BAFT Guide To Letters of Credit

TRADEFINANCEGLOBAL.
COM
TRADEFINANCEGLOBAL.COM
This is a jointly produced publication between the BAFT
(Bankers Association for Financing and Trade) and
Trade Finance Global (TFG).
THANKS TO
BAFT and TFG would like to extend a special thank
you to all authors, editors, experts and contributors
for the production of this publication.
AUTHORS
Dave Meynell
Pradeep Taneja
EDITORS
Deepesh Patel
Scott Stevenson
EXPERTS
BAFT Commercial
Letters of Credit Working Group
CONTRIBUTORS
Brian Canup
Carter Hoffman
LAYOUT DESIGN
Nigel Teoh
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Trade Finance Global is the trading name of TFG Publishing Ltd.
No part of this publication may be reproduced in whole or part without

permission from the publisher. The views expressed herein are those of
Trade Finance Global and BAFT. Although BAFT and TFG have made every
effort to ensure the accuracy of this publication, neither they nor any
contributor can accept any legal responsibility whatsoever for the
consequences that may arise from any opinions or advice given. This
publication is not a substitute for any professional advice and does not
supersede the guidelines of the International Chamber of Commerce
(ICC)’s Uniform Customs and Practice for Documentary Credits (UCP 600).
www.tradefinanceglobal.com
2
Contents
CONTENTS
1 Documentary credits (Letters of Credit): definition and purpose 8
2 Why use a documentary credit: Risk mitigation and benefits 10
3 Parties involved 12
4 Types of credit 14
5 Rules, practice, and law 18
6 Financial crime, fraud, and sanctions 22
7 Ensuring credit-compliant presentations of documents 26
8 Handling document discrepancies 28
9 Dispute resolution 32
10 Digitalisation and the future 34
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AUTHORS
David Meynell
Founder
TradeLC Advisory
David Meynell is the founder of TradeLC Advisory, an advisory and

consultancy service, and the co-owner of www.tradefinance.training,
an online training platform for all aspects of trade finance.
He previously worked for Deutsche Bank for over 30 years in a number

of international locations, culminating as Global Head Trade Product
Management for Financial Institutions.
David is Senior Technical Advisor for the ICC Banking Commission and former
Chief Examiner for the LIBF Certificate in International Trade Finance (CITF®).
Pradeep Taneja
Founder
Chairman of ICC Bahrain
Trade Finance Forum
Pradeep Taneja is the founding member and Chairman of ICC

Bahrain Trade Finance Forum, Board member and Co-Chairman
of ICC Bahrain.
Pradeep retired as Group Head of Trade Technical Services with

Bank ABC, Bahrain and now has his own consulting firm, Taneja
Global Trade Consulting WLL.
EDITORS
Deepesh Patel
Editorial Director
Trade Finance Global (TFG)
Deepesh Patel is Editorial Director at Trade Finance Global (TFG). In this

role, Deepesh leads efforts in developing TFG’s brand, relationships and
strategic direction in key markets, including the UK, US, Singapore, Dubai
and Hong Kong.
Deepesh regularly chairs and speaks at international industry events with

the WTO, BCR, Excred, TXF, The Economist and Reuters, as well as industry
associations including ICC, FCI, ITFA, ICISA and BAFT.
R
Scott Stevenson
Senior Vice President, Trade
BAFT
Scott Stevenson is the Senior Vice President of Trade at BAFT. Stevenson

leads the association’s trade-focused policy, practices, and education
initiatives, and supports its trade-related councils and committees.
Prior to joining BAFT, Stevenson was a senior advisor for AF Capital Partners,
which provided expertise in emerging market structured and project
finance for development banking institutions. For two years, he consulted
development banks and export credit agencies following a 17-year career
at the International Finance Corporation (IFC) and World Bank Group in
various trade and investment project leadership roles.
4
Everything you need to know about Letters of Credit
BAFT Commercial Letters of Credit Working Group
Danielle Austin Buddy Baker

Member, Commercial Letters Member, Commercial Letters
of Credit Committee, BAFT of Credit Committee, BAFT
Manager - Export Trade Finance Vice President, Goldman Sachs
Solutions, Umpqua Bank
R
Normand Girard, CDCS Glenn Ransier

Chair, Commercial Letters of Member, Commercial Letters
Credit Committee, BAFT of Credit Committee, BAFT
Director - Global Trade
Operations, BMO
CONTRIBUTORS
Brian Canup Carter Hoffman

Assistant Editor Research Associate
Trade Finance Global (TFG) Trade Finance Global (TFG)
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5
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FOREWORD
Letters of Credit, the engine
behind international trade
In the ever-evolving world
of global trade, the role of
traditional documentary trade
instruments like Letters of
Credit (LCs), also known as
Documentary Credits, becomes
increasingly pivotal. As we
navigate through complex
macroeconomic terrains and
geopolitical uncertainties, LCs
provide the industry with
security and trust in
international transactions.
Interest rates remain high

across many economies,
access to finance is becoming
more difficult for many
corporates, and multiple
conflicts are leading to a rise
in shipping costs and supply
chain shortages.
More than 50 countries,

accounting for over half of
the world’s population, will
have elections in 2024. This It is important to break down The continued relevance
geopolitical volatility could such a vital component of of LCs is highlighted by
create significant problems for international trade, which is why their increasing adoption,
the world of international trade. Trade Finance Global (TFG) and as documented by the
BAFT (Bankers Association for International Chamber of
But the world has undergone Finance and Trade) put Commerce's (ICC) 2023
many changes before and one together this guide to try to Trade Register.
of the main tools used for trade demystify LCs. We want more
during times of turmoil has people to utilise the tool and This uptick in usage is not
been, and always will be, the continue to break down the merely a reflection of growing
Letter of Credit. barriers of international trade. trade volumes but also an
6
indication of the trust placed This guide is crafted to hope that this guide will help
in LCs by businesses seeking provide a comprehensive you navigate the international
to navigate the uncertainties understanding of LCs, from trade world.
of international markets. their historical origins to their
modern-day application. TFG and BAFT are thrilled to
The data points mentioned by It aims to demystify the launch this LC guide at the
the ICC’s Trade Register point technicalities of LCs, offering BAFT 2024 International Trade
to a broader trend of reliance insights into their operational and Payments Conference
on formalised trade finance framework, legal underpinnings, in Washington D.C. We want
mechanisms to secure and practical usage in trade to thank David Meynell and
transactions in a landscape finance. Pradeep Taneja for their help in
marked by fluctuating writing this guide, and the BAFT
economic policies and Whether you are a seasoned Letter of Credit Committee for
trade tensions. finance professional or new providing their expertise and
totrade finance, TFG and BAFT guidance during the process.
SCOTT STEVENSON DEEPESH PATEL

