Study On The Legal Problem Of Documentary Credit Fraud

Letters of credit, replacing business credit with bank credit, is a new kind of ways for quoting prices and settling accounts in international trade. The particular functioning system of documentary credits settles the problem of colleting and circulating funds for the participants using letters of credit, as well as settles the problem that buyers and sellers cannot trust each other. The participants involving in letters of credit comply the principles of independence and strict compliance, meanwhile, this kind of behavior leaves the natural fraud chance for the happenings of documentary credit fraud. In order to prevent this kind of behavior from happening, the principle of fraud exception was firstly established in American judicial practices. The principle of fraud exception is a breakthrough to the principles of independence and strict compliance, so it is a new development of the system of documentary credits. This article first explains what the principles of independence and strict compliance are, then makes an analysis on the principle of fraud exception. As to the problem of legal remedies for documentary credits fraud, this article makes the judicial practices comparison with common law system and Roman law system, then points out the main problems in China and put forward the workout. This article uses study ways of theoretical analysis, comparative analysis and case analysis comprehensively.This article is divided into four parts, besides foreword and conclusion.The first part illustrates the basic theory of documentary credits fraud, including definitions, forms and reasons of documentary credits fraud. The documentary credits fraud means the businessmen manipulates the system of documentary credits, for the purpose of gaining high profits, to take a set of fraudulent measures to deceive other parties who is eager to gain profits.The forms of documentary credits fraud are various in practices. According to the principle of strict compliance, taking an aspect of circulating process of documentary credits, the documentary credits fraud can be divided into: the fraud by forged, altered and genuine documentary credits;the fraud by forged documents;the fraud by soft clause documentary credits. The economic factors have an influence on the causes that documentary credits fraud arise from, but from the aspect of law, the principles of independence and strict compliance are the fundamental causes that documentary credits fraud result from.The second part makes a discussion on the principle of fraud exception and its requirements to apply. The principle of fraud exception means a limited elimination to the principle of independence when there is a material fraud. Its purpose is to safeguard the beneficent party in the transaction of documentary credits. The theoretical basis of principle of independence includes the concept of fairness, the principle of publicorder reservation, the principle of honesty and the principle of disuse of rights. The application of fraud exception principle faces its own dilemma: which principle should be applied when economic interests represented by the principle of independence conflicts with the concept of fairness represented by the principle of fraud exception. After comparing the applicable standards of fraud exception in different countries, this article holds the view that the applicable standards of fraud exception should includes: the body that manipulates the system of documentary credits to fraud;the existence of fraudulent behavior;the existence of subjective fraudulent intentions;the combination of subjective fraudulent intentions and objective fraudulent behavior.The third part expounds the legal remedies for documentary credits fraud. Legal remedies for documentary credits fraud can be concluded as: interim injunction and permanent injunction in America;Mareva injunction and property injunction in England;attachment and punishment in Germany and so on. The requirements to apply legal remedies include: the courts have the jurisdiction to grant injunction order;the existence of irreparable injury;the existence of success on the merits;the balance of interests. The procedure to apply legal remedies includes: banks exert the right not to pay;applicants plea the court for grantinginjunction order;courts issue injunction order.The fourth part puts forward legislation advice for perfectingstipulations on documentary credits fraud in China. At present, China uses civil law, criminal law, civil procedure law and relevant judicial representations to regulate documentary credits fraud. It should be noted that, for the lack of comprehensive relevant legislation, effective laws of regulating documentary credits fraud are inadequate in China. This has caused the problem of lacking uniform judicial practice standard. This article puts forward the relevant legislation advice for perfecting legislation: make sure the concept of documentary credits fraud;make sure the requirements to apply the principle of fraud exception;make sure the body to issue injunction;make sure the banks have the rights not to pay.