Frauds and documentary credits

In economic terms, this process of globalization results in the internationalization of all the trade and the transactions related thereto. It is thus highly correlated with trade liberalization, taking economic integration, that is to say, a kind of adherence to global trade standards. This liberalization is not only for the goods and the services but also for capitals, men, ideals and technology which can circulate freely on the world wide market, which makes the various countries of the world inter them in the process production and marketing. Countries are increasingly interdependent, and barriers are increasingly erased.

And the erasure of barriers in international trade is evidenced by significant contractual cash flows between entities from different countries. So that the parties involved in a contract are more distant (geographically), while the amounts involved are still important. Also, a secure transaction is required.

So that was created by the Banks the system of « documentary credit », or letter of credit (L / C) or more colloquially « documentary credit » payment instrument at the international level. The primary motivation for its establishment was reconciling the interests of the contracting parties in the international trade, namely the seller and the buyer. The Bank is well up as the intermediary in transactions and guaranteed payment to the seller, and the receipt of goods, with its quality, quantity, time agreed in the contract and the security of supply to the procuring Party.

Indeed, the presence of the Bank said Issuing Bank is often called in to carry out these transactions on an international scale. This is because for the Seller, the situation more secured is “the delivery after the payment”, so that the ideal situation for the buyer is “the payment after the delivery”, two sharply conflicting requirements that need to be reconciled to smooth relations international trade. Thus the Bank intervenes to protect the interests of each of these parties in their business affairs.

Indeed, the intervention of the Bank may be described as follows. First, and overlooked the seller, the exporter debtor of the obligation of delivery, the Bank agrees to pay a certain amount, or the total amount of goods against documents that justify the execution of its primary obligation of delivery by the seller (eg the Bank will pay off against the bill of lading which justifies that the goods have actually been exported). And overlooked the buyer, the Bank will give him the documents if he repays the money that was given to the seller as payment for goods. Thus, the seller will be sure to be paid to the shipment of goods, and the buyer will be certain that the goods he will pay are already being delivered.

The system of payment by documentary credit has been a real revolution in the world of international trade, however, it is clear that this is a complex operation that requires some « caution » on the part of all parties that are involved, especially because the contract is concluded at an international level. Thus all the terms forming the contract should be carefully analyzed by each Contracting Party to meet its security needs.

But to facilitate the contractual framework, the Parties’ relations are regulated by a specific legal framework which is the « Uniform Customs and Practice (UCP 500) » for Documentary Credits, developed by the International Chamber of Commerce and have been adapted to the last time in 2007, a set of rules and principles for documentary credits.

To rely and to avoid controversy, the parties agree to submit to the principles of international law must mention this explicitly in their agreement. « This letter of credit is subject to the » Uniform Customs and Practice for documentary credit »

However, it is clear that neither the contractual provisions properly analyzed nor the systematic reference to UCP cannot purge the documentary credit from all possibility of fraud. And it is precisely due to the recognition of the multiplicity of risks involved in Crédoc that the theme of the subject has been developed: “fraud and documentary credits”. These cannot be free of fraud, while trade relationships Regulation should be highly secure; this is why it is necessary to analyze the two concepts together, fraud and documentary credits. Analysis of a payment instrument should not be limited to benefits; risks must be taken into account in the analysis.

The problematic of the subject is to know « how the great problem of fraud is presented in the operation of international sales?”. This issue was specifically chosen because fraud in documentary credit have features that should necessarily be analyzed, in order to really ensure security, basic essence of the motivation of the parties when the contract. Indeed, the parties have opted for this method of payment to be secured, while many are still unaware that it is an instrument which is not free of risk of fraud, the analysis of these frauds and lead to be more cautious at all contractors, and bring a brick from the improvement of the practice of the payment instrument, a fixture in business relationships internationally.

To carry out the study, the analysis is focused around three main points.

The first part will examine the methodological choices that led to the development of the analysis. The second part will be a presentation of research results. Schedules will be exposed in the last part.

PART II: CHAPTER METHODOLOGY

II.1. Choosing Keywords

II.1.a. Choice of subject

The development of the international trade and the frequency of the use the L/C[1] as a means of payment

In the wake of the globalization of trade, the opening of the barriers and the adhesion of the membership to a single global market make certain the fact that the trade has made an even higher level, leaving the national stage for achieving the global universe.

The opening of the market on a global scale is accompanied by a scale of international trade. Around the world, thousands of products are ordered, sold and delivered by various ways from sellers to buyers, who are, in most cases, geographically distant from each other.

The remoteness of the contracting parties can be a major obstacle in achieving the security needs of each party in the transaction. Each wanting to be reassured of payment other delivery, so that various international payment made after onset of the twentieth century, an era of trade development.

And among all these means of emerging payment, the L/C is one that meets the highest expectations of the actors of international trade, and offers more security to the international trade.

This is the reason why I chose to study this particular payment instrument that is the documentary credit, as well as its place in the market of world trade in this memory, as the explanation of the current success of global trade is inseparable with the study of the development of international means of payment, such as L/C.

The incidence of the presence of the fraud in the L/C

It must be noted that, in the selection and choice of different payment instruments, the international buyers and sellers guide their choice of instruments in the ones which are more secure and are more reliable at the same time.

