIFT MT700 Field 43T). While doing so, the issuing banks may, hopefully, keep in mind this gentle warning in sub-paragraph (vi) of the opening section of ISBP 745 titled ‘Preliminary considerations’:
… a credit requiring presentation of a bill of lading and containing a prohibition against transhipment will, in most cases, have to exclude UCP 600 sub-article 20(c) to make the prohibition against transhipment effective.

The UCP sub-article 20.c is quoted here for ready reference:
                     i.       A bill of lading may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same bill of lading.
                    ii.       A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.

How to distinguish between BL and MTD
On occasions, a letter of credit or a transport document may stipulate the following:
i)       a place of receipt
ii)      a place of loading (possibly different from the place of receipt)
iii)    an indication of a means of pre-carriage
iv)    port of discharge
v)     final destination or a place of delivery of the consignment

Article D2 of ISBP 745 tells us that the transport document need not be titled ‘multimodal transport document’ (MTD/MMTD) or ‘combined transport document’ (CTD) or a bill of lading (BL) even when the credit names the required document. Our approach should, therefore, follow the principle stated in sub-article 14(f), viz., the content of the document presented should fulfil the function of required document. The critical issue, however, is how to interpret the contents of a transport document in order to arrive at the correct conclusion.
UCP articles 19 and 20 lay down the ground rules applicable to MTD and BL respectively. Extensive coverage (with examples) can be found under Section D (for MTD) and Section E (for BL) of the ISBP. The method to distinguish a MTD from a BL is embedded in several sub-articles of the UCP and ISBP where the litmus test ought to include the following issues[2] with regard to any such document:
a)     notations in respect of places of receipt and delivery
b)     notations in respect of port of loading and discharge
c)     notations in relation to vessel’s name
d)     notations in respect of shipment date
e)     notations with regard to freight (what charges are included or excluded).

Answers to the above may help us to distinguish a MTD from a bill of lading, and thereby help us in proper application of the relevant provisions of the UCP & the ISBP. For a better understanding of the applicable rules, a close study of both these ICC documents is, therefore, strongly recommended.



[1] Published in Indian Engineering Exports, Vol. 9 Issue no. 6, September 2016, and Trade Services Update, Denmark, Volume 18, Issue 3, July-September 2016.
[2] For more information refer to http://www.lcviews.com/index.php?page_id=18

Sunday, November 06, 2016

Decoding UCP Article 30 on LC amount, quantity and unit price

Decoding UCP Article 30 on LC amount, quantity and unit price [1]
Rupnarayan Bose[2]

