Mastering Imports And Export Management

The last two years have seen drastic changes in the import/export arena, due to a combination of world developments, economic changes, and technological advances. Mastering Import and Export Management is a definitive resource for keeping up to date with the latest laws, regulations, and opportunities in international trade. This invaluable, authoritative volume offers complete, timely, and practical hands-on information on:

International Commercial Disputes in English Courts

This is the third edition of a book formerly published by Lloyds of London Press under the title International Commercial Disputes. It is concerned with how commercial disputes which have connections with more than one country are dealt with by the English courts. Much of the law which provides the framework for the resolution of such disputes is derived from international instruments, as a consequence of which English law is very similar to or the same as the law of other countries in Europe and beyond.

Incoterms 2000 Handbook

EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU, & DDP. Incoterms are the official rules for the worldwide interpretation of trade terms developed under the auspices of the International Chamber of Commerce, Paris, France. Incoterms are recognized by the United Nations Commission on International Trade Law as the global standard for such interpretation.

Incoterms define the responsibilities of buyer and seller for delivery of goods under sales contracts. They are the authoritative text for determining how costs and risks are allocated to the parties. These terms are regularly incorporated into sales contracts worldwide and have become part of the daily language of trade.

Incoterms 2000, the first revision in ten years, contains the official ICC text of the thirteen trading terms. It takes into account the latest developments in commercial practice and modifies some the existing terms bringing them into line for use in the new millennium. Most sales

A Basic Guide To Importing

Compiled by the United States Customs Service, this book is an essential source of information for anyone importing goods--commercial or personal property--into the United States. Topics covered in depth include:

1. How the customs service works at ports of entry

2. The entry process--and how to guarantee that your goals will pass entry examination

3. How to prepare error-free invoices

4. How to calculate duty payable and qualify for refunds of duty

5. How transaction values are assessed and how currency conversion works

6. Regulations on marking imported goods

7. Understanding prohibitions, import restrictions, and quotas

8. Laws governing civil and criminal fraud

In addition, an extensive appendix provides sample customs forms, certificates, and invoices, along with relevant excerpts from statutes governing importing into the United States. Complete, up-to-date, and easy to use, this book provides all the information needed to import efficiently and profitably into the United States.

Manual on Modernization of Inland Water Transport for Integration within a Multimodal Transport System

Multimodal transport is defined as the carriage of goods by two or more modes of transport. The integration of Inland Waterway Transport (IWT) into the multimodal transport system is in the initial stage in most countries of the ESCAP region. This Manual details country by country experiences with multimodal IWT, compares it with experiences in Europe and the United States and provides guidelines for its modernization in the region.

The Box: How The Shipping Container Made The World Smaller And The World Economy Bigger

A book about the history of the shipping container? At first, one has to wonder why. (An eventuality not lost on the author, who muses "What is it about the container that is so important?


Surely not the thing itself...the standard container has all the romance of a tin can.") The catch, though, is that Levinson, an economist, "treats containerization not as shipping news, but as a development that has sweeping consequences for workers and consumers all around the globe." That latter statement drives this book, which is about the economic ramifications of the shipping container-from the closing of traditional (and antiquated) ports to the rise of Asia as the world's preeminent provider of inexpensive consumer goods (distributed, naturally, using mammoth shipping containers).

Levinson maintains his focus on the economics of shipping vast quantities of merchandise, organizing the book into snappy, thematic chapters on different facets of shipping ("The Trucker," and "Union Disunion," for instance), an approach that lends itself well to spot-reading. Throughout, the writing is clean-more informal than rigidly academic (union boss Teddy Gleason is "a voluble Irishman born hard by the New York docks")-making the book suitable for casual readers as well as students looking for a different take on the evolution of 20th-century world economics.

Export / Import: Procedures And Documentation

In the ever-changing world of complex international rules, laws, regulations, and customs, even seasoned export/import professionals may find themselves in unfamiliar situations.