Senior Vice President, Trade Editorial Director
BAFT Trade Finance Global (TFG)
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1
Documentary credits (Letters of Credit):
definition and purpose
There are several critical features

of documentary credits:
Definition
Documentary credits Irrevocability : documentary credits constitute an irrevocable
undertaking of the issuer to pay, meaning that, once issued,
are payment instruments
the credit cannot be revoked or changed by the issuing bank.
that constitute a definite A credit can only be amended or cancelled with the consent
undertaking of the issuer of the issuing bank, the beneficiary, and the confirming bank
(“the issuing bank”) on (if any).
the instruction of the buyer
(“applicant”) to pay a certain Documentary nature : documentary credits are documentary
specified amount to a seller in nature and any payment undertakings contained in them
(“the beneficiary”) at sight or are conditionalupon receipt of documents as stated in the
on a future determinable date terms and conditions of the credit.
(“the maturity date”) provided
that documents stipulated in Compliance : documentary credits are settled only when the
the documentary credit are documents presented by or on behalf of the beneficiary
presented in compliance comply with the terms and conditions of the documentary
with the stated terms and credit. Therefore, to obtain payment under a documentary
conditions. credit, the beneficiary must present documents which comply
with each credit’s terms & conditions. If the documents
contained do not comply (also known as discrepancies), an
The issuing bank issues the issuing bank may refuse to honour and is only obligated to pay
documentary credit on behalf if the non-complying documents are corrected and made
of its customer (“the applicant”) compliant before the credit expires, or if the applicant waives
or on its own behalf. the discrepancies and the issuing bank also agrees
to waive any discrepancy(ies).
These undertakings are known
as “documentary credits”, as Payment mechanism : documentary credits constitute
they specify the documents a payment mechanism designed to facilitate the settlement
that must be presented in order of an underlying trade transaction whereby the applicant
(the buyer) receives the goods or services, and the beneficiary
for the credit to be honoured.
(the seller) obtains payment via the credit which would
then satisfy the applicant’s payment obligations against the
These are also known as “letters underlying sales or other contract on which it may be based.
of credit” (LCs) as they were
originally issued in a physical
Independence and autonomy : documentary credits constitute
document form addressed to an independent undertaking of the issuing bank and the
the beneficiary with the issuing confirming bank (if any) separate from the underlying sale
bank’s undertaking to pay upon or other contract on which it may be based. The principle of
receipt of complying autonomy is articulated within the ICC Uniform Customs and
documents. Practice for Documentary Credits 2007 Revision (“UCP 600”)
and is upheld throughout the world.
8
Documentary Credits – Process
ISSUANCE SETTLEMENT
Importer Contract (1) Exporter Importer Goods / Services/ Exporter

Performance (1)
Payment (6)
Payment (6)
Discrepancies (if any)
LC Application LC Advised communicated and
Documents
(2) (5) resolved (2)
Issuing Bank Advising Bank Issuing Bank

Negotiating Bank
Payment (6)
LC Issuance LC Receipt Documents Documents

Transmission Documents Examined (3)
(3) (4) Re-examined (4)
Purpose It should be noted that banks

only deal with documents
when a complying presentation
is made.
and not with goods, services
The purpose of a docum- or performance to which Documentary credits assure the
entary credit is to provide a the documents may relate. beneficiary of payment as long
mechanism or arrangement as they present the requisite
to facilitate the settlement of The terms and conditions of complying documents to the
an international or domestic a documentary credit form the nominated bank, the confirming
trade transaction by use of basis upon which the applicant bank (if any), or the issuing
a bank undertaking. must reimburse an issuing bank bank.
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Why use a documentary credit:

2 Risk mitigation and benefits
Risk mitigation
International trade transactions
often involve buyers and sellers
residing in countries with
different legal systems,
currencies, market practices,
customs, trade, and exchange
control regulations.
Buyers can face challenges

in evaluating the credibility of
foreign suppliers and have to
bear the risks associated with
the seller failing to fulfil its
contractual obligations. This
can include non-delivery or
delayed delivery of the goods
or goods that do not meet the
quality standards agreed upon
in the contract.
Given the challenge of

remedying these issues in a
foreign and unfamiliar legal
system, buyers naturally prefer
to commit to making payment
only after receiving the goods
to their satisfaction.
Likewise, sellers must bear the

risk of non-payment and, if that
occurs, would need to take
legal action against the buyer Documentary credits provide As such, when traders
in the buyer’s country. This a mechanism to address and deal under the terms of
means that sellers naturally help resolve these conflicting a documentary credit, there
prefer to receive payment interests. is a reduced likelihood
before making a shipment. of misunderstanding or
UCP 600 and International misinterpretation, which
This dynamic, where buyers Standard Banking Practice helps to minimise the risk
only want to pay after delivery, (ISBP) publication 821 govern of unforeseen disputes.
but sellers want to receive documentary credits and
payment before shipping, provide the rules and practice To avail upon the benefit
creates an imbalance in the for the examination of Rof the documentary credit
system. documents. mechanism, it is vital for the
10
Benefits The credit is independent

of the sales contract
and in instances where a
The benefits of documentary presentation complies with
credits differ depending on the credit, the issuing bank
which side of the transaction is obligated to pay. In the
a party finds themselves on. event they do not pay, for
For the buyer in an international whatever reason, the seller
transaction (i.e., the applicant), can still rely on the sales
the primary benefits are contract from its buyer.
assurance that:
2 A documentary credit
1 In most cases, they will only cannot be cancelled
need to make payment or amended without
after the shipment has beneficiary agreement
been made. since a documentary
credit is, by definition,
irrevocable.
2 The seller will submit the
documents required by the
credit which should allow 3 The issuing, confirming
for customs clearance or nominated bank which
needs. agreed to act upon its
nomination, if there is one,
3 The issuing bank will will make payment upon
examine the submitted presentation to them of
documents for compliance complying documents.
with the terms and
conditions of the credit
4 There is the possibility
before payment is made.
of further recourse to a
confirming bank. (This is
useful if the seller has
For the seller in an
concerns regarding the
international transaction
beneficiary to clearly state political, or legal landscape
(i.e., the beneficiary),
the terms and conditions of the for the buyer’s country or
the primary benefits of a
documentary credit, including the credit rating of the
documentary credit are that:
which documents are needed issuing bank).
and which party should issue
them. 1 The risk of payment under
the sales contract shifts
Likewise, the beneficiary from the buyer to the
must submit the documents issuing bank (which may
stipulated in the documentary have a credit rating which
credit’s terms and conditions. exceeds the applicant’s).
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3 Parties involved
Transferable – Process
LC
AD
VIC
E/C
ON
1st Beneficiary FIR Applicant
TR MA
AN TIO
SF N
ER
RE
QU
ES
T
Advising / LC APPLICATION
Confirming Bank
LC
ER ISS
SF UA
AN NC
TR E
2nd Beneficiary TRA

