Fraud Exception Study

China has become the target of some illegal businessman who are expertised in L/C fraud. According to the governmental statistics, only in 1977, the payments were prohibited over thirty times because of the fraud in transaction. The amount of every L/C fraud case reached millions of dollars. An astonishing number shows that our financial safety is threatened. To our comfort, not only judicial institution but also financial management have paid attention to the fact In China, fraud exception has been introduced to the judicial practice. But the abuse even the wrong application to fraud exception arises now and then. This hinders the development of foreign trade, ruins the reputation of the judicial systems and bank circles. So it's a crucial task that we should strengthen the research on fraud exception.This article is divided into four parts:The first part aims to build a few fundamental conceptions of L/C and L/C fraud. In this part, the diversities and harm of the fraud, the causes of the fraud's origin are closely illustrated with a legal perspective. At the same time, this part makes a special explanation of the independent rule and abstract rule of L/C. The author thinks even though the independent rule and abstract rule indulge the illegal action objectively, as the base of the L/C system, we can't deny it thoroughly. We should look for a new system which can overcome the negative role of the independent rule and abstract rule. Fraud exception is the best choice without question.The second part gives an account of the origin and development of fraud exception. The common Law system set up and developed the fraud exception. The United States established the fraud exception in SZTEJN case. There is UCC5 in USA, which is the statue law about L/C. The author analyses, compares the revised and the unrevised edition in detail. British and some other Common Law system countries also accepted the fraud exception in judicial practice. The Civil Law system countries deal with the L/C fraud according to their principles and stipulations in Civil Law. The ICC's attitude to fraud exception shows that ICC doesn't oppose itThe third part addresses the application to fraud exception. The reservation of public order is it's theoretical foundation. In order to avoid the abuse of fraud exception, we must set up strict restrictions on the application to fraud exception. This part tries to regulate the subject, scope and degree of the fraud in fraud exception. Only L/C fraud meets the demand of requisites to constitute a fraud, can fraud exception be launched. Fraud exception is an effective way, which can prevent the illegal businessmen succeeding in fraud transaction. To achieve this aim, the opening bank can refuse to pay and the court can issue the injunction.The fourth part recommends the fraud exception in China. For many years, China has been the injured states of L/C fraud It's necessary to apply fraud exception when there is fraud in foreign trade. So the foreign trade and the bank circles can uphold their benefits. In this section, the author analyses the existing problem in accordance with the legislation and the judicial practice of anti-fraud in L/C transaction in China. An urgent task on hand is to perfect the stipulations on the application to fraud exception and improve the judicial level of the court Only in this way, can our businessmen's benefits be safeguarded, can the abuse of fraud exception be avoided, can the image of the court be upheld.The conclusion: On the one hand, L/C system promotes economic development; on the other hand it acts as a tool in the hands of the illegal businessmen. The independent rule and abstract rule should be subject to fraud exception. To take precautions against calamity, we should reinforce the prevention to risk consciousness.