This month's content returns to a question the rules answer clearly and the courts sometimes do not: who bears the loss when a party performs and payment does not follow?
Dr. Soh Chee Seng and Chang Soon Thomas Song come at it from opposite ends. Dr. Soh takes up the independence principle under sanctions pressure and argues that recent decisions have put the loss in the wrong place. Song looks at a US decision on business email compromise and finds a court willing to hold a beneficiary's bank to account for a mismatch its own system had already flagged, with consequences for advance payments under LCs and guarantees. Michael Byrne continues his skills cliff series with Part 2, moving from the choice the industry made by default to what the shortage costs on an operations floor.
Plus: new LC issuance statistics, DCW Profiles, and a first for the eUCP.
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A beneficiary ships the goods, presents complying documents, and then learns the applicant has been sanctioned. The bank hands the documents back unpaid. Somebody is out the money, and it is not the party sitting on the goods. Dr. Soh Chee Seng thinks the courts have been putting that loss in the wrong place, and says so directly. He builds the case from ground most practitioners have covered before, Kuvera, Beam Technology, Winson Oil, then turns it on a Court of Appeal decision he says rewarded the applicant and the issuing bank for a shipment they never paid for, and on a recent Hong Kong judgment that points the other way.
Since 1989, a company whose payment instructions were altered by a hacker has generally had no recourse against the bank that paid the fraudster. Chang Soon Thomas Song explains why that no longer holds. In Elkin Valley Baptist Church v. PNC Bank, decided 10 September 2024 and never appealed, a church sent USD 793,876.10 to its building contractor and a fraudster received it instead. The bank relied on UCC 4A-207, which lets it pay on the account number alone, but only if it does not know the name and the number point to different people. Its own system had already flagged the mismatch, but nobody caught it. Song carries the point forward to advance payments under LCs and guarantees, and argues the decision strengthens the case for both.
The second part of Michael Byrne's trade finance skills cliff series looks at what the talent shortage costs on an operations floor. A discrepancy that one examiner used to clear on a single call now takes escalation, a hunt for whoever on the team still knows the answer, and sometimes a compliance review. The people who could spot a Solo Industries style fraud built that instinct over thousands of transactions, and it never went into any SOP. Byrne then works through the three responses banks have settled on, poaching, quiet exits from LC lines, and carrying on as before, and shows why none of them puts a practitioner back on the bench.
The latest quarterly dataset covers LC issuance across the top 600 US banks, with sorting and comparison functionality for standby and commercial activity.
Kristin Kyle-McQuesten, Trade Finance Manager at Banner Bank, came to the field by way of an economics degree and an unexpected assignment: read the UCP500 and make sense of it. Three decades later, she reflects on the mentor who made that first posting stick and on a shift she is watching closely as consolidation tests the collaborative habits she credits for much of her career.
K. Nizardeen runs Development Bank of Maldives as CEO, dividing his time between Dubai and the Indian Ocean. He points to a digitalization project that took Islamic LC issuance turnaround from forty-eight hours to fifteen minutes, and is blunt about what he sees pushing traders away from documentary credits.
Thanks for reading. Next month we're featuring the StandbyTech issue, focusing on the tools improving the business landscape in SBLCs. Stay tuned.
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Chris Sandler is the COO of the Institute of International Banking Law & Practice, the organization which produces DCW. Reach Chris at sandler@iiblp.org
In the past, the answer would be no. Chang-Soon Thomas Song, Attorney at KEB Hana Bank, explains what changed and one case where a remitter was able to recover from the beneficiary’s bank.
With regard to how fraud may disturb a bank's obligation to honour under an independent undertaking, courts have used various qualifiers to describe the level necessary. In his expansive article, Dr. Alan Davidson explores the concept of "Letter of Credit Fraud" under law and in the courts.
