Standby Letters of Credit: A Comprehensive Guide (Finance and Capital Markets Series)

This authoritative reference book gives thorough, practical guidance for anyone who needs to deal with standby letters of credit either professionally or academically. Augmented with examples of numerous real-life cases, the book addresses the exact procedures undertaken by global banks in handling letters of credit transactions whilst incisively providing an article by article interpretation of the ISP98. Furthermore, the book explains the credit operation cycle, the various parties to the credit transaction, types, uses -with special emphasis on tender and performance standby letters of credit– roles, responsibilities of the parties to the transaction, risk management and fraud prevention. The book literally provides all the tools needed to deal not only with routine problems but also with unforeseen difficulties whether at clerical, middle management or senior management level. Commercial/Financial fraud detection and prevention is an issue that is decisively addressed in Chapter 15 which tackles the types of fraud the bank frequently encounters whilst conducting its trade finance operations. The Author quotes several examples of fraudulent transactions and pinpoints the operational gaps the fraudsters often use to penetrate the bank’s safeguards and execute their crimes. The Author also tackles “organized crime” in banking operations whilst precisely explaining the techniques the banks must follow and safeguards they must place in order to detect and prevent these destructive fraud crimes. Risk Management in trade finance operations is another major concern of the international banking community. This concern is comprehensively addressed in Chapter 14 which warns that the methods commonly used by banks to effectively manage risks vary from one country to another according to the specificities of the socio-political environment; methods of trade finance risk mitigation described in general texts could turn to be invariably useless and any attempt to apply abstract theories and academic discussion can be not only a value destroyer but also a dangerous process. The chapter then proceeds to emphasize the importance of understanding the bank’s specific operational environment and base its risk management approach on the operational history of the bank and its working environment. It continues by identifying the exact risks the bank faces in a standby letter of credit transaction and finally, the Chapter tackles the three approaches banks follow in managing their operational trade finance risks, namely “Operational Risks Correlated to Volume”, “Value at Risk Analysis (VAR)” and “The Distribution of Loss Measure". Cover......Page 1 Contents......Page 7 Foreword......Page 11 Preface......Page 14 Acknowledgement......Page 16 1.1 Introduction......Page 18 1.2 Limitations on usage......Page 19 1.3 General......Page 20 2.1 Standby letters of credit......Page 23 2.2 Letters of credit authorities......Page 25 3.1 The undertaking to honour by the issuers and any confirmers......Page 43 3.3 Conditions to issuance......Page 47 3.4 Nomination......Page 48 3.5 Advice of standby or amendment......Page 49 3.6 When an amendment is authorized and binding......Page 50 3.7 Routing of amendments......Page 52 4.1 Introduction......Page 54 4.2 What constitutes a presentation......Page 55 4.3 Identification of the standby......Page 56 4.4 Where and to whom complying presentation is made......Page 57 4.5 When timely presentation is made......Page 59 4.6 Complying medium of presentation......Page 60 4.7 Separateness of each presentation......Page 61 4.8 Partial drawings and multiple presentations; amount of drawings......Page 62 4.9 Extend or pay......Page 64 4.11 Issuer waiver and applicant consent to waiver of presentation rules......Page 66 4.12 Original standby is lost, stolen, mutilated or destroyed......Page 68 4.13 Expiration date on a non-business day......Page 69 4.14 Closure on a business day......Page 70 5.1 Examination for compliance......Page 76 5.2 Extraneous documents......Page 77 5.3 Inconsistencies......Page 78 5.5 Issuer of documents......Page 79 5.7 Required signature on a document......Page 80 5.8 Demand document implied......Page 82 5.9 Identical wording and quotation marks......Page 83 5.10 Applicant approval......Page 85 5.11 Non-documentary conditions......Page 86 5.12 Formality of statement in documents......Page 87 5.13 No responsibility to identify the beneficiary......Page 88 5.14 Name of acquired or merged issuer or confirmer......Page 