Remedies For Letter Of Credit Fraud

As an area flooded with controversies and difficulties, Letter of Credit (hereinafter referred to as "L/C") fraud and the so-called "Fraud Exception" principle have obviously importance for further study. This paper discusses some major legal problems of L/C fraud.Chapter I deals with three topics, whose proper articulation being fundamental for any research on this subject. Firstly, L/C fraud is defined as a fraud committed by utilizing the payment mechanism of L/C. Also the categories of L/C fraud and the logically distinguishing criterions are given at the same time. Secondly, this chapter analyses the subjective and objective causes of L/C fraud, the mainly cause is the flaw of L/C system itself. Lastly the author discusses the use of paperless bill of letter and EDI and looks forward to the future of L/C fraud. Chapter II studies remedies available for L/C fraud. Through the analysis of the defects of Abstraction and Independence of L/C, we introduce the notion of Fraud Exception, including its theoretical basis and legislation and judicial practice in some countries. Then we concentrate the discussion on the categories and conditions of application of temporary remedies. The first remedy is the right to refuse to honor L/C by the banks. This is one of the temporary remedies, the author analyses the different authorities on whether the banks have the right to refuse to honor, and provides advices for the condition, responsibility and procedure of bank's right to refuse to honor L/C. The second remedy is judicial preservation. By the introduction of injunction from common Law, the author analyses the existing rules of China including the preservation of property before the institution of an action and then points out the defects therein. Some advices are provided for future legislation governing the conduct of preservation of property will be laid out.Chapter III discusses the next step of judicial remedies after the temporary remedies or when it is impossible to obtain temporary remedies. Also discussed on the necessity and feasibility of separate criminal action stemming from civil action, and on jurisdiction and frustration of criminal responsibility.Chapter IV outlines the guarding measures for the parties in different situations and look forward to the future of international cooperation of anti-L/C fraud.