Risks In Using L/C And The Prevention Thereof

Letter of Credit is the most important form of payment and clearing in final estimate of international trade. It promotes with the development of international trade in 19th century. Clearing with letter of credit is safer than other clearing methods, for when using letter of credit, banker's credit takes the place of commercial credit. That is to say, as long as the document is conform to the provisions of Letter of credit, the bank will bear responsibility of payment first. Credits separate transactions from sales or other contract. In the operation of credit, all parties concerned deal with document instead of goods. In addition, because the parties of letter of credit are in different countries or regions as well as some illegal business occurs frequently, the business with letter of credit has raised risks, and some fraud actions appear.With the development of our country's reform and opening-up, China will enter into WTO, international trade will develop further and letter of credit will be used in international trade more frequently. At the same time, fraud in letter of credit will occur more frequently. Over recent years, numerous cases concerning fraud in letter of credit have shown the necessity to resolve problems in this field. Some scholars in our country have made wide research in fraud in letter of credit and raised some ways in prevention.Letter of credit plays an important role in international trade, however, there is increasing risks involved therein. Starting from introduction of the definition, the process, the juristic characters and advantages of the L/C, this thesis gave details of various risks both the seller and the buyer involved in a contract of international trade may encounter, accompanied with respective proper preventive measures should be taken. Based on comparative and in-depth research on the laws and standard cases of both the U.S and England with regard to the principle of "fraud exception", the author put forward original ideas on the proper attitude that Chinese banks and courts should have in handling the fraud cases.