Article 30, UCP 600[3]
We are aware that if a beneficiary is to get his documents negotiated under a letter of credit, he must conform strictly to the terms of the credit. Compliance with the terms includes, among others, compliance with amount and quantity of goods being shipped. Under certain conditions, the UCP permits variations in both the amount and the quantity. These conditions are spelt out in Article 30 of UCP 600.
This article addresses the issues regarding variations in the quantity of the goods shipped, the amount of presentation under documentary credits vis-à-vis the amount and quantity for which a particular credit may have been issued. These are critical issues for the beneficiary, as also for a bank that issues a credit and later has to examine the documents presented for compliance. This is primarily because the exchange control regulations of some countries do not permit import of goods for values that exceed (even by a small margin) the amount stated in the credit. On his part, the buyer too may not wish to accept excess drawing or excess shipment. It is, therefore, necessary to understand the provisions of Article 30 that permit variations, and the circumstances under which it does so. Do note carefully the instances where 10% and 5% variations apply.
Variation in Amount, Quantity or Unit Price
Article 30(a) stipulates that if the term ‘about’ or ‘approximately’ is used in respect of an amount, quantity or unit price stated in the credit, then it is to be understood that the credit permits a tolerance not to exceed 10% more or 10% less in the amount, the quantity or the unit price respectively to which the term has been prefixed or suffixed.
Thus, if the credit is issued for ‘about USD.100,000 or USD.100,000 approx.’, then shipment can be made for a total amount of (USD.100,000 +/- (10% of 100,000), that is) USD.110,000 (maximum) or USD.90,000 (minimum). Similarly, if the term ‘about’ or ‘approximately’ relates to the quantity stated in the credit, the total quantity shipped may be 90% or 110% of the quantity stated in the credit. The same rule applies to the unit price.
It would be seen from this example that the term ‘about’ or ‘approximately’ used in conjunction with amount, rate or quantity creates room for excess or short shipment under a letter of credit. In certain instances, such eventualities may invite complications, especially if the law of the land is breached as a result. It is, therefore, necessary to be careful if the terms such as ‘about’, ‘approximately’ are used in a credit when referring to amount, quantity, rate or measure. However, if the country’s laws do not stand in the way, and there is a possibility that the shipment may not be for the exact amount specified in the credit, it may be advisable to prefix the amount with the expression ‘up to’, or ‘not to exceed’ or words to that effect (viz. LC issued for amount up to USD.1000,000.00 only, or credit amount not to exceed USD.100,000) to restrict the drawing strictly within the amount stated in the credit.
Variation only in Quantity
Sub-article 30(a) deals with the use of the term ‘about’ or ‘approximately’ in conjunction with the amount, rate or quantity stated in a credit. But what happens if these terms are not used to qualify the quantity stated in a credit, but variations are observed? To what extent such variations could be permitted or is acceptable? These issues have been dealt with in the next section of Article 30, i.e. sub-article 30(b).
Even if nothing is stated in the credit, no qualifying term or expression is used, sub-article 30(b) still permits a variation of 5% either way (i.e. more or less) in the quantity stated in the credit. But this variation is allowed under the following conditions:
(1)   if a credit does not stipulate the quantity in terms of a stipulated number of packing units or individual items, and
(2)   also provided that the total amount utilised does not exceed the amount of the credit.
Hence, (keeping the two foregoing provisions in view) if variation in quantity shipped is not to be allowed at all, the issuing bank should word the credit to specifically stipulate that the quantity of the goods specified must not be exceeded or reduced.
Invoicing for a Lower Amount
In real life, while a credit is issued as far as possible for or near to a round sum, the actual amount drawn may not always be exactly so. The amount finally invoiced may happen to be a broken amount, more often slightly less than the amount stated in the credit. The last section of Article 30 provides for this possibility. It states that (even when partial shipments are not allowed) a tolerance not to exceed 5% less than the amount of the credit would be allowed (practically by way of default). This would, of course, be under certain specific conditions.
A beneficiary may thus submit his invoice for an amount lower than the LC amount (maximum 5%), provided,
(1)   that the quantity of the goods (if stated in the credit) is shipped in full, and
(2)    the unit price (if stated in the credit) is not reduced.
This deviation does not apply when the credit stipulates a specific tolerance, or uses the expressions ‘about’, ‘approximately’ or terms to similar effect (as stated in sub-article 30(a)).
This means that if the credit stipulates a specific tolerance limit, that will apply. If terms such as ‘about’, ‘approximately’ etc. are used, then the 10% variation (as per sub-article 30(a)) will prevail. As already clarified, the invoice amount being lower than the LC amount by (a maximum margin of 5%) is a default option permitted in the UCP.
If the above still appears to be confusing and unclear, the illustration furnished in the next section may be helpful in better understanding of the relevant articles of the UCP.
Article 30: A worked out example
Sub-article 30(a): If the quantity of goods in the credit is simply mentioned as ‘1000 MT’, the beneficiary must ship a minimum of 950 MT, or up to a maximum of 1050 MT (+/- 5% allowed as per sub-article 30(b), provided the other stipulations are complied with). However, if the credit states the quantity of goods to be shipped as about or approximately 1000 MT, then the shipment can vary between a minimum of 900 and a maximum of 1100 MT and still comply with the credit terms. It is to be remembered that even if more than the stipulated quantity is shipped under this provision, the total amount available under the credit cannot be exceeded.
Sub-article 30(b) & (c): Assuming that a credit is issued for USD100,000 (not ‘approximately’ US$100,000 or ‘about’ US$100,000); quantity of goods is stipulated as 1000 MT; partial shipment is not allowed, to what extent can the beneficiary vary the quantity of goods that he wishes to ship and the amount of his invoice?
Under the provisions of sub-article 30(c), the minimum amount that can be drawn is restricted to (5% less than the LC amount, that is) USD 95,000. Since the credit has mentioned the quantity of the goods to be shipped, it must be shipped in full. Further, since the amount is not being exceeded, or the credit does not stipulate any packing unit or individual item, this issue does not attract the provisions of sub-article 30(b). The quantity, therefore, can also be varied by 5% either side of that stated in the credit (1000 MT). Shipment can thus be made for either 950 MT or 1050 MT as long as the unit price (if stated in the credit) is not changed.
The Issuing Bank and Article 30
In view of the provisions of Article 30, and the leeway provided by the same to the beneficiary in terms of variation in amount drawn under a credit, the unit price and the quantity finally shipped, the issuing bank should apply its mind with due care while drawing up a letter of credit.
Here too, understanding the exact requirement of the applicant would be helpful in giving final shape to the terms and conditions of a documentary credit.
****