Export/Import Procedures and Documentation puts reliable solutions to problems like wrong documents and procedural misunderstandings right at readers' fingertips. This comprehensive answer book supplies ready-to-use forms and provides a clear view of the entire export/import process. This new edition has been thoroughly revised to include:

* New Shipper's Export Declaration forms and instructions

* U.S. Customs Service "Reasonable Care" checklists

* New Automated Export System (AES) procedures and documentation

* Updated Customs Audit Questionnaires.

Also featured are 37 updated forms as well as 12 all-new forms, a section on e-commerce in international marketing, Websites for 94 export and import agencies and information sources, and listings for export and import software.

The Art of Islamic Banking And Finance

A detailed look at the fast-growing field of Islamic banking and finance.

The Art of Islamic Banking and Finance is a modern American take on what it means to incorporate Islamic finance principles into everyday banking and investment techniques by introducing a new brand of banking for all people of all faiths: The Riba-Free (RF) banking.

The author is considered the father of RF (Islamic) banking in America. He has been a banker and an Imam/scholar for over 40 years in America since 1968. He started the tedious process with a finance company, LARIBA, in Pasadena, California in 1987. This is the first book ever in the field to trace the origins of prohibiting the renting of money at a price called interest rate and over-indulging in debt. The book reviews in great details the theological foundations of prohibiting interest in the Jewish Bible, the Christian Bible, and the Al-Qur'an. The author then discusses money and how fiat money is created, the role of the Federal Reserve, and the banking system in America. The book also discusses for the first time ever how to include an important aspect of RF (Islamic) finance using commodity indexation and marking the items to be financed to market in order to avoid participating in economic "bubbles." The author discusses how these rules work, how they affect consumer behavior, and how they change the role of the banker/financier.

• Covers a new pioneering model that is based on the Law (Shari'aa) and how it is applied in every transaction from joint ventures and portfolio management to home mortgages and personal financing
• Shows how to incorporate the Law (Shari'aa) into American financing and banking systems
• Points to RF (Islamic) finance and banking as a way to emphasize socially responsible investing

The Art of Islamic Banking and Finance also includes a discussion on the emergence of a culture of RF (Islamic) banking and finance today, which is based on the real Judeo-Christian-Islamic spirit and very effective when compared to twentieth-century models that use financial engineering and structuring techniques to circumvent the Law (Shari'aa). The book also includes case studies based on the actual experience of the author and detailed analysis of the superior results realized by applying this new brand of banking to financing.

Islamic Finance In Global Economy

A good political economy account of Islamic finance. Its general viewpoint is well-informed but sensibly critical; this is rare in writings on this topic. It contains a wide range of material in one place in a way that is probably unique. In spite of the ever growing importance of Islamic finance products, quantity, rather than quality, has been the main feature of literature on the topic.

Ibrahim Wardes book is in this respect a welcome exception, indeed he begins his book with the observation that the majority of texts on Islamic finance tend to be abstract, and avoid rigorous scientific and sociological methodology ! Warde unquestionably succeeds in his book in providing an excellent overview of modern Islamic finance. It will be particularly useful to readers who are interested in the complexity and variety of Islamic finance as it is now, as well as in possible future developments. The book's greatest drawback: in view of the breathtaking pace of change in Islamic finance at the moment, it could become quickly obsolete.

One should therefore read it quickly. The author provides a profound analysis of the connection between Islamic finance and politics ~ Seif I. Tag El-Din a well-researched and concise book on a fluid, complex, and sometimes misjudged concept. A forthright and scholarly survey of a subject that deserves the attention of both international bankers and area specialists who are interested in Islamic culture of political economy ... It offers a much-needed introduction to a highly complex set of economic, cultural, and political phenomena.

Bank Guarantee In International Trade

This book is a comprehensive study of the legal and practical aspects and implications of independent (first demand) guarantees and standby letters of credit. It serves to broaden the understanding of the law on the subject of bank guarantees, while placing marked emphasis upon the practical issues which can arise in the daily functioning of these legal instruments.

The American standby letter of credit and the European independent guarantee developed simultaneously and represent, conceptually and legally, the same device. However, developments throughout the 1980s and 1990s and into the new century particularly certain initiatives of the International Chamber of Commerce ((URDG) and the American Institute of International Banking Law and Practice (ISP98), along with a steady flow of case law and a proliferation of legal writing continue to affect practice in the field.