That is why, nowadays, the L/C is the payment instrument most used worldwide, in other words, this instrument is chosen for its security and reliability.

But in practice, it is important to note that this is an instrument that is not free of fraud and insecurity. This is how I chose to address the issue of fraud in the Credoc to sensitize everyone to the fact that, despite his fame, and the extent of its use, it is a payment instrument which may present a serious risk of fraud which should not be overlooked and that should taken into account in the analyzes.

II.1.b. Formulation and explanation of the problem, starting question

The sequence of arguments in the context of this study will be guided by the initial question or problem formulated as follows:

« How is the great problem of fraud in the operation of international sales? »

Indeed, in this study, it is mainly a question of showing that fraud is an element that completely disrupts the performance and the reputation of the L/C: how does it present to impugn vices formalities and the autonomous nature of L/C?

II.1.c. Statement of working hypotheses

Three assumptions are made to guide the reflections of this analysis:

First hypothesis: The instrument of international payment Credoc is not immune to fraud

Second hypothesis: Fraud is a foreign element that carries a deformation of the legal formalisms of the Credoc

Third hypothesis: Fraud is a blocking element in the implementation of Credoc.

II.1.1. Choice and conceptual approach keywords

II.1.1.a. Conceptual approach of the Credoc

Definition

The Credoc[2] is an instrument of international payment solution that provides a conflict between two competing interests of both parties in an international sales contract, namely the payment after delivery for the buyer and the delivery after payment to the seller.

Indeed, it is a system that uses the intermediation of the Bank in trade relations between the two Parties, through this mediation, both parties will feel more secure, because the seller will be paid from providing evidence embarkation of the goods and the buyer will pay upon receipt of documents evidencing the performance of its delivery obligation by the seller, so the arrival of the goods on board.

Specifically, the letter of credit is a form of a financial document issued by an Issuing Bank at the request of a buyer for the benefit of the seller. With the help of this financial document, the buyer, via the Bank is as intermediary guarantees payment to the seller, and in this context, it is the Bank will verify the documents establishing the execution of its main obligation (the delivery) by the Seller.

The Credoc thus appears as both a payment instrument and a tool for secure transactions between the two parties to a deed of sale. For this, each Credoc should essentially contain a brief description of the goods covered by the contract, the amount, price and quantity of goods and the anticipated date of shipment.

The types of L/C

Indeed, there are different types of Credoc, depending on the level of security it offers to the Seller:

-The Irrevocable Letter of Credit: as irrevocable, no contractual clauses in the L / C are binding on the parties to the contract, and cannot, under any circumstances, be subject to unilateral change. So that, provided that all contractual obligations are met by the Seller will be entitled to payment as agreed in the L / C, and no unilateral derogation is possible. Article 9 of the UCP clearly states that « an irrevocable credit can neither be amended nor canceled without the agreement of the issuing bank, the confirming bank if any, and the beneficiary. »

-The Revocable Letter of Credit: as its name suggests, this is a letter of credit which is revocable at any time by the issuing bank guaranteeing payment, provided that the payments were not traded. This is a L / C that benefit the buyer more than the seller. Article 8 of the UCP clearly states that: « A revocable credit may be amended or canceled by the issuing bank at any time and without the beneficiary is notified in advance. »

-The irrevocable letter of credit confirmed: in fact, in the L / C, there may be two banks: the issuing bank issuing the L / C, and the confirming bank, confirming the L / C and that is committed to the same securities as the issuing bank. In most cases, a single Bank performs that both functions, but in the case that the issuing bank does not exist in the region or the country of the Seller, the Issuing Bank seeks confirmation from another bank existing in the geographical jurisdiction the seller. Indeed, it is a system that provides greater security to the situation of the seller. Also, irrevocable L / C is confirmed that the terms cannot be revoked by either the issuing bank or the confirming bank, as it undertakes the same way as the first.

-The Irrevocable Letter of Credit unconfirmed: in this case, only the Issuing Bank agrees irrevocably to fulfill the agreed conditions in the L / C. The advising bank does not accept to perform to these obligations, but just willing to take the responsibility to audit the apparent authenticity of the L/C that was notified.

-The documentary credit-renewable: it is the system adopted by both Parties that make regular business relations. Also, in this context, they no longer have to establish a new L / C each time, one L / C is drawn at the beginning of relationships, and the L / C will be automatically renewable entitled to the same terms and conditions initially agreed.

-The Documentary Letter of Credit: a documentary LC requires the presence of some documents to be valid. These documents must provide the necessary security to the buyer that the goods were really shipped by the seller beneficiary of L / C.

Benefits of the Credoc in trade relations

-The L / C is essentially open to the benefit of the seller, so that the latter, Credoc allows him to have the guarantee of being paid by a recognized entity’s solvency which is a bank.

-The L / C is opened by the buyer in favor of the Seller and the buyer have an interest in opening such L / C because the requirement through some papers before payment (which essentially lading or consignment ), it can be ensured the delivery of the goods, the control is done by a professional body in the field, namely the Bank.