89 5.15 Name of acquired or merged issuer or confirmer......Page 90 5.16 Standby document types – demand for payment......Page 92 5.17 Statement of default or other drawing event......Page 93 5.19 Legal or judicial documents......Page 94 5.20 Other documents......Page 95 5.21 Request to issue separate undertaking......Page 96 6.1 Timely notice of dishonour......Page 101 6.2 Statement of grounds for dishonour......Page 105 6.3 Failure to give timely notice of dishonour......Page 106 6.4 Notice of expiry......Page 109 6.5 Seeking applicant's waiver without request by presenter......Page 110 6.6 Seeking applicant's waiver upon presenter's request......Page 111 6.7 Disposition of documents......Page 113 6.8 Cover instruction/transmittal letter......Page 114 6.9 Applicant notice of objection......Page 115 7.2 Transferability of drawing rights......Page 117 7.3 Conditions to transfer......Page 119 7.4 Effect of transfer on required documents......Page 120 7.6 Assignment of proceeds......Page 121 7.7 Request for acknowledgement......Page 122 7.8 Conditions to acknowledgement of assignment of proceeds......Page 123 7.10 Reimbursement for payment based on an assignment......Page 124 7.12 Additional document for drawing in successor's name......Page 125 7.13 Suspension of obligations upon presentation by successor......Page 126 7.14 Reimbursement for payment based on a transfer by operation of law......Page 127 8.1 Cancellation or termination of an irrevocable standby......Page 129 8.2 Issuer's discretion regarding a decision to cancel......Page 130 9.1 Right to reimbursement......Page 132 9.3 Refund of reimbursement......Page 134 9.4 Bank-to-bank reimbursement......Page 135 10.1 Duration of the standby......Page 136 10.4 Time of day of expiration......Page 137 10.5 Retention of standby......Page 138 11.2 Issuing syndicated LCs and managing operations......Page 139 12.1 The types of standby LCs......Page 142 12.2 Performance standby LC Vs. performance bonds......Page 145 12.3 Evergreen and annually renewable credits......Page 147 12.4 Performance standby LCs for construction projects......Page 148 12.5 Inoperative standby LCs......Page 154 13.1 The mechanisms of the standby letter of credit......Page 155 13.2 Bonds correlating the parties......Page 158 13.3 Roles and responsibilities – applicant's side......Page 162 13.4 Issuing bank and advising bank/nominated bank......Page 175 13.5 Background......Page 181 13.6 Roles and responsibilities – beneficiary's side......Page 183 13.7 Roles and responsibilities in bank-to-bank reimbursement......Page 190 13.8 Relevant discussion......Page 191 14.1 Introduction......Page 201 14.2 Operational risk issues in banking......Page 202 14.3 Relevant discussion......Page 206 14.4 Conclusion......Page 210 15.2 Background......Page 212 15.3 Fraud and ISP98......Page 213 15.4 The independence principle......Page 214 15.5 The exception – fraud in the transaction......Page 216 15.6 The proper structuring of an LC......Page 217 15.7 The case of Emirates Banks......Page 221 15.8 Procedures for fraud prevention......Page 223 16.2 Standard for examination of documents – overview......Page 226 16.3 The general procedure for documents examination......Page 233 16.4 Processing of discrepant documents by the issuer......Page 235 16.5 Processing discrepant documents by a nominated bank or confirmer......Page 237 16.6 Remitting the standby proceeds......Page 240 B......Page 242 D......Page 243 E......Page 244 N......Page 245 R......Page 246 T......Page 247 W......Page 248 About J. Sifri Consulting Services......Page 250

A guide that tackles this vital financial instrument strictly from a practical rather than legal perspective. Augmented with numerous real life cases, the book addresses the exact procedures undertaken by global banks in handling standby letters of credit transactions whilst providing an article by article interpretation of the ISP98

A reference designed to help practitioners carry out their daily accountabilities faultlessly. It provides article by article explanation of ISP98. It features numerous real life case studies. It is both theoretical and practical. It addresses the exact procedures undertaken by global banks in handling Standby Letters of Credit transactions. A guide that tackles this vital financial instrument from a practical as well as legal perspective. Augmented with numerous real life cases, the book addresses the exact procedures undertaken by global banks in handling standby letters of credit transactions whilst providing an article by article interpretation of the ISP98