The writer examines all this material in detail in this incomparable book, now in an updated revised third edition. He uses case law and legal writing from five European countries; The Netherlands, Germany, France, Belgium, and England to build an analysis of how the practical applications of bank guarantees has established a pattern of law. He also takes into account U.S. writing and case law on the subject, as well as relevant cases from Switzerland, Italy, and Austria.

Written from a transnational perspective, Bank Guarantees in International Trade can be used in both Civil Law and Common Law jurisdictions. His analysis covers the following factors:

1. Ttypes of guarantee (tender, performance, maintenance, repayment, retention, judicial)
2. Ppayment mechanisms (first demand, third-party documents, arbitral or court decision)
3. Risks and negotiations, drafting and clauses
4. Bank guarantees as a financial service; direct and indirect guarantees
5. Relationship between account party and bank
6. Relationship between instructing bank and issuing bank, counter-guarantee
7. The call on the guarantee, demand for payment
8. Fraud and restraining orders
9. Furisdiction and applicable law

Bank Guarantees in International Trade offers practitioners in international trade and banking law the most complete analysis in the field. In its wealth of practical detail, it is unlikely to be surpassed.

Standby letters of Credit: A Comprehensive Guide

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".

Fraud Watch: Reef International, Sialkot, Pakistan

A few days ago, Mr. Bruce Morrison from Alabama, USA informed me about a trade fraud involving his company, KYM Industries Inc and the seller in Pakistan, Reef International.

According to Morrison, he came across Reef International on the internet and interested to purchase some quantity of leather glove. He was assured by the Reef International that the goods will be shipped to him upon receipt of 30% upfront payment. Without suspecting any dishonesty, Morrison remitted the payment in USD via Telegraphic transfer to the seller in Pakistan.

He was shocked to find out that the 125 cartons of leather glove which he paid for were not in the container. The container is empty. Morrison tried to contact Reef International to get further clarification, but failed to speak with anyone from the Reef International.

The transport document used in this trade is a multimodal transport document. However, I believe that the document is also forged as there are few important data not indicated such as the place of taking charge and freight charges.

Please avoid from dealing with this company. For your information, here are details of the company:

Name:
Reef International

Address:
P.O. Box 2094 Sialkot Mailing Address
Along With Muslim League Office
Amin Abad Road, Sialkot, Pakistan
Production Unit – B.2 Sector Korongi Ind Area, Karachi.

Tel Numbers:
92 52 8101 732
92 52 8105 469

Fax:
92 52 3258 302

Mobile:
92 300 616 5600
92 334 800 8118

Email:
reef@haat.net.pk
reef@gjr.paknet.com.pk

Website:
http://www.refint.com/

Other information:
Export number 006583
NTN number 19-06-TR-7219

The information above is extracted from the invoice sent to me by Morrison. I believe some information may be fabricated by the seller.

Strict Compliance: Need not be identical to, but must not conflict with

The expression ‘…to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the credit’ as stated in article 13 of the UCP 500 has been clearly explained in article 14 of UCP 600.

What is written in an invoice for example, need not be identical to what is written in other documents. This is because each document serves a different function and therefore the content or data contained in each of the document differs with each other.

The invoice serves as the accounting document. Packing list on the other hand provides information of the number of packages, weight, mark and numbers. Bill of lading is an evidence of contract of carriage as well as a title to the goods. As such, the content or data in each and every document called for under the letter of credit bound to differ. However, these differences must not conflict with each other and most importantly must not conflict with the data contained in the letter of credit within the context of international standard banking practice (ISBP).

This non-identical allowance suggested by article 14 of UCP 600 is clearly practical in the case where the term Ex-Work is used by the trading parties. Under the term Ex-Work, point of delivery of the goods can either be at the seller’s premise, workplace or factory. To accommodate to the possibility of making a delivery different from the original point as stated in the letter of credit, article 14 (j) allows the invoice issued by the seller to state a different address. For example, if the letter of credit expressly stated the address of the seller as follow:

59: Beneficiary
+Commercial Direct TV
340 Commerce Avenue,

Suite 20 Southern Pines N.C. 28387
United States of America

The invoice may bear a different address which can be the factory or workplace of Commercial Direct TV within the United States of America.

