On Identifying The L/C Fraud And Its Legal Regulations In China

Letter of Credit (abbreviation for L/C) is the most important type of payment in the international trade. As using bank credit instead of commercial credit, L/C solved the trust crisis and consolidated the confidence between buyers and sellers, and it was accepted by the both sides. Independent abstract principle is the essential characteristics of L/C. If the papers presented by the exporter are in compliance with the L/C terms, the bank is obliged to accept or pay. However, this principle makes enough space for some unfaithful merchants.They often abuse it and scam the money from the bank by taking advantage of L/C operation mechanism. Based on the complexity of L/C fraud, International Chamber of Commerce (abbr for ICC) didn’t make any ideas on this problem, and he leaves it to the domestic law to work out.As to the definition of L/C, there are different descriptions among the Measures for Settlement by Domestic Letter of Credit(abbr for MSD), the Uniform Customs and Practice for Documentary Credits(abbr for UCP600), the Uniform Commercial Code(abbr for UCC). Compared to UCP600and UCC,MSD is very narrow on the concept of L/C.With the development society, this definition can’t meet to the needs of practice.So our legislation should introduce UCP600and UCC, and plug "acceptance" and "written" in its provision. The most equipped law of L/C fraud in our country is the Rules of the Supreme People’s Court on Hearing Letter of Credit Dispute Cases (abbr for Rules). The Rules listed the situations of the L/C fraud. Upon these situations, scholars have divergent opinions, particllarly on the subjects of the L/C fraud. According to the comprehensive analysis, there are three cases which should be included in the L/C fraud. Beneficiary committed alone; beneficiary committed with the applicant or other third parts. Furthermore, the methods of L/C fraud should comprise "fraud in documents" and "fraud in trade". The criterion of L/C fraud is "material fraud". Besides,"soft items" and "L/C swindling" should be excluded from the L/C fraud, which can make us understand L/C fraud more clearly.Before taking measures to the L/C fraud, we should decide the competent court and the corresponding law. According to our law, L/C fraud cases are often governed by intermediate court or high court, and it is under the jurisdiction of the people’s court of the place where the tort is committed or where lawsuit has been brought. Given the partial jurisdiction of maritime court, our legislation should define the boundaries between common court and maritime court, and endow some criminal sanctions to maritime court. Meanwhile, Supreme Court can authorize some small L/C fraud cases to the lower court. As regarding to the application law for L/C fraud cases, our court agree to the law which litigant has chosen desirably, or the international conventions, if not, the court will apply to the law which has the most connection with the cases. L/C fraud exception is the relief to the L/C fraud. Compared to UCC, our Rules have defects in the following circumstances:Firstly, the conditions of suspending order are strictly harsh; secondly, lacking of the subjective claims; thirdly, the procedures of relief are in chaos. Accordingly, our Rules should be ameliorated in three aspects:First of all, grafting "injunction" system from UCC; then, certifying the litigants of L/C fraud cases; finally, empower the bank the rights of refusing to pay. At the end of the discussion, we must pay attention to the exemption clause of the exception system. Only in this way, can we guarantee the whole justice of the exception system.Some times, prevention is more important than relief. When referring to the relief, subjects also should pay close heeds to the guarding, such as investigating the credit of the trade partner, participating in the international commercial organizations. Taking precautions before it is too late, can we prevent ourselves from cheating. Of course, the international communities also should strengthen cooperation, and do their best to formulate the international rules which fight against L/C fraud as soon as possible.