[1] First published in LCM-Trade Services Update, Volume 15, Issue 1, January - February 2013.
[3] This interpretation is my based on my understanding of UCP, Article 30. Error, if any, may please be pointed out for rectification.]

When a non-bank issues a letter of credit


INTERNATIONAL CHAMBER OF COMMERCE, PARIS
 When a non-bank issues a letter of credit
Department of Policy and Business Practices
 ICC Commission on Banking Technique and Practice,
30 October 2002.

Because of widespread interest in this subject, the ICC Banking Commission has decided to post its official Opinion on non-banks and letters of credit on the ICC web site. The Opinion follows.
Articles 1 and 2 of UCP 500
When a non-bank issues a letter of credit
Query
We have been receiving a significant number of enquiries about letters of credit which are advised by some banks in the usual way, but are actually issued by a corporate, or the finance arm of the corporate and not a Bank.
These predominantly corporate L/Cs from Country U are ‘advised’ by banks on their letterhead in a SWIFT MT 700 format, and to all intents and purposes appear to be bank issued L/Cs, with the requirement to present documents to the advising or transferring bank, where documents will be processed and payment made after receipt of funds from the ‘issuer’.
Invariably they incorporate clauses to the effect that the L/C is subject to the UCP, and that where the UCP refers to ‘issuing bank’ then the issuer is to be construed as acting in all respects as the ‘issuing bank’.
Notwithstanding the fact that legally any entity can issue a letter of credit, our understanding is that the UCP only contemplates as issuers banks, on the basis that the issuing bank is undertaking a third party, independent guarantee of payment to the seller (beneficiary). It is this independence of a banker's letter of credit that is key to the payment undertaking.
The requirement by the seller for a letter of credit is two-fold: first that he has a guarantee of payment, and second that he can use the credit to raise pre-shipment finance from his banker.
In the case of the corporate L/C as we understand it, the guarantee of payment is not normally by an independent third party, and, as such, the credit risk is that of the corporate entity issuing the credit. Similarly when documents are presented under the L/C for negotiation, that negotiation if any, is based on the risk of the issuing entity, i.e. is corporate, not bank risk.
We would be grateful if the ICC Commission on Banking Technique and Practice would advise on the following:
1.      Is it acceptable practice for a bank to advise a corporate letter of credit in the same way as a bank-issued letter of credit without drawing attention to the ‘non-bank’ nature of the issuing entity? Does the Commission consider appropriate guidelines should be published? If so what will these say?
2.      What is the position if the corporate issuer were to apply for liquidation, bankruptcy, or protection from creditors (e.g. file for Chapter 11), and how different is the position to that of when a bank is unable to meet its obligations.
Analysis
The UCP reflects that state of practice, namely a situation where the issuer or other actor on a letter of credit is a bank. As a result, although there is no affirmative rule in the UCP prohibiting entities that are not banks from issuing, confirming, paying, negotiating, or advising letters of credit, its vocabulary (‘issuing bank’, ‘confirming bank’, etc.) assumes that these entities are banks.
This assumption is based on the recognition that there are three principal advantages to bank issuance and handling of letters: namely that banks have the operational expertise to handle issuance and presentation under letters of credit in a professional manner, that they have the tradition of independence from the underlying transaction which is the basis of the commercial reputation of the letter of credit, and that in virtually all countries banks are specially regulated with a view toward protecting those who rely on their undertakings.
These matters are of considerable importance to the integrity of the letter of credit as an instrument of commerce and to its dependability as an instrument of payment.
However, neither the Commission on Banking Technique and Practice nor the UCP can determine who is empowered to issue letters of credit under local law nor who may issue its undertakings subject to the UCP. That restriction on the issuance of letters of credit is a regulatory matter under local law should be obvious. In some countries, non-banks can issue letters of credit, although there may be limitations where they are used in consumer situations. In other countries, issuance is limited to financial institutions, but it is less clear that only banks constitute financial institutions. As a result, non-banks that are financial institutions, such as insurance companies, can issue letters of credit in some countries.