NSF Issuing Bank
Bank ER
2nd Beneficiary
Several distinct entities can In its application, the applicant The issuing bank irrevocably
be parties to a documentary details the documents required undertakes to pay the
credit. Some must be present, under the documentary credit beneficiary upon receipt of
while others are optional and along with applicable terms the necessary documents as
only added to meet certain and conditions. Even though determined by the terms and
goals or requirements for the the applicant initiates the conditions of the documentary
specific interaction. This request, it is not a party to credit.
chapter highlights the possible the documentary credit since
parties in documentary credits. a credit is a bank undertaking. The beneficiary
The beneficiary is the party in
The applicant The issuing bank whose favour the documentary
credit is issued. It is generally
The applicant is usually The issuing bank issues the the seller in an international
the buyer of the goods who documentary credit as per trade transaction.
requests (or applies to) the applicant’s request.
the issuing bank to issue
a documentary credit on
its behalf.
12
The confirming bank The nominated bank The issuing bank authorises the
reimbursing bank to honour
a reimbursement claim from
A confirming bank can provide The issuing bank can the claiming bank.
an irrevocable undertaking - authorise another bank, called
in addition to that of the the nominated bank, to pay The reimbursement
issuing bank - to honour a presenter at sight, to accept authorisation is often subject
the documentary credit. a bill of exchange, or to to the ICC Uniform Rules for
incur a deferred payment Bank-to-Bank Reimbursements
This means that it agrees undertaking to pay at under Documentary Credits
to pay at sight, or to incur a maturity. (URR 725). If not so indicated
deferred payment undertaking,
in the credit, reimbursement
or to accept a bill of exchange Nomination by the issuing bank is subject to UCP 600 article 13
(depending on the availability only imposes obligations on (Bank-to-Bank Reimbursement
of the credit) on receipt of the nominated bank if it has Arrangements).
compliant documents as confirmed the documentary
stipulated in the documentary credit or expressly agreed
credit’s terms and conditions. and communicated to the The transferring bank
beneficiary that it will act on
its nomination.
The advising bank In some cases, the beneficiary
is an intermediary trader that
An advising bank receives the The reimbursing bank sources the goods from another
documentary credit from the supplier and may request its
issuing bank and advises the buyer to arrange a transferable
The reimbursing bank is
beneficiary on establishing its documentary credit. The issuing
another party - usually the
authenticity. bank would then nominate a
issuing bank’s correspondent
transferring bank to transfer
bank, with which the issuing
By advising the documentary the documentary credit.
bank maintains an account
credit, the advising bank verifies in the currency of the
that the documentary credit The beneficiary (“first
documentary credit.
is authentic and provides beneficiary”) will request the
assurance that the advice transferring bank to transfer the
The documentary credit will
accurately reflects the terms documentary credit in whole
stipulate the name of the
and conditions of the or in part to its own supplier
reimbursing bank on which
documentary credit as (i.e., “second beneficiary”).
the nominated bank or the
received. Unless the advising confirming bank (then known
bank has confirmed the For a transfer to occur, the
as “claiming bank”) should
documentary credit, it documentary credit must
make a reimbursement claim.
assumes no further liability explicitly state that it is
or responsibility. transferable.
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4 Types of credit
There are several types of Usance credits Mixed payment

documentary credits, each
with its own characteristics. credits
Under usance credits, the
issuing bank undertakes Practitioners use mixed
to honour a compliant
Sight credits payment credits when a partial
presentation at a future date amount is payable at sight
(known as the “maturity date”). while the remainder is payable
With sight credits, the
There are two types of usance at a future date (or dates) as
nominated bank (acting on
credits: per the documentary credit
its nomination), the confirming
bank, or the issuing bank effects terms.
1 Acceptance credits:
payment upon presentation of
A documentary Since these credits comprise a
the documents (also called “at
credit stipulating the mix of sight and usance credits,
sight”), provided documents
presentation of a bill of they are known as mixed
comply with the terms and
exchange (“draft”) which payment credits.
conditions of the documentary
the bank will accept and
credit.
pay at maturity to the
beneficiary. Negotiation credits
2 Deferred payment credits: A negotiation credit is the
Same as acceptance purchase by the nominated
credits, except that they bank of drafts (drawn on a
do not require the bank other than the nominated
presentation of a draft. bank) and/or documents under
14
a complying presentation, The first beneficiary can request If the documentary credit
by advancing or agreeing transfer to multiple second requires the presentation of
to advance funds to the beneficiaries, provided the an insurance document, the
beneficiary on or before documentary credit allows for amount or the percentage
the banking day on which partial shipments. However, of insurance can be increased
reimbursement is due to the second beneficiary cannot to provide cover as initially
the nominated bank. transfer the documentary credit required under the
to another subsequent documentary credit.
beneficiary.
Confirmed credits The first beneficiary has the
Under UCP 600, the transfer right to provide its invoice in
Confirmed credits are those must be effected on the existing substitution of the second
that also bear the confirming terms and conditions except beneficiary’s invoice and draw
bank’s irrevocable undertaking for the amount, the unit price for the difference in amount,
(in addition to that of the if given, the expiry date, and if any. However, if it fails
issuing bank) to honour or the latest date of shipment to provide its invoice, the
negotiate, without recourse, or period for presentation, transferring bank can forward
documents complying with the all of which can be reduced. documents received from the
terms and conditions of the Furthermore, the name of second beneficiary to the
credit. the first beneficiary can be issuing bank.
substituted with the applicant's.
Transferable credits
If the beneficiary (i.e., the “first
beneficiary”) of a documentary
credit is an intermediary trader
that procures the goods from
another source, they may
request the buyer to provide
a transferable credit, which
the first beneficiary can then
transfer to its supplier (i.e.,
the “second beneficiary”).
A transferable documentary
credit must expressly state that
it is transferable and provide
the name of the nominated
bank or the bank authorised
to transfer.
To transfer the credit, the first

beneficiary will request that the
nominated or authorised bank
transfer the documentary credit
to the second beneficiary in
whole or in part.
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Back-to-back credits
Back-to-back documentary
Back to Back – Process
credits serve the same purpose
as transferable credits.
However, instead of transferring

the original documentary credit
to its supplier, the beneficiary
requests that its bank issue a Beneficiary Applicant
new one in favour of its supplier. LC
AD
VI
CE
Practitioners call these back-
ISSUE OF
to-back credits, as banks issue BACK-TO-BACK LC
LC APPLICATION
them on the back of an original

documentary credit. LC
IS S
UA
NC
Advising Bank E
A back-to-back credit is
separate and independent
from the original documentary 2nd Issuing Bank Issuing Bank
credit. While the issuing bank of

the back-to-back documentary
REQUEST OF
credit must honour a complying BACK-TO-BACK LC
presentation received under