The risks of using Credoc: fraud and limitation of liability of the Bank in the event of fraud

Indeed, the primary obligation of the Bank in the implementation of Credoc is the payment of the Seller, and that after checking the authenticity of the documents delivered to it, and show the actual performance of its delivery obligation by seller.

And it is precisely in this context that the Credoc may have high risk of fraud. This is because the Bank is not a professional in the field of international exports, it is not able to guarantee the authenticity of the documents delivered to it, but it’s just bound to behave good family man these in the audits, that is to say that when the Bank gets to prove that he used reasonable diligence in checking, it cannot be held liable if ever there are fraud in the documents.

Thus Article 13 of the UCP provides that :

« Banks must examine with reasonable care all documents stipulated in the Credit to see if they have or not the appearance of compliance with the terms and conditions of credit »

Article 15, in turn; limit the responsibilities of the Bank for fraud, by providing that:

« Banks assume no obligation or liability for the form, sufficiency, accuracy, genuineness, falsification or legal effect of / document (s) or as to the terms and conditions and / or specific specified in the / document (s) or are superimposed. They also assume no obligation or liability for the description, quantity, condition, packing, delivery, value or existence of the goods represented by any document or as to the good faith or acts and / or omissions, solvency, delivery or reputation of shippers, carriers, freight forwarders, consignees or insurers of the goods, or any other person whatsoever. »

A legal position which is confirmed by the Law:

« The bank is not required to check the document to ensure its authenticity and its inherent regularity. It should only see if you have complied with the formal requirements prescribed essential to the extrinsic validity of the document « [3]

II.1.1.b. Conceptual approach of the Fraud in the L/C

Fraud seems to be inevitable in all international transactions, but it must be noted that, in cases of Credoc that fraud should not have a place because of the rigorous formalism enacted by the UCP. But despite this rigor, fraud continues to gain ground.

Article 441-1 of the Criminal Code provides a precise definition of fraud:

« It is a false fraudulent alteration of truth, is likely to cause harm and accomplished by any means whatsoever, in writing or any other expression of thought which has the purpose or which may have the effect of supporting establish proof of a law or fact with legal consequences »

But it is clear that in the context of a Credoc, fraud must be essentially documentary, as Credoc relates more to a formal appearance. In other words, fraud must be linked to the documents, their authenticity, their sincerity.

Also, as part of a Credoc, fraud is not related to non-performance of contractual obligations, but rather a non-genuine and insincere execution thereof.

II.2. Choice of databases and selection process items

II.2.1. Documentary compilation

The memory could not be developed without extensive research, including reading several documents explaining the general operating rules Credoc, the risks of the Parties to the contract by adopting this payment system…

These documents have been obtained from two main sources:

-Internet: e-books, and analytical reports are now available online on the internet. And especially that the issue of fraud in Credoc is still relevant, even today, the internet sources are those most updated to base the analysis, under the direction of reflections.

-Library: there are nevertheless bibliographic sources and works that are not available online for issue of protection of intellectual property, or because of the age of the book, then I am part of their research in libraries where I was able to meet many interesting books that explicitly retraced the execution of Credoc in international sales contracts.

II.2.2. Contacts with traders: interviews, analysis and field studies

Certainly, after the documentary compilations, I’ve acquired some knowledge, and I understand how Credoc works in international sales.

But this theoretical knowledge could be improved through direct contact with specialists persons and professionals in selling and buying, who explained to me the real issues of Credoc, advice on which I based logic My reasoning.

II.3. Analysis of the contributions of the study

In this era where trade relations are their peak, this study could help to develop an understanding of all the parties to a contract of international sale the use of the L/C, for a better management of the risks that necessarily contain this instrument of payment.

A more ambitious vision might suggest that this study may be responsible for the invention of a better payment instrument and has less uncertainty for the international players.

PART III: PRESENTATION OF RESULTS

III.1. Document fraud: a limit to the requirements of legal formalism in the documentary credit

Under the L / C, various legal formalisms are necessarily required for the submissions can be accepted by the Bank. In fact, it must, under sections 13a and 14f of the UCP review documents with « reasonable care » and is entitled to require that the documents presented show « appearance compliance « with the terms of credit.

And it is clear that in case of doubt, the Bank may take two possible options:

-Give credit but with a reservation;

-Reject documents and thus remove the credit.

These checks by the Bank before the same issue of the credit must be rich enough to avoid any risk of fraud. But in practice this does not always seem obvious.

This is because, in fact, the controls are just pure checks appearances, that is to say that these controls are only based on simple documents, without the possibility to have an overview of the goods in order to declare these goods conform or not to the descriptions mentioned in these documents, as specified in Article 3 of the UCP « all interested parties to consider documents and not goods. »

Also, as part of a documentary credit, none of the various persons and entities involved cannot state with certainty that the goods are really conform with the documents reported, so that the risk of fraud is large and likely to be common.

So that fraud in documentary credits, mainly documentaries, given that the analysis focus on the documents. The second part will focus on the assessment of document fraud.

III.1.1. The documentary nature of the fraud

Pursuant to Article 441-1 of the Criminal Code:

« It is a false all fraudulent alteration of the truth, and likely to cause harm and accomplished by any means whatsoever, in writing or any other expression of thought which has the purpose or which may have the effect of supporting establish proof of a law or fact with legal consequences.»

