Analysis On Independence Principle And Fraud Of Letter Of Credit

A letter of credit is a conditional bank's undertaking of payment. The main function of the letter of credit is that a bank issues it for the buyer, involving bank's credit into the both sides of buyer and seller, substituting bank's credit for commercial credit, in order to solve the problem of no-confidence between buyer and seller. A letter of credit, together with collection and remittance, is listed on one of main settlement instruments, honored as "the blood of international trade". "Uniform Customs and Practice for Documentary Credits-1993 Revision" (Publication No. 500), which is formulated by International Chamber of Commerce in order to unify global conducting regulations of a letter of credit, has been international accepted and practiced all over the World,The basic characteristic of a letter of credit is its "Independence Principle", which is the foundation that a letter of credit can exist. However, it is the independence principle that is usually exploited maliciously as one of main means in fraud of a letter of credit. This thesis will discuss the independence principle of a letter of credit and the issue of fraud of a letter of credit due to taking advantage of the independence principle maliciously, hoping to reveal the nature of a letter of credit the settlement instrument more clearly.The treatise consists of four parts. The first part outlines six aspects of a letter of credit. The second discusses the independence principle, and analyzes the reasons that a letter of credit is accepted in international trade settlement universally with game theory. The third analyzes the definition of fraud of a letter of credit in law both domestic and international, the types of fraud, the general character of fraud, and the Exception to the Independence Principle of fraud. Then I will discuss the issue of utility maximization between "Independence Principle" and "Exception to the Independence Principle" with the methods of evaluating maximum value and case study. Finally, the forth part gives some relevant suggestions to keep away from the credit fraud from the viewpoints of optimizing "independence rule" and reducing fraud probability.