its documentary credit, the
payment under the original is ADVICE
contingent on the ability of the BACK-TO-BACK LC
beneficiary of the original

documentary credit to provide
2nd Issuing Bank 2nd Beneficiary
documents in compliance with
the terms and conditions.
Instalment credits Revolving credits the issuing bank - under the

terms and conditions of the
Instalment credits stipulate a When buyers place repeat existing drawing.
shipment schedule with specific orders with the same sellers for
quantities or dates by which the the same goods at the same The parties can agree to
goods will be shipped. price and with the same terms stipulate the number of times,
and conditions, instead of the maximum amount, or the
A unique feature of these issuing a new credit every time, latest date up to which a
credits is that if one instalment they can agree with their revolving credit will
is not shipped within the suppliers to issue revolving automatically be reinstated.
stipulated period, the entire credits.
credit is no longer available for
any subsequent instalments These credits are 'revolved’ -
(not just for that specific either automatically or through
instalment). a notice of reinstatement from
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Advance payment payment is settled later by Practitioners also use SBLCs

the submission of credit- to support open account
credits compliant documents by transactions where a seller
the beneficiary covering ships the goods directly to
Typically, documentary the relevant shipment of the buyer, and the buyer is
credits provide payments to goods. expected to make the payment
the beneficiary at the post- directly to the seller. If the buyer
shipment stage upon Banks historically typed fails to pay when due, the
presentation of documents this clause in red ink when beneficiary can draw on the
complying with the terms and credits were issued in SBLC.
conditions. However, it is letter form.
possible to provide advance Generally, standby credits are
payment to the beneficiary at Green clause not expected to be drawn on,
2
the pre-shipment stage in documentary credits: hence the name. SBLCs are akin
anticipation of the beneficiary These credits are similar to guarantees since, in the case
presenting documents after to red clause documentary of the applicant’s default or
shipping the goods. credits. However, in non-fulfilment of its contractual
addition to extending obligations, the beneficiary of
To accomplish this, the credit advance payment to an SBLC can draw under the
allows the beneficiary to draw the beneficiary at the SBLC by claiming on the issuing
for up to a specified amount pre-shipment stage, green bank or the confirming bank as
by simply presenting a receipt. clause documentary per the terms and conditions of
The amount of any advance credits also include the SBLC.
payment must then be additional coverage of
deducted from invoice pre-shipment warehousing Typically, the beneficiary’s
amounts as goods are and insurance costs. claim must be supported by
shipped. documents such as its
statement confirming the
Financiers can provide pre- Standby letters of applicant’s default, copies of
shipment finance through two unpaid invoices, or copies of
credit transport documents as
types of advance payment
credits: required in the SBLC.
Standby letters of credit (SBLCs)
1 Red clause are used for a variety of Although many documentary
documentary credits: purposes, such as to support an credits are often issued subject
These credits contain applicant’s performance to UCP 600, UCP 600 has limited
a clause authorising the obligations (performance applicability to SBLCs as not
nominated bank to extend standby), to support an all articles of UCP 600 apply
an advance payment to applicant’s bid in a tender (bid- to SBLCs. The International
the beneficiary. The bank bond standby), to guarantee an Standby Practices of 1998
can release a set value at applicant’s financial obligations (“ISP98”) (ICC publication no
the pre-shipment stage to the beneficiary, which can 590) provides a separate and
to help the beneficiary also be a bank (financial exclusive set of rules governing
procure the raw material, standby), or to guarantee the SBLCs issued subject to ISP98.
process, manufacture, performance of a commercial
pack, and export the contract (advance payment
goods. The advance guarantee).
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5 Rules, practice, and law
Issuing a documentary credit is

not always a simple formality or
an act that can be completed
in a standard or recurring
manner. It often requires
attention to detail by the
corporate parties and, more
importantly, to contain precise
wording with a single
interpretation.
Documentary credits are

transactions prepared
according to the specific
requirements notified by an
applicant, and such provisions
should not be restricted to the
name of a document but also
extend to the data content for
that document and, where
appropriate, the name of an
issuer.
An applicant should ensure

that the instructions it provides
to its bank for issuing any
documentary credit meet the
requirements for specifying
the appropriate documentary
obligations. This will enable
the smooth importation of the
goods and provide a suitable
level of assurance regarding
the quality, standard and type
of goods purchased.
The content of the sales

contract, proforma invoice, or
purchase order agreed with
the seller should, where
appropriate, adhere to these
instructions. However, banks
will discourage any attempt
by the applicant to include, as
an integral part of the credit,
18
copies of the underlying The content of the UCP 600 The UCP 600 does not indicate
contract, proforma invoice, comprises: which documents or under
or the like. Most documentary what circumstances parties
credit application forms Framework must present under
incorporate a choice of the a documentary credit.
main types of documents under Structure of and obligations These decisions are left to the
under documentary credits
the terms and conditions. For applicant and beneficiary to
example, they often include Pre-advice, nomination, determine. However, an issuing
invoices, transport documents, reimbursement, standard bank may insist on certain
insurance documents, packing for examination of documents being presented
lists, and weight lists. documents, discrepant from a local regulatory
documents, waiver and perspective or due to its
Applicants are strongly notice, originals, and Invoice internal policy.
encouraged to provide the
Transport documents
name of an entity required to
issue each document and its Insurance documents
ISBP 821
data content.
Extension, tolerance, partial The International Standard
drawing or shipment, Banking Practice for the
UCP 600 instalments, disclaimers,
Examination of Documents
and force majeure
under Documentary Credits
Over the years, the ICC Banking (ISBP 821) reflects the existing
Transferable credits and
Commission has become a assignment of proceeds practice. It has evolved into
leading global rule-making
body for the banking industry,
producing universally accepted
rules and guidelines for
international banking practice.
ICC rules include the Uniform

