Expanding international business offers fantastic business opportunities for all-including fraudsters. Many times the default/fraud succeeds because of the unawareness of parties involved in the trade transaction. This unawareness can be on account of inherent weakness in a document involved in the transaction or may be due to myths related to a specific payment system as proposed by the counter party . For example, many exporters consider a letter of credit as a police to the commercial transaction which is not true . It is therefore of ultimate importance for banks , traders and all other parties to be aware of associated risks, pitfalls and the red flags etc while handling the international trade transactions. FIEO in association with JIMS, Rohini is organizing a one day workshop to impart knowledge on all dimensions of a trade transaction so as to be able to take necessary preventive precautions. Extensive coverage will be given on technical aspects of trade transactions, alternative possibilities , applicable rules , inherent strength or weakness of a particular type of document etc. The various topics covered in the workshop will be highlighted through case studies. It also covers further the legal and practical aspects; in particular the means of asset recovery post-fraud will be dealt with. The workshop was led by Dr.(Prof.) Ashok Bhagat Ex. Head Sales – Trade&VP Societe Generale, ICC India nominee for ICC Banking Commission Paris –India Chapter & Ex-Officio Member ICC INDIA Executive Committee and currently Dean -IB , JIMS, Rohini. Delhi.

1. www.jimsindia.org
24th April, 2014
By Dr. (Prof.) Ashok Bhagat
Dean -International Business
Jagan Institute of Management Studies
#3, Institutional Area, Sector-5,
Rohini, New Delhi-11008

2. www.jimsindia.org
Functions of Transport Documents
FUNCTIONS:
a) Receipt of Goods
b) Contract of Carriage
c) Document of Title of Goods (Sales of Goods
Act)

3. www.jimsindia.org
Transport Documents
1. Consignee
2. Payment Terms
3. Guarantee cover to the
transaction

4. www.jimsindia.org
Transport Documents
1. Bill of Lading
2. Airway Bill
3. Postal Parcel Receipt
4. Road,Rail, Inland Waterway trasport
documents

5. www.jimsindia.org
Consignee
1. Buyer
2. Buyer’s Bank
3. To the order of Shipper

6. www.jimsindia.org
Types of Bills of Lading
1. Conferences Line Bills of Lading
2. Charter Party Bill of Lading
3. Seaway Bill

7. www.jimsindia.org
CONFERENCE LINE VESSELS
“Vessel” is registered with an approved Classification Society (C.S.) as per
the Institute Classification Clause and class maintained equivalent to
Lloyds 100A1.
Vessels are only classed with C.S. in accordance with their rules and are
issued class certificates.
Classification Societies are approved by the Institute of Lloyd
Underwriters and incorporated in the Institute Classification Clause.

8. www.jimsindia.org
CONFERENCE LINE VESSELS
DEALS WITH FITNESS OF THE VESSEL AND REQUIRES SURVEY OF
SHIPS CONDUCTED AT REGULAR INTERVALS.
IT ALSO CONFIRMS THAT HULL AND MACHINERY IS EQIVALENT TO
LLOYDS 100A1

9. www.jimsindia.org

10. www.jimsindia.org

11. www.jimsindia.org
Various Payment Systems &Risks Attached
1. ADVANCE PAYMENT
2. OPEN ACCOUNT/DOC. COLLECTIONS
3. AVALISATION
4. LETTERS OF CREDIT
5. BANK PAYMENT OBLIGATION

12. www.jimsindia.org

13. www.jimsindia.org
Risks Attached with LC transactions
1. Bank Risk
2. Country Risk
3. Documentary Risk
4. Transferred LCs
5. Stand by LCs

14. www.jimsindia.org
14
Complying Presentation
 CP means a presentation that is as per the
- Terms and conditions of the credit
- The applicable provisions of these
rules (UCP 600) and
- International banking and practices

15. www.jimsindia.org
Is there an alternative to confirmation
1. Silent Confirmation
2. No bank is ready to add the
confirmation in your country.
3. Confirmation is added by another
bank overseas?
4. Partial confirmation

16. www.jimsindia.org
FINANCING TO EXPORTER
1. Negotiation/Discounting
2. Payment

17. www.jimsindia.org

18. www.jimsindia.org
BANK PAYMENT OBLIGATION
A BPO is an irrevocable undertaking given by
one bank ( Obligor Bank)to the another
(Recipient Bank ) that payment will be made on
a SPECIFIED DATE after a SPECIFIED EVENT
has taken place .
1. This “specified event “ is evidenced by a “match
“ report that has been generated by Trade
Service Utility (TSU) developed , hosted and
maintained by SWIFT .
2. TSU is a matching engine that matches data
extracted from trade documents.
3. SWIFT has developed new ISO 20022 messaging
standards for matching the data.

19. www.jimsindia.org
BANK PAYMENT OBLIGATION
1. The obligor bank is irrevocably bound to pay to
the recipient bank according to the terms of the
established TSU baseline if there are no
mismatches or all involved parties accept the
mismatches.
2. Documents will go directly to the buyer from
seller
3. Only data will be matched
4. BPO will decide for payment of documents and
not the documents will decide for payment
5. Good for countries like Japan where payment is
against a Invoice and a copy of transport
document

20. www.jimsindia.org
Interactions between a Buyer, a Seller and their
respective Banks
Buyer’s Bank Seller’s Bank
Buyer
Seller
Contract
Shipment & Documents
NB. These flows are OUTSIDE the scope of the URBPO.
Payment
After the Buyer and Seller have contracted to use BPO as the
method of payment, the relevant purchase order data is passed to
each bank
After shipment, the Seller will provide commercial and transport
data to the Sellers Bank
When the commercial and transport data has been matched to
the purchase order data, the BPO is due and payment will follow
21