This legal provision is thus the legal element of fraud. The determination of the legal element is important in the sense that an offense is not punishable if it is not determined and defined as an offense under the Act. Also, from the article of the Penal Code, any fraudulent act is now punishable.

But it is clear that in the case of a documentary credit, equipment fraud element is the presentation of false documents to the Bank. And intentional element is the knowing that the documents so delivered are wrong because not translates the description of the goods really shipped. The goal is to be born in the Banker belief of truth, and this proceeding by an alteration of the truth.

III.1.1.a. The types of fraud in L/C

It must be noted that both the importer and the exporter can be victims of fraud in connection with the engagement of their business relationship.

In effect, the buyer may issue a L / C fraud, or on behalf of a bank that actually exists, or the name of a bank that does not exist, and that in order to fool the exporter and convince ship the goods.

And the importer can be defrauded by the seller, in the sense that, after shipping the goods, the seller, to obtain payment, gives to the Bank false documents, which describe goods which not correspond to the goods really shipped.

Also, there are various ways of altering the truth, but these means constituting fraud can be grouped into two broad categories, in cases of documentary credits material fraud and intellectual fraud.

The material fraud

Material fraud is a physical alteration of documents used in business relationships. These physical changes can be the abused in blank, the use of forged signatures, issuing false documents. The only use of such methods of physical changes already an offense, even without the veracity of the information given is verified.

Also, the fraudulent lies in the fact that the documents were given with the intent to remove an improper advantage, and so harm the other party to the contract, and that by issuing forged and unauthentic documents, that is to say that we did not have the power to invent or modify.

Material fraud can be easily avoided by a careful examination of all the documents, and verification through contacts with various authorities (insurance, shippers), unlike the intellectual fraud that is much more complex.

The intellectual fraud

Intellectual fraud can be evidenced by the presentation of documents and regular acts in appearance but altered and contain false information, they are issued in the same malice in the case of material fraud, but this time the fraud does not alter the appearance of documents from these competent authorities, but rather focuses on the substance of the documents, which are lacking in sincerity.

In the case of intellectual fraud include as an example: the utterance of false quantities of goods shipped in the bill of lading.

III.1.1.b. The sole basis of fraud

In fact, it is clear that, whatever the means and types of fraud implemented either by the seller or by the buyer, these frauds always aim inevitably violating the Credit Bank, it is the sole basis of fraud.

And, before the sharp increase in cases of fraud in trade, banks have decided to opt for the « suspected fraud » all the documents delivered to it, knowing that such frauds are analyzed only in the documents in the For documentary credits.

The presumption of fraud of all documents

All International legal systems adhere to the principle of presumption of fraud of all documents in the case of documentary credits. The meaning of this principle is that, despite the appearance of compliance documents, they must be, ipso facto considered fraudulent, to be checked.

The materiality of document fraud

The issue of materiality of fraud lies in the authenticity and accuracy of documents documentary credit.

The document is not authentic when issued by an authority, fraud in this case, automatically established. Just like the case of insincerity which involves the issuance of a document from a competent authority, containing falsified information, falsified information that the recipient of the credit could not be ignored by the filing.

So that, these material elements make the fraud legally punishable, but it must be accompanied by a moral element that is the intention to harm.

Both these cases are constituent material elements claiming fraud and grounds for refusing enforcement of its payment obligation by the Bank.

III.1.2. The assessment of fraud

Indeed, the assessment of fraud is based on two complementary criteria: its manifest in the documents, and the presence of an element of intent on the part of its author, that is to say the famous desire to harm.

III.1.2.a. Manifestations of document fraud

The smooth execution of a letter of credit depends on the intermediation of the Bank, in fact, it is the buyer and the seller makes with the exchange of goods against payment documents.

And is responsible for protecting the interests of the buyer, the Bank must necessarily undertake the verification of the authenticity and the sincerity of all documents delivered to it.

But it is clear that banks are not considered as professional international sales, and don’t have direct access to the control of goods, they do not trust that the sincerity and authenticity of documents delivered to it by the Seller. So that the responsibilities of banks for fraud are legally limited.

In this regard, Article 15 of the UCP clearly states:

III.1.2.b. The intentional element in fraud

It must be noted that, in case of a finding of fraud in a documentary credit, all parties are penalized by this illegal act, and that the breach of contract, which proves that the fraudulent act is serious and has consequences adverse impacts on the conduct of international trade.

By reasoning in this context, that is to say, considering the magnitude of the consequences of the fraudulent act in trade relations, the subjective understanding of the intentional element of fraud has grown. A design that, for a fraudulent act may be admitted as such, it must necessarily come from willingness and proven malice on either party. So that, as the honesty of the party accused of fraud is proven, neither this party nor the other one should not suffer the consequences of this fraud.

A subjective understanding that faces an objective view that any fraud penalizes all Parties, even if it was committed by a third person without the knowing of the Parties.

The subjective approach to fraud

It must be noted that, currently, many commercial intermediaries are increasingly called upon to intervene in the trade relations of the Parties in international transactions, including the preparation of documents and paperwork.