Customs and Practice for
Documentary Credits,
introduced to alleviate
disparities between national
laws on documentary credit
practice. The ICC published the
current version, UCP 600, in
2007. The ICC do not require
banks or countries to indicate
adherence to any set of rules as
all ICC rules, including UCP 600,
are based on the principle that
they will apply if the credit is
stated to be subject to them.
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Trade Finance Talks
ISBP 821 be read in conjunction, documentary credits. The intent

not in isolation. is to explain how practices
The International Standard articulated in UCP 600 are
Banking Practice for the Incorporating the ISBP into applied by documentary credit
Examination of Documents the terms of a documentary practitioners, thus providing
under Documentary Credits credit is inappropriate, as the a framework under which a
(ISBP 821) reflects the existing requirement to follow agreed beneficiary may prepare its
practice. It has evolved into practices is already implicit documents to a standard that
a necessary companion within UCP 600. can be accepted globally.
to the UCP for determining
compliance of documents Applied correctly, the ISBP helps The content of the ISBP 821
with the terms of documentary reduce the large percentage comprises:
credits. of documents refused for
discrepancies on the first Preliminary considerations
It is important to note that presentation to a bank.
the ISBP does not amend the General principles
UCP 600. Instead, it explains The ISBP publication outlines
how documentary credit standard practice globally and Drafts and calculation
practitioners apply practices encompasses an intelligent of maturity date
expressed in the UCP 600. checklist of procedures for
The ISBP and the UCP should document checkers to examine Invoices
documents presented under
20
Transport document Packing list, note, or slip state which particular

covering at least two (packing list) jurisdiction would apply in the
different modes of transport event of any issues or disputes.
(multimodal or combined Weight List, note, or slip
transport document) (weight list) However, considering that
most documentary credits are
Bill of lading Beneficiary’s certificate issued subject to the UCP 600,
a uniform approach is already
Non-negotiable sea waybill Analysis, inspection, health, in place. This dramatically
phytosanitary, quantity, reduces any variances caused
Charter party bill of lading quality, and other by divergent national laws.
certificates (certificate)
Air transport document
Road, rail, or inland UCP 600

waterway transport
documents Under most documentary
credits, the corporate parties
Insurance documents and involved are domiciled in
coverage different countries. For this
reason, documentary credits
Certificate of origin subject to the UCP 600 do not
www.baft.org
21
Trade Finance Talks
Financial crime, fraud,

6 and sanctions
Financial crime
By making available to their
clients an array of trade finance
products designed to facilitate
international trade, banks have
become accustomed to the
need for practical tools and
processes that manage and
mitigate operational and
documentary risk. Fraud and,
to varying degrees, sanction
regulations have also required
close monitoring with the
inherent creation of specific
practices, processes, and
technological aids.
Recently, financial crime has

taken centre stage to the
extent of an increased
and collaborative focus on
combating the issue. It can
significantly negatively impact Many international bodies have Operations departments
individuals, companies, and the been established to combat are not generally required
economy of countries. such crime, with part of their to investigate commercial
focus on providing tools to transactions that fall outside
Fraud is, and always will be, help prevent and identify their scope of business or
a potential risk in trade finance suspect transactions. On an the type of transaction being
transactions. However, while it organisational level, there are handled. However, they should
is crucial to identify fraudulent several things that firms can do be aware of the business of
transactions, they impact only to help mitigate their exposure their counterparties and
a tiny percentage of global to financial crime and the usual trading patterns.
trade finance volumes. resulting implications.
An organisation can
The ICC Financial Crime Risk All companies should maintain occasionally find itself in a
and Policy Group describes internal guidelines advising situation with potential legal
financial crime as laundering staff on the compliance implications and costs and the
money, financing terrorism and requirements for handling risk of irreparable damage to
providing weapons for trade finance transactions. its reputation. Reputational
prohibited uses, breaking A key element should be risk can often have far more
sanctions, financial fraud, identifying and handling significant consequences than
financial crimes such as tax transactions covering dual-use the imposition of any financial
evasion, and other predicative goods, which are goods that penalty.
offences related to trade can be used for both civil
products and other financial and military purposes.
services.
22
Fraud Here are some examples of A bank refuses to pay

common fraud-related the beneficiary based on
scenarios: alleged or proven fraud.
Fraudulent trade transactions
have occurred since trading A bank has effected
began thousands of years ago. A buyer believes that the payment, and a refund
Buyers and sellers must know seller has committed fraud of the payment is required
the potential for fraud and and seeks to prevent a bank due to fraud.
from effecting payment by
have safeguards built into their
obtaining a court injunction. Fraudulently issued bank
processes and procedures.
undertakings such as
There is a saying that all Fraud based on either documentary credits,
stakeholders should consider: non-existent or poor-quality standby credits, and
“If it sounds too good to be goods or falsifying one or guarantees.
true, it usually is.” more documents within
a presentation under
a documentary credit,
Lord Diplock (1907-1985),
standby credit, or
an English judge, referred to guarantee.
fraud in a documentary credit
transaction as: “Documents
that contain, expressly or
by implication, material
representations of fact that
to [the issuer's] knowledge
are untrue.”
As with financial crime,

companies must adopt
processes, procedures and
guidelines for identifying,
escalating, and reporting
fraudulent transactions to
minimise potential financial
loss.
Fortunately, fraud only impacts

a tiny fraction of trade finance
transactions due to the
safeguards and risk mitigants
inherent in ICC rules, provided
they are used and complied
with.
www.baft.org
23
Trade Finance Talks
Sanctions For example, an arms embargo Deterring, preventing,

and a ban on the export of and suppressing terrorist
certain items or raw materials financing and terrorist acts.
A sanction is a measure
adopted against a country, could be aimed at supporting
regime, or individual that a peace process and restricting Failure to comply with sanction
officials believe is violating the financing of weapons by regulations can be extremely
international law. Sanctions combatants. Sanctions are also costly, not only in terms of a
are also political trade commonly aimed at preventing monetary fine but also damage
restrictions to maintain or weapons from falling into the the reputation of the concerned
restore international peace wrong hands. parties.
and security.
Several other examples of
Sanctions concerning trade objectives that sanctions may ICC Banking
finance are financial or trade seek to achieve are: Commission
controls that can be (and are)
imposed for political or A change in the conduct of The ICC Banking Commission
economic reasons by the a particular country, regime, issued a guidance paper on
United Nations, the Office of company, or individual. using sanctions clauses in
Foreign Assets Control (OFAC) documentary credits in 2010,
in the USA, the European Union Placing pressure on a updated in 2014. The paper
(EU) Council, and individual country, regime, company, deals with the use of clauses
or individual to comply with
countries. concerning trade, economic
set objectives.
or financial sanctions, or
The main objective of a As a punitive measure when embargoes in trade finance
sanction varies according to peace and security are instruments (documentary
the applicable circumstances. threatened. and standby letters of credit,
24
demand guarantees, and

counter-guarantees) that are
subject to the rules drafted by
the ICC Banking Commission.
The issue of sanctions

applying to documentary credit
transactions has surfaced
several times. As stated in the
paper, sanction clauses have
become problematic because
they lead to uncertainty about
their application and could
defeat the independent
nature of such instruments.
The purpose of the ICC’s
guidance paper was to
highlight this issue and
recommend best practices
in that respect.
Owing to a resurgence in
using sanctions clauses in
documentary credits, the ICC
addressed this issue again and
released an addendum to the
guidance paper in May 2020.
The key messages in this