It may be less apparent that the UCP cannot itself limit the scope of its application. The UCP is a set of voluntary rules of practice. The rules can be modified or excluded by the undertaking that is issued subject to them as is recognized in UCP 500 article 1 (Application of UCP) (The provisions ‘are binding on all parties thereto, unless otherwise expressly stipulated in the credit.’). Issuance by a non-bank constitutes such a modification. Even if the UCP expressly prohibited issuance by a non-bank, this prohibition could be modified because the UCP is not a legislative act that can restrict the manner in which it can be applied.
Where a letter of credit is issued by a non-bank, the non-bank issuer should be held to the same obligation and standard of care as would a bank. In either case, the obligation is to pay against the presentation of documents that comply with the terms and conditions of the credit and that determination is to be made based solely on the documentary presentation and not on the status of reimbursement obligations or the underlying transaction, and local law should apply the same principles to an independent undertaking regardless of who makes it.
Having concluded that a credit can be issued subject to the UCP by a non-bank, however, does not mean that it is prudent for a beneficiary to accept such a credit. Issuance through an advising bank does mitigate the issue of whether the credit is authentic and presentation of documents to a bank does reduce some operational risks. There is, nonetheless, the risk of the creditworthiness of the issuer and country risk. These risks apply equally whether the issuer is or is not a bank and a beneficiary should always assess whether it is prepared to accept the credit and country risk associated with the issuer. If not, it should require confirmation by an entity with which it is comfortable.
There remains, however, an additional risk that may not be apparent to beneficiaries, namely the risk of neutrality of the issuer. This risk is somewhat more intangible but is very important. It is the risk that, when presented with documents, the issuer may be influenced by factors other than whether they comply on their face with the terms and conditions of the credit and may exercise certain discretionary judgments in examining documents against the beneficiary where it would not otherwise do so if external factors were different. While this risk is not confined to non-banks, the reputation of individual banks for integrity is well known in the letter of credit community and one which most banks that regularly engage in letter of credit practice work hard to maintain. It is less apparent that when faced with a poor credit decision, an insurance company will approach the problem in the same way as would a letter of credit banker rather than as an insurer, which may be inclined to reject all arguable claims and engage in litigation to settle any colourable dispute.
Similar concerns would apply to corporate issuers on behalf of themselves or affiliated companies, even though two-party letters of credit are recognized by UCP 500 article 2 (Meaning of credit) (‘and on the instructions of a customer (the 'Applicant') or on its own behalf’).
For these reasons, it is in the interest of banks generally to inform corporate letter of credit users of the advantages of having a bank's obligation, either as the issuer of a credit or as the confirmer of a credit issued by a non-bank. There would be no objection under standard international letter of credit practice to informing specifically the beneficiary of such a credit as to the nature of the issuer in addition to emphasizing that the advising bank assumes no liability, although in the absence of agreed standards such a decision should rest with the individual bank involved.
Of course, where the manner of issuance misleads the beneficiary into believing that the issuer is a bank, the advising bank may expose itself to liability. Ultimately, however, the decision as to whether or not to accept the risks associated with a non-bank issuance rests with the beneficiary.
Conclusion
  1. It does not ‘violate’ the UCP for a non-bank to issue a credit subject to the UCP even though such issuance is not contemplated in the rules. The UCP does not specifically provide for bank advice of non-bank issued letters of credit. Such an advice should accurately identify the issuer and indicate the advising bank's limited role. If the form of advice refers to the ‘issuer’ as ‘issuing bank’ or otherwise gives the impression that it is a bank, it is recommended that the advice affirmatively disclose the non-bank status of the issuer in order to correct any mistaken impression caused by such reference.
  2. The consequences of insolvency are a matter for local law, whether the insolvency is that of a bank or non-bank issuer. In either case, however, the beneficiary assumes the risk of the creditworthiness of the issuer unless it is offset by obtaining confirmation or credit insurance.


Rome, 30 0ctober 2002