And even, it is found that, due to the net expansion of trade and international trade, a buyer has not only one but several suppliers. The consequence is that one buyer is no longer available to open letters of credit for each supplier, and then trust in the majority of cases, this task to intermediate trade.

Noting this change in practice, a large majority of the doctrine claimed that it is « just » to insert the « intentional » variable in the commission of fraud, and that in order to protect those involved in international trade in good faith.

In fact, it may be that these fraud and are only recognized at the level of performance of the contract are unknown to the accused party, because they were simply carried out by the commercial intermediaries. This is the argument of the doctrine arguing this position.

Also, at the time of the finding of fraud, the Banker must determine whether it emanated from the party who is accused or a third person, and therefore the Bank needs to know whether the accused was or was not part of good faith. This is because, from that good faith will be determined sanctions the commission of fraud, knowing that fraud should in no way harm the people who act in good faith.

This principle of the subjectivity of fraud, and the requirement of intent was first established by case law in a judgment of the Court of Appeal of Antwerp on 23 September 1981.

In this case, a fact confirmed by a Belgian bank, payable 180 days from the date of bill of lading credit, was opened by a bank in Dubai. The false bills of lading showed two shipments that were not actually made on the dates indicated, this is because the forwarder predated the lading in order to conform to the terms of credit. In this case, the Court of Appeal did not refuse to suffer the consequences of fraud to both Parties, nor the Seller accused of fraud on the grounds that «there was no evidence to establish that fraud had been committed by the seller». Also, in that case, the Court of Appeal took into account, in its reasoning, the good faith of the seller.

And this position has been increasingly internationalized; the same behavior was adopted by the English courts.

Indeed, in the famous case AMERICAN ACCORD between UNITED AMERICAN CITY MERCHANTS and ROYAL BANK OF CANADA, the sender commission has also changed the dates of the shipment of goods in order to comply with the terms of credit. A behavior that was logically called fraudulent by the Royal Bank of Canada, which found and the pattern necessary to refuse payment.

The Commercial Chamber hearing the case, said:

« There is no plea Either by way of an implied term or warranty by way of … That of the present document under a letter of credit warrants Their accurancy. »

Also, in that case, held reasoned as follows: the consequences of fraudulent acts committed by the sender commission cannot be borne by the beneficiary who believed present, and that in good faith, authentic documents, and the commission sender has not brought to his attention the fraudulent act.

A decision of the Court of Appeal, which was confirmed by the House of Lords stated that:

« That apparently conforming materials, unknown to the seller, in fact Contain a statement of fact inaccurate That Is Where the inaccurancy was due to inadvertence by the maker of the document, and the like Where the same inaccurancy HAD beens inserted by the maker of the documents with intent to deceive, Among others, the seller / beneficiary himself. »

Also, in the case of subjective fraud, which was committed by third parties unknown to the recipient, the Bank may in no case refuse to perform his obligation to pay the credit. The good faith of the party accused being demonstrated.

But it is clear that this doctrinal and jurisprudential position then was heavily criticized by the public. And this on the grounds that while the Bank has agreed to commit to the payment of a loan, from the opening of documentary credit, but it does not however accept to undergo only the consequences of fraud, merely because the parties acted in good faith. The promise of the Bank’s credit does not go to payment on the basis of forged documents.

An opinion to the contrary sense of subjective fraud was supported by ELLINGER, who said in his book « Documentary credits and fraudulent documentation » page 206 that:

« There appears to be no justification for trading Assuming that this supplier’s risk of fraud or forgery is to be bound by the bank (or by customer icts) Rather than the beneficiary. More over’s, from a legal conceptual points of view it unrealistic to SUGGEST Appears That The bank’s promise extends to the making of payment against document by All which are vitiated by fraud or forgery»

Especially as the Bank, in the operation of documentary credit, generally not extend its control over the state of mind or level of dignity of the documents presented to him, it is brought to bear analysis on the value of the documents that are made.

Also, expand the responsibilities of banks to the audit of the dignity of the Parties would simply illegitimate. And all the more so that, by its functions, the Bank has an obligation to verify the authenticity of documents, and issue the credit in case of compliance, not to investigate specialized in the event of detecting fraud.

Many reasons why the concept of subjective fraud is illegitimate in some respects, including by the consequences of the fraudulent acts Bank alone, while, whatever the level of good faith between the parties, must also admit that the buyer has chosen a bad seller, and the seller told her files to a bad forwarder, many bad choices that are all supported by the Bank, this because it is simply difficult for the latter to demonstrate the bad faith of the party accused of fraud which has entrusted the preparation of its documents to a third party to the contract of documentary credit.

A new concept in document fraud is required.

The objective conception of the fraud

Unlike the subjective conception, the design objective is proving to be the most suited to the documentary credit. The subjective approach was judged to have been the source of development of « conspiracy of fraud » that demonstrate the bad faith of the recipient is often difficult.

-The rejection of the consideration of the good faith of the recipient of the letter of credit (the Seller)

This subjective approach is marked, first, by rejecting the consideration of good faith in the fraud analysis.

Indeed, if the beneficiary of the credit has or not known the fraud related to the documents he submitted to the Bank, the Bank is entitled to refuse payment, based on the mere presence of these frauds.