addendum are that:
1 Sanctions clauses should

not be used routinely.
2 Any clause should be

drafted in clear terms
according to the sample
clause.
clear terms, restrictively, to liability for delay, non-return
limit the reference only to of documents, non-payment,
The ICC re-states the mandatory law applicable to or other action or inaction
recommendation that the bank, according to the compelled by restrictive
sanctions clauses should following sample clause: measures, counter-measures
not be used under normal “[notwithstanding anything or sanctions laws or regulations
circumstances. However, if to the contrary in the mandatorily applicable to us or
one is to be used, then such applicable ICC Rules or in this to [our correspondent banks in]
a clause should be drafted in undertaking,] we disclaim the relevant transaction.”
www.baft.org
25
Trade Finance Talks
Ensuring credit-compliant
7 presentations of documents
Trade documents have existed Discrepancies

since the dawn of the written
word, and archaeologists have
recovered ‘documents’ in the While some of the more
form of clay tablets that date common discrepancies are
back many thousands of years. due to timing issues (expiry,
Without documents, there is no shipment, and presentation
documentary credit, meaning period), quite a few derive from
that a seller does not get paid, poorly prepared documents
and a buyer does not get its or presentations. These can
goods. include conflicting data
between documents, missing
All parties involved in the trade documents, unauthenticated
cycle need documentation, alterations, missing
albeit with differing endorsements, goods
requirements, and each type descriptions not according
of document serves a different to the documentary credit,
purpose. insurance documents dated
later than the transport
There are many document document, and missing or
types, and it is essential to incorrect shipped-on-board
understand the intent of the notations.
documents required under
a documentary credit. Most As a result of discrepancies in
countries have a minimum a presentation, practitioners
requirement for import and incur additional costs by way
export documentation, and of discrepancy fees (from perceived financial risk of
many have numerous specific the nominated bank or the issuing bank or applicant.
and unique requirements. Still, issuing bank), expenses for
practitioners should be aware communications sent, lost Although an applicant may
of and account for these in the interest, and increased agree to issue a waiver for
terms and conditions of the administrative costs. These any discrepancies found in a
documentary credit. will all lead to a reduced profit presentation, the issuing bank
margin on the transaction. is not obligated to accept it.
Poorly prepared documents Discrepancy fees, for example, The issuing bank may
can severely impact a can be expensive and often continue to refuse to honour the
transaction, leading (at best) range from the equivalent presentation and will be entitled
to delays in settlement. Global of USD 25 to USD 500 per to subsequently return the
statistics differ, but the presentation. documents.
percentage of documents
refused by banks on the first Refusals can lead to banks Some applicants will use
presentation ranges between making no payment in some discrepancies in a presentation
65% and 80%. transactions. This can be due to 'negotiate' a discount with
to a confirming bank or issuing the respective beneficiary
bank refusing to honour in return for the applicant
or negotiate owing to the agreeing to issue its waiver.
26
Preparation relevant freight forwarder, beneficiary and the applicant

carrier (or its agent), or should carefully consider
of documents insurance company with a copy the documents required for
of the documentary credit to presentation, by whom they are
A beneficiary may issue any ensure they can comply with its to be issued, their data content,
document except where: instructions. This should happen and the timeframe in which
before the shipment of the they will be presented.
a) the rules state otherwise, goods.
As an example of the content
b) the documentary credit If there are any issues, seek an of ISBP, the publication includes
specifies the name of the amendment from the applicant references to misspellings and
issuer, or and refrain from relying on their typing errors. These can cause
stating that the amendment will all sorts of problems and, in a
c) the documentary credit follow or presenting documents worst-case scenario, will lead
refers to the type of issuer as on the basis that they will to a refusal of documents.
an independent, competent, authorise settlement despite However, not all misspellings
qualified, or local company. any discrepancy. If documents and typing errors make a
UCP 600 interprets this as are discrepant, there is no document discrepant if they do
any issuer except the undertaking from the issuing not affect the meaning or intent
beneficiary. bank or any confirming bank. of a word or sentence.
Beneficiaries can avoid Creating a checklist that

discrepancies in presentation
ICC rules provides guidelines on the
by paying more attention basic requirements for the
to detail and reducing Even before commencing more common documents
unnecessary data in the the preparation process, a is worthwhile to ensure
documents. This is achieved by beneficiary should understand compliance with the terms and
carefully considering whether to the rules. In particular, they conditions of a documentary
include additional or redundant should be aware of and credit. While an all-inclusive
information on a document and understand the implications checklist covering every
avoiding anything that could of the content of UCP 600. possible documentary
call into doubt the compliance It is also recommended requirement is not feasible,
of a document. Only that beneficiaries have an providing a generic one
incorporating data required by understanding of ISBP 821. covering the typical documents
the terms and conditions of the under a documentary credit
documentary credit or the ICC The fact that this addresses the and the standard information
rules will significantly increase examination stage will provide within each document is
the likelihood of a presentation the opportunity to understand possible.
being found compliant. the issues that bank document
examiners will focus on. Staff preparing documents
If in any doubt as to the should still thoroughly review
requirements for the ISBP 821 additionally makes it them before their presentation
completion of any document, clear that the preparation of under the documentary credit.
always contact the nominated documents should start early
bank and seek their guidance. in the chain. Before issuing
For documents not issued by the documentary credit, the
the beneficiary, provide the
www.baft.org
27
Trade Finance Talks
Handling document
8 discrepancies
When firms present documents

under a documentary credit,
banks examine them against
the terms and conditions of
the documentary credit based
on UCP 600 (provided the
documentary credit is subject
to it), international standard
banking practice, and data
between the documents
themselves.
If the documents do not

