LC frauds

Dear Nguyen Huu Duc

As promised please find below my personal reply without and
responsibility or liability:


The issue of fraud is considered a matter for local law. Therefore UCP
does not deal with fraud. The example that you mention shows of course
"weakness" of the LC instrument. This is why - even if you are using an
LC - you need to know who you are dealing with - and need to have a
certain amount of "trust".

That being said my view is as follows:
In fraud cases there is a risk that one of the involved banks will face
a loss. The basic question one should ask is, who (which bank/part)
should bear that risk.
I think it should be the issuing bank/applicant (mainly the applicant)
who bears the risk of loss in fraud cases. This means that a nominated
bank that has followed its nomination should be protected against fraud
(if having acted in "good faith" - another concept not dealt with in the
UCP).
As mentioned in the question there have been cases - like the Santander
Case - where this has not been the result. My view is that this is
because the UCP apparently was not drafted strong enough on this point
(many will no doubt disagree on this).
However in the UCP 600 considerable effort has been done in order to
avoid cases like the Santander case - e.g. the inclusion of sub-article
12(b). I hope these articles will show the path and protect nominated
banks against fraud if having acted in good faith.


Kim Christensen
February 2007


-----Original Message-----
From: [mailto:nhduc.dng@vietcombank.com.vn]
Sent: Thursday, January 25, 2007 7:34 AM
To: singlewindow@lcviews.com
Subject: Single Window Question

Below is the result of your feedback form. It was submitted by
(nhduc.dng@vietcombank.com.vn) on Thursday, January 25, 2007 at
07:34:02
------------------------------------------------------------------------
---

Name: Nguyen Huu Duc

q: A document, inspection certificate for example, issued by the buyer's
representative is often seen amongst documents required by the LC for
aqua-product. This document can be created by the beneficiary.
Negotiating bank may negotiate LC without knowing that the document is
false until it is informed by the issuing bank of the fraud. Like
Santander case,the bank negotiating false documents has to cope with the
situation of receiving no reimbursement from the issuing bank.
I know once again after many fraud cases like Banco Santander case,like
UCP 500, UCP 600 still has no articles dealing with frauds.
I would appreciate if LC specialists like T.o Lee, Jia Hao, Kim
Christensen, Ravi Mehta... have their opinions on this matter.