The same is also applicable to the applicant or the buyer. For example, if the letter of credit expressly stated the address of the applicant as follow:

50: Applicant
+Direct TV Business
132 Bangsar Park, Kuala Lumpur
59200 Malaysia

The seller that is Commercial Direct TV may issue an invoice to a different address within Malaysia which may be a branch or workplace of the applicant or buyer that is Direct TV Business.

However, when the applicant or buyer appears as a notifying party or part of the consignee on a transport document, the details of the applicant or buyer must be as stated in the letter of credit. Referring to the above example, the detail of the applicant should read as ‘Direct T V Business, 132 Bangsar Park, Kuala Lumpur, 59200 Malaysia’.

Collections: Collection Instructions

When the seller presents the relative documents to the remitting bank for collection of proceeds, the documents are invariably accompanied by a covering schedule in which the seller fills the relevant details as to the name of the drawee, nature/type of documents and instructions on the disposal of the documents and collection of the proceeds, known as a Collection Instruction. For standardization and ease of reference, and to prevent misunderstanding, thereby leading to inconvenience and complications, the seller is required to complete the standard Collection Instruction furnished by the remitting bank.

The seller is required to give full and clear instructions in the Collection instruction to the remitting bank to avoid unnecessary misinterpretation, inconveniences and enquiry which would result in delays. The following points should be noted:

1. The full name and address of the buyer/drawee should be correctly stated
2. The seller should correctly stipulate the following in the Collection instruction:
a. The tenure (Sight/Acceptance), the reference number, date and value of the Bill of Exchange
b. The nature and number of copies of the relative documents in the form of commercial invoice, insurance policy, certificate of origin, bill of lading or multimodal transport document or etc
c. How the documents to be released to the buyer/drawee that is whether against payment or upon acceptance of the bill of exchange
d. The name of the presenting bank in the country of the buyer to present the documents, other than the remitting bank’s correspondent/agent bank, if it is so required by the seller or buyer

Besides the above mentioned, generally the Collection instruction contains a set of standard instructions with appropriate boxes for the seller to mark and with extra boxes for the seller to include other additional specific instructions, where appropriate. Listed below is a typical list of such instructions:

1. Release documents against payment
2. Release documents against acceptance
3. Payment may be deferred until arrival of goods
4. Acceptance may be deferred until arrival of the goods
5. Collect all charges and expenses from drawee
6. Waive charges/expenses if refused by drawee
7. Collect interest at the rate of…….% from the drawee from…….until………
8. Advise Acceptance and due date by airmail/telex/SWIFT
9. Advise Non-Acceptance by airmail/telex/SWIFT
10. Remit proceeds by airmail/telex/SWIFT
11. Advise Non-Payment by airmail/telex/SWIFT
12. If dishonoured by non-acceptance/non-payment, please protest
13. If dishonoured by non-acceptance/non-payment, please do not protest
14. In case of need, refer to…………, who will assist in securing payment, but who has no authority to amend the bill or terms of payment
15. If documents are not taken up on arrival of carrying steamer, please arrange for goods to be stored in bond and insured, under advise by airmail/telex/SWIFT to us
16. Other specific instructions, where deemed appropriate.

Letter of Credit In Electronic Trade Transaction

Somewhere in 1990s some 40 bankers, carriers and multinational companies have joined together in the BOLERO project. BOLERO aims at providing an electronic Bill of Lading for use in export transactions. Banking software packages and specialized telecommunications networks such as SWIFT have already taken a lot of paperwork out of the business of preparing and transmitting letter of credit details. eUCP has been introduced by the ICC to focus on the presentation of electronic or partial electronic documents.

Internet, undoubtedly has become an important medium for business community to get connected and to carry out their business transactions safely with the help of digital signature authentication system. The internet facility also makes buying a large business abroad possible through the internet franchise service. This electronic medium has also made the status inquiry and the due diligent process completed much faster without exchanging papers back and forth. By clicking on computer franchise for example, buyer or seller can obtain information and get connected. Internet franchise or computer franchise provides a focal point for trading community in search for business diversification.

