Legal Issues Correlated To The Finance Under Letter Of Credit And Related Bank Risks

Widely used as a settlement instrument, letter of credit (hereinafter abbreviated as L/C) plays an important role in international trade. In addition to provide surety of payment to exporter, L/C enables importer and exporter get loans from banks, which have rich sources of capital. But there are no specific provisions as respect to financing under L/C in our country. Form analyzing the financing role of L/C, this paper tries to expound the legal characters of financing under L/C,the legal relations of the parties combined with the financial and trade practice. This paper also explores the legal risks the banks pursuing financing under L/C encounter in the context of the legal environment of our country and relevant measures to lower these risks. There are four parts in this paper. In the first part, introduces the financing role of L/C and its legal character. In this part financing under L/C is classified into three types: financing by bill of exchange,financing by L/C,financing by contract according to the legal relations embodied in it. The second part mainly focuses on the guarantee interests enjoyed by banks in financing under L/C. Stresses the following types of guarantee interest to banks: the original copy of L/C,bills of lading,recourse right on bills of exchange law,the right to ask for reimbursement on L/C law. According to the positions different financing bank occupy, the paper analyzes the guarantee interests the bills of lading provides to these banks respectively. In the third part, the application law and conflict of law issue of these three kinds of financing under L/C is addressed. The application of law under L/C is stressed in this part. This part explores the unique legal risks banks participating finance under L/C may encounter in the context of legal framework of our country and makes comprehensive analysis about the legal risks of import bill advance,trust receipt,acceptance and discount,negotiation under L/C. Relevant measures took to lower risks of the financing banks is also suggested.