The Boundaries Of The Letter Of Credit Fraud, Credit Fraud Crime Problem

Letters of credit is a widely used method of payment in international trade. According to statistics, using LC as payment method in international trade is about 15% in all methods and the percentage of China's import and export business is up to 30%. At present, the volume of LC dealt by China's bank has ranked the world's 2-3 in the world. At the same time, cases involving in LC criminal fraud and LC civil fraud took place frequently and China has become the hardest hit. Letter of credit criminal fraud and letter of credit civil fraud ought to be two distinct concepts, so there's not many scholars define the boundaries between the two concepts. Even if they're discussed sometimes there're only a little words mostly. However, the reality is not the case. There're overlap between China's current judicial interpretation and relevant law, moreover, many similar cases were judged quite differently. The facts show that the boundaries between letter of criminal credit fraud and letter of credit civil fraud are blurred in our country's legislative and judicial practice. Therefore, how to clearly define the boundaries between the letter of credit civil fraud and criminal fraud boundaries in legislation, strictly comply with the boundaries in judicial practice to make the right decision is critical to preserve our legal authority and reputation of Chinese banks, protect our national financial security and legal interests of parties concerned, and enhance our environment of the rule of law which is an important part of the country's soft power.In 1997, China's revised Criminal Law added a new criminal name as LC criminal fraud in Art.195. In 2005, the Supreme People's Court issued Rules on Hearing LC Disputes. The establishment of the new criminal name and Rules has achieved good results by providing clear legal basis and judicial guidance for cracking down LC criminal fraud legally and handling LC civil fraud properly. However, as there is a certain degree of overlap in relevant provisions between the Criminal Law and the Rules, courts made quite different decisions to similar cases on the basis of different understanding of relevant provisions. Especially, to the cases of illegal financing through LC by Fiction of the underlying contract, some of the court gave conviction while some court made judgments in civil proceedings as an economic dispute. This is regrettable. There's no specific convention on LC criminal fraud in the international society yet, and all ICC Rules including UCP have no words about LC criminal fraud. As there's no specific LC criminal name like China in any other country's domestic law, little research on LC criminal fraud is made other than China. As to LC civil fraud, since the New York State Supreme Court established the Fraud Exception principle in 1941 in Sztejn v. J. Henry Schroder Banking Corp, this principle has been gradually accepted by other States. But every country has its own composition of elements of this principle.In China, most criminal law scholars studied LC criminal fraud by analyzing the constituent elements, namely subject, object, subjective and objective aspects this criminal as well as the provisions of the death penalty etc... International trade law experts were mostly devoted to studying the composition of the letter of credit fraud exception, classification, exceptions to exceptions, the nature of soft clause, the legal remedies and other issues. Neither criminal law scholars nor international trade law experts carried out some systematic study on the boundaries between the LC criminal fraud and the LC civil fraud. The possible reason is that most scholars suggested that the boundaries between the two are too obvious to study. Even when several experts found and pointed out this issue there's not enough attention caused in the academic and practical society.It can be seen that, for the boundaries between the criminal and civil fraud, foreign scholars don't give a word as there is no LC criminal fraud in their countries, and many Chinese scholars rarely carried out systematic research on this issue as this is too simple even if it's occasionally discussed there're mostly a few words. It seems that there is no problem about the boundaries between the two. However, the aforementioned overlap in relevant provisions between the Criminal Law and the Rules and different judicial practice to similar cases are all calling upon us to clarify the boundaries between the two.In fact, the boundaries between the criminal and civil fraud are interdisciplinary issues covered by criminal law and international trade law. Specifically, the researchers are still rare; this may be a little innovations of this article. This paper attempts to clarify the composition of the LC civil Fraud Exception, as well as the composition of elements of the LC criminal fraud, identify the nature of the soft clauses, and to point out the overlap between the two and current Chinese relevant provisions, as well as the consequent difficult and dilemma in judicial practice. Finally, advices are provided to improve the relevant provisions in order to define the boundaries between the criminal and civil fraud.