When the idea of electronic trade transaction takes a full swing, the quality of the evidence provided by the seller with regard to the goods is very important. The buyer, in his instructions to the bank, specifies what the bank is to accept as evidence. In practice, this is a set of documents issued by the seller and by the independent parties.

A letter of credit consists of a series of flows; instructions, money, evidence regarding the goods and the title to the goods. Most of the flows are already dematerialized, or could be. For example, instructions with regard to the letter of credit can be passed from buyer to bank, and from bank to seller by electronic means and many banks have implemented systems to allow this to happen. Indeed, there is even a North American Bank which is prepared to accept applications for letter of credit over the World Wide Web. Within the banking system, this type of instruction can be handled through SWIFT, using its MT700 message format.

The issues seem to be concentrated in the field of evidence and of title to the goods. If we concentrate on the evidence, there seems to be no reason why a buyer could not call for the bank to accept a certain set of electronic messages instead of the equivalent set of documents. There exist internationally accepted standard EDIFACT messages, which can carry all the data the buyer may require, and which correspond in every way to the documents normally used.

Collections: Documents against acceptance (D/A)

Under the documents against acceptance (D/A) the buyer does not have to pay immediately. The buyer is given a credit period. He only pays on the maturity date of the accepted Bill of Exchange, which may be 30 days, 60 days, 90 days later or even longer. This method offers greater flexibility to the buyer in his cash flow and liquidity management as by the time he is required to pay, he should be able to sell the goods and secure payment from his debtors.

Under this method, the seller is required to ship the goods first to the buyer. Upon shipment, the seller will obtain all the necessary documents like Bill of Exchange, Invoice, Bill of Lading (or other transport documents), Insurance Policy, Certificate of Origin and etc. He is also need to complete a collection order (furnished by his bank) with the appropriate instruction.

The documents then will be presented to his banker (Remitting bank) where the documents will be checked to ensure they tally with the collection order. These documents will be air couriered to the buyer’s bank (Collecting bank).

Upon receipt of the said documents, the collecting bank will present the Bill of Exchange to the buyer for acceptance. Acceptance means the buyer has to endorse on the back of the Bill of Exchange with a company seal. Upon acceptance, the Bill of Exchange will be returned to the collecting bank for safe keeping and the rest of the documents are delivered to the buyer to take possession of the goods.

The collecting bank will notify the remitting bank of the acceptance as well as the maturity date. On maturity, the collecting bank shall debit the buyer’s account and remit the proceeds via MT202 to the remitting bank.

What if the buyer fails to pay on maturity? In the first place, can the buyer refuse to pay under documents against acceptance? This is in fact the biggest risk faced by the seller under this method of payment. When the buyer refused to pay, the collecting bank will not pay the remitting bank which means that the seller will not receive his payment.

In this case, the seller has to resolve the problem with the buyer. The remitting bank and the collecting bank are only acting as an agent and can not enforce any legal avenue to obtain payment from the buyer. Collections is not governed by the UCP but by another set of rules known as Uniform Rules for Collections (URC).

SWIFT Confusion

The issuing bank is responsible to ensure not only completeness of the Letter of Credit but the most important is to make sure all the data which forms the terms and conditions of the Letter of Credit is correct, clear and does not open to multiple interpretation before it is advised to the beneficiary. Legally speaking, Letter of Credit is in fact a form of a contract that is a contract of payment. Therefore, the terms and conditions laid out in an LC should be precise and clear.

Recently, a question came from one of the readers asking about the following problem. He received an LC with the following conditions:

44E: Port of loading/Airport of departure

+Bangkok Port, Thailand

45A: Description of goods and/or services

+400metric ton abc. FOB Thailand

He wants to know whether the information in field 44E and field 45A above is correctly indicated.

Field 44E (Port of loading/Airport of departure) and field 44A (Place of Taking in Charge/Dispatch from.../Place of Receipt) are fields specifically to indicate the point of delivery. This is the point where the seller technically delivers the goods to the buyer and the buyer accepts the said delivery. At this point, the delivery by the seller is said to have been completed. In other words, the seller must ensure the point of delivery by referring to field 44E only.