So that now, the beneficiary, in this case the seller, must take due diligence in case of delegation of the task of preparing documents to a third party, because it is himself who will pay the consequences in case of fraud.

This position is reinforced by Article 19 of the UCP which states clearly that « the bank assumes no liability for the good faith of the shipper, carrier or insurer or any other person whatsoever.»

The first and main reason for the Bank’s refusal of payment fraud is that the warranty on exported goods is no longer certain. Indeed, in the letter of credit, the Bank agrees to pay first the seller after he has dispatched the documents, it will then be reimbursed by the buyer after it has received the goods, and in this mediation, it is the goods which are the only guarantee of the Bank in the event of default by the buyer.

Also, fraud on the documents relating to such goods directly undermine the only warranties for Banks, who are thus entitled to refuse to execute the payment.

A position confirmed by the case law, particularly in the case CITY UNITED MERCHANTS LTD against ROYAL BANK OF CANADA, in which the judge stated:

« It is the nature of the document, not its origin to determine compliance or non-compliance … identity fraud is irrelevant. Only the fact that the documents are devoid of any value to the bank … the right of the bank to refuse payment is not based on the adage applying the maxim ‘omnia fraus corrumpit’ but the obligation of the bank payable only on the presentation of authentic documents and in accordance with the requirements of the letter of credit. »

Also, from that moment, there was a reversal of the case, and now due diligence in analyzing fraud within the competence of the beneficiary of the documentary credit is required to submit documents to the Bank true and correct.

And, in case of finding of fraud, it is no longer a matter for the Bank to investigate the origin of the fraud, or the beneficiary of the documentary credit to invoke his innocence, but the payment will be automatically suspended no discussion is possible on it.

Even if the origin of the fraud is unknown to all Parties to the Convention of documentary credit, the beneficiary who suffers the consequences of this fraud.

-The indifference to fraud payer (the Buyer in the documentary credit agreement)

In the case of the subjective consideration of the fraud committed by the principal, in this case the buyer cannot be considered as grounds for refusal of enforcement of payment by the Bank.

This position was confirmed in a famous judgment of the Court of Appeal of Paris, 27 February 1992 between the Company FRANC PORT, a company that has as its object the import of clothing, and a client of the Bank CAIXA GENERAL DEPOSITOS (CGD), a Portuguese bank with a branch in Paris.

In fact, in this case, the letter of credit was opened on behalf of the seller by the buyer from the Bank, the guarantee was the goods that were issued in the name of the Bank and considered its full property until receipt by the purchaser. And note that the buyer may be appropriate once the goods have paid the Bank for all related documents are held by the latter.

Thus, this leads us to conclude that fraud is an essential element in the making of the documentary credit, any bill of exchange is no longer immune to fraud, and that because of the development of technologies, practices and professionalism of international actors in the diversion terms of their obligations.

Indeed, various formalisms are required for opening a letter of credit, but the existence of the formalistic requirements do not preclude the presence of fraud in the documents, and that is what has that fraud is an exception to the formality of documentary credit.

In the second part, we will discuss how to investigate the documentary credit, as an autonomous and independent contract, is no longer in the case of fraud?

III.2. Document fraud, an exception to the autonomy and the binding force of the documentary credit

The principle of the autonomy of documentary credit as main consequence unenforceability of exceptions, and the imposition of obligations under the letter of credit agreement.

The Article 3 of UCP said :

« The commitment from a bank to pay, accept and pay one or more bills, or to negotiate and / or to fulfill any other obligation under the credit, cannot give rise to claims of donor order or reliance latter defenses based on its relationship with the issuing bank or the beneficiary. »

The principle of autonomy of the agreement means that the said letter of credit letter of credit is independent from the sales agreement between the seller and the buyer. Also, if exceptions arise in the context of this sale agreement, these exceptions cannot be made in the relationship of the two parties with the sale, because the Convention signed letter of credit with the Bank is an autonomous agreement, which is in any case dependent on the sales contract.

In fact, the following diagram shows the existence of two distinct relations in the framework of the documentary credit transaction, the relationship between the importer and exporter, and the relationship between the importer and the Bank. It is these relationships that are here described as distinct and dependent.

The main consequences are, at the Bank:

-The inability of the Bank to suspend its obligation to pay the beneficiary of the letter of credit based on the characters of the commercial relationship between the seller and the buyer, in this case, poor performance or even failure of contract of sale, the invalidity or incapacity of one of these Parties.

-The Bank-Client and Bank-seller relationships are independent. Also, exceptions emerging from the relationship with the customer is in no way binding on the Seller. For example, the Bank which has not received payment of commissions from the payer cannot make a partial payment of the Seller, these relationships are strictly separated.

Also, autonomy means no exception created by the commercial agreement can come suspend performance of all obligations under the letter of credit agreement.

III.2.1. The fraud, an obstacle to the realization of the documentary credit

It must be noted that although it is recognized in the principles of rigor documentary credits the principle of autonomy, this principle falls upon a finding of fraud. And in this context, it is the primary obligation born of the documentary credit is suspended, i.e., the payment of the Seller.

