Prevention And Remedy On Fraud In Letter Of Credit

Letter of credit (L/C) is a main legal instrument of international settlement which is widely used in international trade and it plays a more and more important role in economic activities. It is much safer to employ L/C to close an account than to use other methods, for when using L/C commercial credit is replaced by bank credit, L/C is an independent document, not depending on trade contract, besides, what bank deal with in the process is not goods, but receipts, and therefore, given that credits and receipts are identical in nature, bank assumes the first class responsibility of payment. However, it is because the inner defects lying in its payment principles of independence and abstraction and rigid consistence, and other factors such as the different countries and regions where the interested parties are located and the incessant lust of the involved, that make the increase in the risk of using L/C and give rise to great varieties of cheat in its intercourse. The fraud in L/C is very harmful. It not only makes economic losses of the international trader, but also damages the order of financial management and international trade. So it is very necessary to make wide research in fraud in letter of credit and raise some measures in prevention and remedy.There are many kinds of methods to classify the fraud in L/C. The fraud in L/C can be classified subject to the from of the fraud or subject to the actor of fraud. There are many causes of the fraud in L/C. The principles of independence and abstraction of L/C is the basic cause of the fraud in L/C. Besides, the causes can be analysed from the subjective side and the objective side. From the pointview of subject side, first cause is fraudulent conductors' greed, second cause is the victims' lack of awareness of self-protection, and third cause is that the staffs don 't have higher qualities. For the objective side, there are many causes. For example, many brokers in international trade and many transferable L/C being used widely increase the possibility of the fraud in L/C. The complexity of the legal relations among the parties of L/C provides a big space for the fraud in L/C. The great profit and the weak punishment become a cause for the fraud in L/C. The traders and the banks lack the preventive abilities, which make the intention, can easily come into true.The fraud in L/C is a complex legal phenomenon and the prevention of it is a great systematic engineering. Generally, it includes micro-countermeasures and macro-countermeasures. The macro-countermeasures include strengthening international cooperation about the fraud in L/C, making legislation in this field, stimulating on company establishment and so on. As for micro-countermeasures, four measures first are listed for all the parties of L/C. For instance, they should choose a higher credit-level partner cautiously and improve the staff's qualities. They also should check the documents seriously and have an immediate link between xhe banks and the traders. Besides, different measures are listed for different parties to prevent the fraud in L/C.The principle of fraud exception is produced in order to prevent the occurrence of the fraud in L/C basically, remedy the flaw of L/C, balance the profits of the parties of L/C and remedy the victims of L/C. The means to realize the legal effects about fraud exception include refusal used by the bank and injunction used by the court. In order to protect the principle of abstraction and independence of L/C as possible as one can, there must be strict qualifications if the bank refuses the payment or the court issues the injunction. In fact, the banksrefuse to pay the document occasionally, so the injunction becomes the most important means to realize the legal effects.