comply, they are discrepant.
In documentary credit
operations, advising document
discrepancies is the most
contentious issue a bank
will face with its clients or
another bank. It is, therefore,
imperative that the respective
discrepancies are of such detail
that the presenter is in no doubt
about the reason for the refusal.
A beneficiary should always
seek clarification if a bank
is unclear in its rejection of
presented documents.
Whether or not a bank refuses Clarity is the key. A bank that Pre-requisites
documents is based on the provides a refusal notice stating
content of the documents “Invoice not as per LC” tells the A covering schedule
themselves and their beneficiary or the applicant accompanying the documents
conformity to the documentary nothing. Is the goods should include the presenter's
credit and UCP. Ultimately, any description wrong? Is a required reference number and contact
discrepancy should stand certification missing? Is there details in case of any problems.
one test: “Would you feel some other specific issue?
comfortable justifying that A refusal notice must be of It should also include
discrepancy before a judge in sufficient detail and clarity for information on how and where
a court of law?” Remember, at the presenter of the documents to make payment, reference
the end of the day, a court will to understand it without to payment of charges, and
make the final judgement if having a copy of the actual details of where and how to
the parties cannot amicably documentary credit in front send the settlement advice.
resolve a dispute. of them.
28
The UCP 600 does not expect Approaching the applicant for
banks to need the full five a waiver can give rise to five
banking days to examine different results:
documents, although certain
circumstances may exist when 1 The applicant agrees to
this is the case. Competition waive, and the issuing
between banks for business bank accepts the waiver.
typically ensures that most Issuing bank honours.
presentations are reviewed
within 48 hours, if not on the 2 The applicant agrees to
day of receipt. waive, but the issuing bank
does not agree to accept
the waiver. The issuing
Obligations of a bank bank issues a refusal
notice indicating it is
A nominated bank that has returning the documents or
agreed to act on its nomination, seeking further instructions
a confirming bank, or an issuing for their disposal or
bank must determine whether handling.
the documents are compliant.
Each bank must decide whether 3 The applicant does not
or not to issue a refusal notice agree to waive, and the
based on its examination of the issuing bank issues a
documents. However, it does refusal notice indicating it
not always follow that a bank is returning the documents
that identifies a discrepancy or seeking further
will refuse the documents. instructions for their
disposal or handling.
The bank may not consider
a discrepancy to warrant a 4 The applicant has not
UCP 600 allows banks a refusal. One example of a minor provided its waiver of
maximum of five banking days difference would be if the discrepancies within the
following the presentation day documentary credit required time allowed by the UCP
to determine if a presentation six document copies, but a 600 (which can be no later
is complying. It is important presenter only provided five. than the close of the 5th
to note that, in most In this case, the bank may opt banking day following the
circumstances, documents will to make the additional copy day of presentation unless
be examined by the nominated itself rather than refuse the the credit says otherwise),
or confirming bank and the documents. so the issuing bank refuses
issuing bank. Each bank has a the documents.
maximum of five banking days In respect of an issuing bank, it
to examine the documents. must decide whether or not to
approach the applicant for
a waiver of discrepancies.
www.baft.org
29
Trade Finance Talks
5 The issuing bank withdraws

the request for a waiver
due to an incorrect refusal.
(This would happen if the
presenter provides a valid
argument for withdrawing
the discrepancy—for
example, particular
wording of the
documentary credit or an
amendment appearing
within a document).
Issues for
a beneficiary
to consider
Through this process, there
are several issues for the Options in the event of In respect of point 3, the use of
terms such as “on a collection
beneficiary to consider. discrepancies basis” and “in trust”, are
For example, can it be sure that
acceptable between the
the documents are discrepant? If there are discrepancies, three beneficiary and the nominated
Has the bank missed a options exist: bank, BUT SHOULD NOT be used
condition in the documentary
in any communications to the
credit? Has data been inserted
1 Correct the discrepancies issuing bank, as they imply
on a document but not seen?
by either amending the that the rules for documentary
documents or by collections are to be applied
Beneficiaries must be aware
replacement, rather than the rules for
of the content of the UCP 600,
documentary credits.
particularly articles 3, 14,
2 Request that the
and 17-32, together with the
nominated bank or Remember that the respective
practices outlined in the
confirming bank sends parties could avoid or resolve
ISBP. The ISBP is a publication
a message to the issuing many discrepancies through
which, by title, refers to the
bank seeking approval careful attention to detail in
examination of documents
to honour or negotiate the documentary credit or
by banks and how they should
despite the discrepancies amendment application.
apply the articles of UCP 600
that they have found whilst Handled correctly, preparing
to given documents.
holding the documents and examining documents is
with them or valuable to the beneficiary,
Using reverse logic, if a
the applicant, and the industry.
beneficiary understands
3 Request that the
how a bank will examine its
nominated or confirming
documents, it should be able to
bank forward the
prepare them to that standard
documents to the issuing
and avoid many problems.
bank for settlement.
30
www.baft.org
31
Trade Finance Talks
9 Dispute resolution
Examining documents under Options in the event of

documentary credits will often
result in a difference of opinion discrepancies
as to whether the documents
comply and, if considered Confronted by numerous and
to be discrepant, which often complex problems in
discrepancies are applicable. establishing documentary
In most situations, the compliance and interpreting
discrepancies are apparent rules and document content,
and result in no disagreement parties involved in trade
between the concerned parties. regularly approach the
International Chamber of
Furthermore, although disputes Commerce (ICC) for guidance.
can arise between any involved Since 1933, the ICC has
parties, they can generally made available seven UCP
resolve such conflicts quickly, publications, two bank-to-bank
without referral to any reimbursements (URR)
arbitration or legal process. publications, five ISBP
However, on occasion, they publications, and numerous
may involve a third party. guidance and briefing papers.
The choice of dispute resolution In addition, over the last few

will depend on the issues decades, the ICC Banking
in dispute. Moreover, it is Commission has drafted and
not advisable to include released hundreds of official
a reference to a preferred opinions in response to
form of dispute resolution in questions posed by parties
a documentary credit when: involved in trade activities.
The ICC arbitration service,
a) there may be no dispute, Documentary Dispute
but the addition of such Resolution Expertise (DOCDEX),
a clause will give a false has also resolved many
impression regarding the disputes.
issuing bank (i.e., that there
is an anticipation of a Options in the event of
dispute arising)
discrepancies
b) the dispute may be
inappropriate for the In response to requests for
stated service (e.g., ICC clarification and interpretation
DOCDEX, a named court or for resolving disputes submitted
jurisdiction, or a named by individuals, banks,
arbitration tribunal) corporates, logistics
32
companies, and law firms, The ICC International Centre for

the ICC Banking Commission Expertise (Centre) monitors and
created the “Official ICC handles the process.
Banking Commission Opinions”.
This resource provides expert
interpretation and analysis of Courts and
its rules and transactions issued arbitration
subject to such ICC rules,
including the UCP 600, which Unfortunately, there are
are the subject matter of the occasions when neither an
bulk of ICC opinions. ICC opinion nor DOCDEX will
solve the problem. In such
Courts often cite ICC Banking circumstances, the involved
Commission Opinions to assist parties may turn to the courts,
in dispute resolution and are which can be a costly and
considered a significant time-consuming option and will
resource for lawyers, bankers, include a wide range of costs
judges, scholars and other relevant to the legal process.
professionals in the industry.
The opinions are not binding. It is worth noting that over the
However, they have been used years, many courts have used
in evidence in court cases for the content of existing ICC
many years to support the opinions and DOCDEX
position of a defendant or decisions as the basis for their
plaintiff. deliberations and conclusions.
An arbitration or mediation
ICC DOCDEX service is far more likely to
occur in disputes between a
The purpose of DOCDEX is to buyer and seller relating to a
provide parties with a specific contract of sale than a dispute
dispute resolution procedure concerning the status of
that leads to an independent, documents under a
impartial, and prompt expert documentary credit and the
decision in settling disputes. UCP.
The ICC launched this service in