21. www.jimsindia.org
Interactions between Buyer’s Bank, Seller’s Bank and the
TMA:
Establishing a BPO where Buyer’s Bank is only Obligor
Bank
Buyer’s Bank =
Obligor Bank
Seller’s Bank =
Recipient Bank
BPO
established
BPO
due
TMA
NB. These flows are
INSIDE the scope of
the URBPO.
The Buyers Bank uses the purchase
order data to submit a Baseline
The Sellers Bank uses the purchase
order data to re-submit the Baseline
The Buyers Bank receives a Baseline
Match Report to confirm that the two
Baselines match
The Data Set Match Report confirms
that the invoice & transport data match
the Baseline and the BPO is due
The Sellers Bank receives a Baseline
Match Report to confirm that the two
Baselines match
The Sellers Bank submits the invoice &
transport data to the TMA
The Data Set Match Report confirms
that the invoice & transport data match
the Baseline and the BPO is due
22

22. www.jimsindia.org

23. www.jimsindia.org
Guiding principles under LC
Operations
1. What credit states is what goes.
2. Banks are dealing in “CONDITIONS” and not
in “FACTS”.
3. Credit is to facilitate payment and not a
“POLICE” to commercial transaction.

24. www.jimsindia.org
3 principles of an LC
1.LCs are separate transactions
from underlying commercial
contracts
2.All parties deal in documents
and not in goods
3.Doctrine of strict compliance
3 Basic
Principles
3 Guiding
Principles
1. Be careful while drafting underlying sales contract.
2. Analyze LC conditions carefully and seek
amendment for what can not be done.
3. Prepare documents carefully and also instruct
associates clearly .

25. www.jimsindia.org

26. www.jimsindia.org
LC expired on 30th Sept (Sunday)
Banks were closed due to Puja
holidays from 1st Oct to 6th Oct. 7th
Oct (Sunday) and 8th Oct due to
strike banks could not open.
Docts submitted on 9th Oct.

27. www.jimsindia.org
Expiry Dates
Article 14c – 21 days
Article 36 - Force majure
conditions
previous working day
Article 29 –
Next working day for other than
article 36 situations
Date of shipment never gets
extended

28. www.jimsindia.org
If a LC mentions “third party
documents acceptable”
………it means that any
document issued by other
than beneficiary will be
acceptable under the LC.

29. www.jimsindia.org
PARA 21
Third party documents
acceptable – All documents,
excluding drafts, but including
invoices may be issued by a party
other than the beneficiary.
Article-14K allows all documents
to show a shipper other than the
beneficiary.

30. www.jimsindia.org
LC requires ‘Inspection
Certificate confirming goods
have been inspected at the port
of shipment'.
Your inspection agency fails to
arrive in time for inspection
and hence certificate could not
be issued .

31. www.jimsindia.org
Article 3 - Interpretations
Issuer of doct- if mentioned as
“first class, qualified,
etc,……doct can be issued by any
body other than beneficiary.

32. www.jimsindia.org
You have received export LC which is restricted
for negotiation with X Bank . You present
complying documents to X Bank who refuses
to negotiate the documents without assigning
any reason. You are out of funds.

33. www.jimsindia.org
Once the applicant of LC takes delivery of goods(
where the goods are consigned in the name of
the applicant ), LC issuing bank must pay.

34. www.jimsindia.org
Good docts and LC containing all
conditions of the sale contract
will deliver proper goods to
applicant whereas a badly drafted
LC / bad docts will produce bad
goods.

35. www.jimsindia.org
Documents submitted under
a letter of credit must
comply with all the
conditions of sales contract
as the LC calls for a
certificate that all terms and
conditions of the sales
contract no …has been
complied with.

36. www.jimsindia.org
Article 4 - Credits v. Contracts
Credit is separate from sale
contract even if it has been
specifically referred in the LC

37. www.jimsindia.org
Your discrepant documents
are acceptable to the
applicant . He is ready to
waive the discrepancies and
conveys his acceptance to
Issuing Bank but Issuing
bank still rejects and refuses
to honour?

38. www.jimsindia.org

39. www.jimsindia.org
40
MUST BE AVOIDED
1. Accepting a LC which
requires presentation of a
document which is under
control of buyer.

40. www.jimsindia.org
Inoperative documentary credit
Includes conditions over which bene has no
control
By issuing a pre advise only – issue of operative
instructions under suspense
Examples of clauses
- payment will be made after goods have been
cleared by customs
- goods to shipped by a ship which will be named
later on by an amendment
- linked with issuance of performance gtee
- linked with issuance of license

41. www.jimsindia.org
42
MUST BE AVOIDED
2. Accepting a LC which
requires passing of title of
goods directly in the name
buyer.

42. www.jimsindia.org
43
MUST BE AVOIDED
3. Accepting a LC which is
not from a reputed bank
even in a good country.

43. www.jimsindia.org
44
SUMMARY-
Aide Memoire
Exports /Local Sales
Ask amendment to delete non
documentary condition/ ambiguous
clauses
Avoid putting additional/unrelated
details on documents

44. www.jimsindia.org
45
SUMMARY-
Aide Memoire
EXPORTS /Local Sales
NEVER LOOSE CONTROL OF GOODS
(A)DO NOT CONSIGN GOODS FVG BUYER
(B)DO NOT SEND TPT DOCTS DIRECTLY TO
BYR
SAME DAY DESPATCH FROM YOUR BANKER
FOLLOW UP RECEIPT OF DOCTS BYLC IB
AVOID TAKING BENEFIT OF 21 DAYS FOR
LODGING
Check the reimbursement instructions carefully

45. www.jimsindia.org
THANKS………
ashok bhagat