Is it necessary to indicate the point of delivery in field 45A? In the above example, name of the port that is “Bangkok Port” is not indicated. Is this ambiguous?

Field 45A is specifically to describe the goods or services and to indicate the trade term agreed upon by both parties. Therefore, the name of the port need not appear again in this field. Nevertheless, it is not wrong if the buyer wish to indicate again the name of the port in this field. However, it makes no difference whether it is indicated or not as information in field 44E is already conclusive.

Discrepancy Fee: The Unnecessary "Evil"

Today, it is impossible to receive a letter of credit without a clause “…a discrepancy fee of USDxx will be deducted…”. This clause becomes popular in pursue to curb discrepant documents being presented to the banks. There was a period where discrepant documents had reached 60% of the total documents presented under letter of credit worldwide.

Most of the documents, in many cases are issued by a third party for example, Bill of Lading, Insurance Certificate, Certificate of Origin, Inspection Certificate and etc. If any of these documents is found to be discrepant, it would take some time for the seller to get it rectified and most probably would not meet the time limit for presentation or expiry date of the letter of credit. It is however agreeable, that the onus to ensure document compliance lies on the seller.

Let us see how the examination process takes place. Issuing bank will receive the documents by air courier. Upon receipt of the documents, the bank officer will retrieve the copy of letter of credit and conduct a document checking against the letter of credit. When the documents are found in compliance with the terms and conditions of the letter of credit, the applicant will be contacted by phone to notify the arrival of the documents. A good banker will send a SWIFT message to the sender bank to confirm that the documents are received and payment will be transmitted in accordance with the reimbursement clause. Consequently, a SWIFT message (MT202) will be effected to remit payment in the case where direct TT claim on the issuing bank is not allowed.

In this case, the charges incurred on phone and electronic fund transfers are debited to the applicant’s account.

The process does not change even if the documents are found to be discrepant. The bank officer must notify the applicant by phone, send a SWIFT message to the sender bank to notify rejection and reimburse the negotiating bank if the applicant accepted the discrepancy. The bank officer would not call the applicant 10 times to notify 10 discrepancies found in the documents or send 10 separate SWIFT messages to notify the sender bank of the discrepancies found in the documents. Only one phone call and one SWIFT message would put the examination process to an end. So, what is this ‘additional’ so called a discrepancy fee between USD20 to USD50 for?

If the objective of this fee is to curb or reduce discrepant documents, it has successfully proven that it failed miserably.

In view of the new UCP 600, the doctrine of strict compliance is seen going beyond 'strict' compliance and reaching the border of ‘substantial compliance’ as evidenced by article 14. From the bank’s point of view, the doctrine of strict compliance is no longer based on ‘mirror image’ but much wider. This indirectly means that the potential risks of wrongful rejection by the banks are higher. To mitigate these risks, banks eventually pass over the ‘non-mirror image’ documents to the applicant for final decision. The applicant will give a final say whether or not to take up the documents and convey the decision to the bank within 5 banking days.

Looking at article 16, it seems that UCP further reduces the risks of the banks by allowing the presenter to arrange how the discrepant documents should be disposed off. This article intentionally allows the presenter and the applicant to sort out the discrepancy problem. Not only the role of the bank has becoming lesser, but the risks in handling non-compliance documents are also reduced.

So, why would the presenter need to pay additional fee if it does not trigger any additional performance by the Issuing bank? What risk can possibly be reduced by charging a discrepancy fee?

Murabahah Trade Financing

Originally, Murabahah is a particular type of sale and not a mode of financing. However, in the perspective of the current economic set up, there are certain practical difficulties in using Mudarabah and Musyarakah instruments in some areas of financing. Therefore, the contemporary Syariah experts have allowed, subject to certain conditions, the use of Murabahah on deferred payment basis as a mode of financing. But there are two essential points which must be fully understood in this respect:

1. It should never be overlooked that, originally Murabahah is not a mode of financing. It is only a device to escape from “interest” and not an ideal instrument for carrying out the real economic objectives of Islam. Therefore, this instrument should be used as a transitory step taken in the process of Islamization of the economy, and its use should be restricted only to those cases where Mudarabah or Musyarakah are not practicable.