1997 as an alternative dispute
resolution system for parties
using ICC rules relating to letter
of credit transactions. However,
it has now expanded to cover
all ICC rules.
www.baft.org
33
Trade Finance Talks
10 Digitalisation and the future
The UCP 600, while being This is all too apparent when
invaluable in a paper world, looking at evolving technology
is not to be intended to be and digital trade finance, with
applied to transactions the advent of the Internet of
involving electronic documents. Things (IoT), Distributed Ledger
Over time, traditional trade Technology (DLT), Smart
instruments will inevitably move Contracts, Artificial Intelligence
towards a mixed ecosystem (AI), Machine Learning, and
of paper and digital and, Optical Character Recognition
ultimately, to electronic (OCR).
records alone.
The ICC will continually monitor
With this in mind, the ICC the content of the eUCP to
published the eUCP Version 1.0 ensure applicability, with these
in 2002 to address the rules providing many benefits
presentation of electronic in advancing documentary
records under documentary credits in a digital environment
credits. They issued an update and ensuring the continued
in 2007 known as Version 1.1. To relevance of this valuable
bring the rules in line with the instrument in mitigating trade
changes in terminology in UCP risk. They have also produced
600, the ICC published Version several guides regarding the
2.0 in 2019. Version 2.0 provides eUCP, including guidance for
a complete update of the rules buyers and sellers in handling
to ensure ongoing “e- documentary credits subject
compliance”. to the rules.
The latest update, Version 2.1, The eUCP focuses on the

published in July 2023, aligns presentation of electronic
the eUCP with the UNCITRAL records, alone or in
Model Law on Electronic combination with paper
Transferable Records (MLETR) documents, and not on the
regarding issues of electronic issuance of an eUCP credit.
transferable records. This decision was based on
Furthermore, the rules align with the fact that the industry
the Electronic Trade Documents has already issued electronic
Act (ETDA) introduced in the documentary credits for many
UK in September 2023. years. In addition, there was
concern that any rules
It was recognised at the surrounding issuance could
outset that the likely end encumber present and evolving
of the evolution to electronic electronic issuance practices
presentations would be while endangering the rules'
automated compliance technological neutrality.
checking systems in the The rules are based on the
documentary credit field. underlying principles in the UCP
34
It is essential to consider
the implications of the eUCP
when issuing a documentary
credit that will provide for
the presentation of electronic
records solely or in combination
with traditional paper
documents. Not doing so
could negate many benefits.
For instance, as with credits

solely subject to UCP 600, an
applicant must ensure that
any request for the issuance
of an eUCP credit expressly
clarifies and determines the
appropriate documentary
requirements as agreed with
the beneficiary.
Concerning an eUCP credit,

an applicant needs to
make several additional
considerations. The
fundamental requirement,
from which all else will evolve,
is to jointly agree with the
beneficiary of the credit that
presentation of electronic
records will be permitted and
to determine which documents
they can handle in this way.
During this dialogue, the

beneficiary must provide
reassurance that it can present
any required electronic records
and that such documents will
be in an acceptable format.
Before finalising the structure,
they must also determine that
it suits the issuing and
nominated banks.
www.baft.org
35
About BAFT
BAFT, the leading global financial services association for
international transaction banking, helps bridge solutions
across financial institutions, service providers and the
regulatory community that promote sound financial practices
enabling innovation, efficiency, and commercial growth.
BAFT engages on a wide range of topics affecting transaction
banking, including trade finance, payments, and compliance.
www.baft.org
36
About the BAFT
Letter of Credit Committee
The BAFT Letters of Credit working group is composed of
members of the BAFT Commercial Letters of Credit Committee.
The Committee focuses on issues and responds to questions that
directly impact the processing environment related to commercial
letters of credit. The committee provides comments on various ICC
rules, practices, and queries related to commercial letters of credit
operations.
The Commercial LC Committee also develops input, case study

material, speakers, and oversight to the LC workshops as well
as applicable participation in conference sessions on Trade.
Additionally, the committee supervises and supports the ongoing
work of the regional sub-committees: West Coast Letters of Credit,
Southeast Letters of Credit, and Central Letters of Credit.
To learn more about the BAFT Trade Committees,

visit www.baft.org/committees
37
Trade Finance Talks
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TFG’s data-led origination platform connects companies with innovative

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We assist specialist companies to scale their trade volumes, by matching

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trade finance - across app, podcasts, videos, magazines and research.
Attracting around 160k monthly readers, our publications have a global

audience in 187 countries.
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TFG are strategic media partners for trade conference providers around the
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BAFT Guide To Letters of Credit

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TRADEFINANCEGLOBAL.

Trade Finance Global is the trading name of TFG Publishing Ltd.

No part of this publication may be reproduced in whole or part without

1 Documentary credits (Letters of Credit): definition and purpose 8

2 Why use a documentary credit: Risk mitigation and benefits 10

5 Rules, practice, and law 18

6 Financial crime, fraud, and sanctions 22

7 Ensuring credit-compliant presentations of documents 26

8 Handling document discrepancies 28

10 Digitalisation and the future 34

David Meynell is the founder of TradeLC Advisory, an advisory and

He previously worked for Deutsche Bank for over 30 years in a number

Pradeep Taneja is the founding member and Chairman of ICC

Pradeep retired as Group Head of Trade Technical Services with

Deepesh Patel is Editorial Director at Trade Finance Global (TFG). In this

Deepesh regularly chairs and speaks at international industry events with

Scott Stevenson is the Senior Vice President of Trade at BAFT. Stevenson

BAFT Commercial Letters of Credit Working Group

Danielle Austin Buddy Baker

Normand Girard, CDCS Glenn Ransier

Brian Canup Carter Hoffman

Interest rates remain high

More than 50 countries,

SCOTT STEVENSON DEEPESH PATEL

There are several critical features

Documentary Credits – Process

Importer Contract (1) Exporter Importer Goods / Services/ Exporter

Issuing Bank Advising Bank Issuing Bank

LC Issuance LC Receipt Documents Documents

Purpose It should be noted that banks

Why use a documentary credit:

Buyers can face challenges

Given the challenge of

Likewise, sellers must bear the

Benefits The credit is independent

2nd Beneficiary TRA

There are several types of Usance credits Mixed payment

To transfer the credit, the first

However, instead of transferring

them on the back of an original

credit. While the issuing bank of

presentation received under

beneficiary of the original

Instalment credits Revolving credits the issuing bank - under the

Advance payment payment is settled later by Practitioners also use SBLCs

5 Rules, practice, and law

Issuing a documentary credit is

Documentary credits are

An applicant should ensure

The content of the sales

ICC rules include the Uniform

ISBP 821 be read in conjunction, documentary credits. The intent

Transport document Packing list, note, or slip state which particular

Road, rail, or inland UCP 600

Financial crime, fraud,

Recently, financial crime has

Fraud Here are some examples of A bank refuses to pay

As with financial crime,

Fortunately, fraud only impacts

Sanctions For example, an arms embargo Deterring, preventing,

demand guarantees, and

The issue of sanctions