Indeed, if the Bank first discovers fraudulent documents, it may, on its own initiative, suspend the payment of the Seller, or that it was not the author of such fraud, because the Bank may be fraudulent and uncertain guarantees, documents relating to those goods are smuggled.

If the payer, by receiving the copies of the documents (in fact, buyers can receive copies of the documents, it is safe because the deliver the goods needs original documents), notes frauds in the documents, he is entitled to inform the Bank to suspend payment on the basis of fraud.

Indeed, it is clear that these frauds therefore are primarily of the sale contract between the Seller and the Buyer, and that is why, in most cases, do not want to take sides in this dispute and refuses to suspend payment, and it is precisely in this context that the payer enters the Judge, and such judicial intervention’s main result in the suspension of all obligations under the documentary credit.

III.2.1.a. The refusal of fraudulent payment and guarantee of fraudulent documents

It must first be noted that the non-payment must be made before the execution of its obligation to pay to the Bank, however, if the fraud is discovered after the payment, the Bank should refund claim to the ordering and not the Seller, and that with the possibility of claims against the Seller by the ordering.

Also, in the analysis of this relationship, it is found that it is mainly the payer client who has to lose everything in the event of finding a fraud, and discovered of the fraud only after the payment to an illegitimate seller. This is because it can be difficult to ask for a reimbursement from a fraudster. This is the reason why a legal option is available to the ordering so that he can prevent a fraudulent payment.

But one question arises: despite this injunction ordering of the ordering to suspend the payment of the Seller, has the Bank have a « duty of refusal » of the payment? This duty to refuse from the Bank is less clear in the law.

The possibility of refusal of payment fraud

Indeed, as noted above, fraud is an exception to the realization of the documentary credit only if it is discovered before the payment of the Seller by the Bank. Otherwise, if the fraud is discovered once after payment, there will be no documentary credit to suspend, because the main purpose of this agreement has been achieved, and the payer bears the consequences, that is to say, the Bank cannot request restitution to the ordering, but to the seller.

In this regard, the Court of Appeal of Paris said in a judgment of 26 September 1990 that:

« When the bank issuing a letter of credit shall pay the light of documents it has previously submitted to the payer without objections or reservations on the part of the latter and that fraud was discovered after the settlement of the credit its due date, the irrevocable letter of credit should not be canceled and the bank should not be ordered to repay the amount to the payer. Thus, if the fraud is discovered before the payment term stipulated in the documentary credit and no payment has been made, there will be no great difficulty for failure to pay. »

And to avoid the delay in the detection of frauds, it is given to the client, a verification time between the removal of documents and the payment, and that communication is materialized by the sending of the copies of the documents submitted by the seller. This period of time will allow the ordering to detect fraud that may contain the documents, and to intervene in good time, in suspending the payment.

The issue of « duty of non-payment » of the Bank

Logically, the Bank which has been advised of document fraud should normally suspend the payment, because no creditor wants to receive a guarantee which is not in compliance with the terms of the contract of selling.

And in this sense, the Law states that the refusal to pay the Bank is not only a right, but is much more than that: a duty to the bank. In other words, it « must » suspend payment upon notification of the fraud by the ordering, and this is even in the interest of the Bank and is also in compliance with its customers by banks, the customer of the Bank is in the context of the documentary credit, the payer.

But it is clear that for the American Right, the good faith of the Bank is analyzed in the case of a payment to fraud and non-payment in case of a finding of fraud is not an obligation but an option for the Bank. Under section 5-109 (2) of the UCC:

« If a presentation is made That Appears on icts face strictly comply with the terms and conditions of the letter of credit, order a required document is forged or materially fraudulent … the issuer, acting in good faith, May honor or dishonor the presentation »

Also, in the case of U.S. law, the Bank is an entity that takes risks, and should consider itself the risks it takes, a commitment to a credit payment is itself a risk.

Indeed, fraud is at times quite difficult to prove, it may be that the fraud notified by the ordering is not successful, and in this case, the Bank was right to pay and has not affect its relationship with the seller, but otherwise it will lose everything. But it is only under its own power to take the risks that suits him.

III.2.1.b. the need of a judicial intervention

Indeed, as mentioned above, banks in all their actions in all times maintain their brand image and continue to maintain trust with all who come into contact with them.

And that is why, in many cases, despite the notification of the payer, the Bank refuses to suspend payment, because no one wants to harm his relationship with the seller company.

And for this, the payer has a way which will oblige the Bank to suspend payment: judicial intervention

The judicial prohibition of fraudulent payment

It must first be noted that, in this case, it is the judge in chambers who is competent as it is entitled to intervene in an emergency, and note that the suspension of payment is urgent because once made, both parties will get refund very difficult.

Also, after grabbing the judge, and obtaining a favorable decision on the need for interim emergency measures (i.e. the suspension of the payment), the ordering may validly order the Bank of prohibit the payment. And for this, section 5-109 (b) of the UCC clearly states:

« If an application covered claims That a required document is forged or materially fraudulent short … May permanentely temporarely or enjoin the issuer from honoring a presentation or grant similar terrain against the issuer or other persons (…) ».

But it is clear that, in practice, obtaining such a decision from the judge in chambers is sometimes very difficult.