2. The second important point is that the Murabahah transaction does not come into existence by merely replacing the word “interest” by the words “profit” or “mark-up”. Actually, Murabahah as a mode of finance, has been allowed by the Syariah scholars with some conditions. Unless these conditions are fully observed, Murabahah is not permissible. In fact, it is the observance of these conditions which can draw a clear line of distinction between an interest bearing loan and a transaction of Murabahah. If these conditions are neglected, the transaction becomes invalid according to Syariah.

Basic Features of Murabahah Financing:

1. Murabahah is not a loan given on interest. It is the sale of a commodity for a deferred price which includes an agreed profit added to the cost.

2. Being a sale, and not a loan, the Murabahah should fulfil all the conditions necessary for a valid sale, especially those enumerated earlier in this chapter.

3. Murabahah cannot be used as a mode of financing except where the client needs funds to actually purchase some commodities. For example, if he wants funds to purchase cotton as a raw material for his ginning factory, the Bank can sell him the cotton on the basis of Murabahah. But where the funds are required for some other purposes, like paying the price of commodities already purchased by him, or the bills of electricity or other utilities or for paying the salaries of his staff, Murabahah cannot be effected, because Murabahah requires a real sale of some commodities, and not merely advancing a loan.

4. The financier must have owned the commodity before he sells it to his client.

5. The commodity must come into the possession of the financier, whether physical or constructive, in the sense that the commodity must be in his risk, though for a short period.

6. The best way for Murabahah, according to Syariah, is that the financier himself purchases the commodity and keeps it in his own possession, or purchases the commodity through a third person appointed by him as agent before he sells it to the customer. However, in exceptional cases, where direct purchase from the supplier is not practicable for some reason, it is also allowed that he makes the customer himself his agent to buy the commodity on his behalf. In this case the client first purchases the commodity on behalf of his financier and takes its possession as such. Thereafter, he purchases the commodity from the financier for a deferred price. His possession over the commodity in the first instance is in the capacity of an agent of his financier. In this capacity he is only a trustee, while the ownership vests in the financier and the risk of the commodity is also borne by him as a logical consequence of the ownership. But when the client purchases the commodity from his financier, the ownership, as well as the risk, is transferred to the client.

7. As mentioned earlier, the sale cannot take place unless the commodity comes into the possession of the seller, but the seller can promise to sell even when the commodity is not in his possession. The same rule is applicable to Murabahah.

8. In the light of the aforementioned principles, a financial institution can use the Murabahah as a mode of finance by adopting the following procedure:

(i) The client and the institution sign an overall agreement whereby the institution promises to sell and the client promises to buy the commodities from time to time on an agreed ratio of profit added to the cost. This agreement may specify the limit up to which the facility may be availed.

(ii) When a specific commodity is required by the customer, the institution appoints the client as his agent for purchasing the commodity on its behalf, and an agreement of agency is signed by both the parties.

(iii) The client purchases the commodity on behalf of the institution and takes its possession as an agent of the institution.

(iv) The client informs the institution that he has purchased the commodity on his behalf, and at the same time, makes an offer to purchase it from the institution.

(v) The institution accepts the offer and the sale is concluded whereby the ownership as well as the risk of the commodity is transferred to the client.


All these five stages are necessary to effect a valid Murabahah. If the institution purchases the commodity directly from the supplier (which is preferable) it does not need any agency agreement. In this case, the second phase will be dropped and at the third stage the institution itself will purchase the commodity from the supplier, and the fourth phase will be restricted to making an offer by the client.

Step To Mitigate Trade Risks

Since the establishment of the UCP, it has never been intentionally to address or mitigate issues on fraud. The primary purpose of formulating the UCP is to provide a set of uniformity governing the conduct of trade activity in commerce. It is aimed at ensuring smooth transition of goods, services and payment. As the life blood of commerce, money, regardless of currency is what the protection needed the most and not be compromised at any cost.