An important part of the case law is against this judicial intervention in business relationships. For this, many argue that how the judge is authorized to issue interim measures to suspend the payment, even though the existence of fraud has not yet been conclusively demonstrated and accepted? For these authors, the judges of Chambers are based solely on « probabilities ».

But part of the accepted doctrine that judicial intervention in document fraud. According to these authors, the intervention of Judge avoids discord between the parties, the judge is considered a neutral entity. And in this context, the Bank may reasonably refuse payment to the Seller without harming its brand image, the injunction from a neutral third party, the contract.

But it is clear that in the reflection of the authors, in this judicial intervention, court costs must be borne by the buyers, to avoid accusations of sellers.

III.2.2. The contentious aspect of document fraud

In this section, we will discuss addressing the issue of reimbursement of the Bank for fraud, in case it has already made payment because the moment of detection of the fraud was late. The issue of open use of the client will also be addressed.

In fact, the following diagram shows that two types of Bank may intervene in a documentary credit: the issuing bank and the Bank intermediate, two cases of refund should be studied.

III.2.2.a. The question of reimbursement of Banks

The terms of the documentary credit Convention clearly states that the different banks which have intervened in the documentary credit are entitled to a refund after release of funds for the benefit of the seller.

In the presence of an intermediary bank, the latter can claim reimbursement from the Issuing Bank, and the Issuing Bank to the buyer ordering. And the issuing Bank has a right of recourse against the ordering in the event of non-payment thereof.

The issue of refund through Bank

The Bank has carried through or not confirmation of credit, she is entitled to reimbursement as an intermediary, and because of advance payments it has made.

Such request for payment shall be binding on the issuing bank. And it is clear that, even in cases of fraud, the right to reimbursement toward the issuing bank can legitimately be opposed to it, and it provided that the payment has already done, and especially that the fraud was found after the payment.

So that, if the payment has already been made, even if fraud has been detected, the intermediate Bank unquestionably entitled to reimbursement of its advances.

But it is clear that such payment to be refundable, must be made at the earliest on the date agreed in the letter of credit. So that, if the payment was made an early manner, and that the fraud is discovered before the conventional payment date, the Bank cannot claim payment.

This position was upheld by the Court of Appeal of Paris in a judgment of 28 May 1985, stating that:

« The bank had anticipated the credit payment » had given his client liquidity facilities independent of the obligations arising from the contract of documentary credit by the bank that has not acted pursuant to that contract, but for purposes that were his own and under its own responsibility. »

Similarly, if the Intermediary Bank has been notified of a fraud, but she still chose to proceed to the payment to the seller, it can not in any way seek reimbursement. This is because the notification of fraud should normally result in suspension of payment obligation at all banks, those who have acted contrary to the obligation to bear the consequences of his actions.

On the contrary, if the Bank acted in good faith in the execution of payment, it is entitled to request reimbursement from the issuing bank.

The Court of Appeal of Paris of 30 April 1985 confirmed this position, stating that « the trial court found that a careful examination of the documents produced could not allow banks to detect fraud. »

Also, this judgment confirms that banks who have conducted an audit of documents, in accordance with its legal obligations under Article 13 a UCP, but did not detect the fraud was right to make the payments and can in this case, seek reimbursement of payments.

According to the provisions of this Article 13a of the UCP:

« Banks must examine with reasonable care all documents stipulated in the Credit to see if they have or not the appearance of compliance with the terms and conditions of the credit. »

III.2.2.b. The means of redress of the ordering

The means of redress against banks

The ordering who find fraud has a right of recourse against banks that still made payment.

But it is clear that this action is quite tricky, depending on the date of detection of fraud and to the date of payment.

If the fraud was discovered after payment, the Bank acted in good faith and paid the Seller, on the basis of documents which have every appearance of authenticity, cannot be accused of having made such payment. This confirms the Article 13 of the UCP which limits the liability of banks in terms of verification of documents:

« Banks must examine with reasonable care all documents stipulated in the Credit to see if they have or not the appearance of compliance with the terms and conditions of credit »

But if the fraud was detected before payment, even though it was not confirmed until payment, the Bank has been advised of the fraud but chose to pay is « wrong ». And in this case, it may even be accused of « conscius fraudis. »

Also, it is clear that the liability of the Bank shall automatically engage when the payment was made in full knowing of the existence of fraud. Also, it must pay damages equal interest to the injury suffered by the originator

CONCLUSION

The phenomenon of globalization and globalization has significantly increased the flow of international trade.

To regulate these exchanges, standard norms must exist so that all players in these exchanges may refer to uniform laws and accepted by all. This is why the UCP have been developed. UCP offer exacting standards to all international trade.

But it is clear that nowadays, documentary credits, that international payment method, is very useful in trade where the seller and the buyer are geographically distant, but they are really exposed to the risks of fraud. And these frauds are not without consequences on the formalisms and the conditions of application of documentary credits in the UCP.

This leads us to conclude that the introduction of new and more stringent requirements in the UCP is required.

PART IV: APPENDICES

[1] Letter of Change

[2] Documentary credit

[3] VE A CAPRIOLI » Documentary Credit…. Developments and Outlook « , op cit, p 255, No 363

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