Article 4 and article 5 of UCP 600 formed what is known as the principle of autonomy where it is solely to protect the integrity of payment obligation by banks. In other words, it means the letter of credit only guarantees the payment provided that the terms and conditions of the credit are complied with.

But, what about the integrity of the beneficiary or seller? How does buyer establish the performance capability of the seller, credit standing, business history and other important aspects related to trade?

This is an issue which is not covered in the UCP and there are no official guidelines on how to go about in establishing the integrity of the seller especially when the seller is domiciled in different country.

The buyer is always advised to conduct independent checking through Chamber of Commerce or by obtaining confirmation letter from the seller’s bank before concluding any agreement. This method however, is not favourable by most traders as the turn around time to get a reply is considerably long and in most cases it is viewed as not practical. Not only time, but the genuineness and precision of information are also very important to buyers in making business decision especially in establishing a first time trade relationship. Replies received from banks in most cases are not helping the buyer in making business decision.

A reputable third party private company, American Heritage is a good source of obtaining information on companies registered in the United States. Buyers may easily access to millions of active company through their marketing list. Information like owner of the company, business type, branches, number of employees and others can be easily obtained from their mailing leads. Financial information on the other hand is available from their mortgage mailing list.

Although this may not provide a guarantee but, it gives a very good overview of who the buyer is dealing with and what is the next course of action to be taken.

Original And Copies

This is a very confusing topic for most of traders as well as bankers. The difference is only technical. In fact, I had tough time checking documents under letter of credit when it comes to establishing original or copies. 

Documents like Insurance Certificate, transport documents, official documents issued by third party do not require so much of scrutinizing as they are issued regularly on a daily basis to traders. 

These documents are always issued in original and copies. The problem is with the beneficiary or seller when issuing invoice or packing list.

What is original?

From the letter of credit point of view, original document is a document which does not bear any statement saying “copy” on the face of the invoice, for example. 

Even if the invoice is issued using preprinted stationery complete with address, contact number, seller’s trading mark and signed but bears a statement or stamp says “copy”, it is deemed to be a copy and not original. In the absence of the statement or stamp “copy”, the invoice is considered as original.

I had come across an invoice during my days way back in 1980s, from Hong Kong. It was hand written, signed and stamped with Chinese character in red. It did not bear any statement “original” or “copy”. 

This is, from the letter of credit point of view, an original invoice. An invoice which is computer generated is also original even if it is not signed by the issuer and does not bear statement “copy”. But if the letter of credit specifically requests for a signed invoice, it should be signed.

As a general rule, invoice issued using an issuer’s original stationery and does not bear any statement “copy” or computer generated or a carbon copy bearing the statement “original” is considered original. 

Take Bill of lading for example, it is always issued in multiple original, 1st original, 2nd original 3rd original and so on. The 2nd original onwards is customarily issued in carbon copies. But they are considered original because they bear the statement “original”.

To be safe and not to be caught with unnecessary discrepancy, I encourage you to issue all your invoices in original. Letter of credit may request 2 original and 2 copies. It is not a discrepancy if you present all 4 invoices in original.

Original Invoice and Copies

Two days ago I received an email from abroad concerning “original” and “copies” of invoice. The issue of original and copies have been brought to the attention of ICC many years ago when UCP 500 was still in force. It was a big issue where there were cases ended up in legal disputes.

To make this very clear, I think it is best to look at four situations below:

1. LC requests original invoice
2. LC requests a specific number of original invoice
3. LC permits copies of invoice
4. LC does not mention original invoice or copies

Upon receipt of the LC, it is very important to check and fully aware the terms of the LC such the issuing date, expiry date, the last day of presentation, availability of the LC and the date of shipment, to name a few. When these particulars are agreeable, look at the conditions like documents requirements, special instructions and the rest of the particulars.

Alright, let’s get back to invoice. Pay attention to field 46A (Documents required). Read carefully what are the documents required, number of pieces required. And cross check with field 47A (Additional conditions) to see if there is any special instruction where seller needs to perform.

If the LC requests the original invoice to be presented without specifically mentioned number of original, it means that at least one original invoice should be submitted. This will satisfy the requirement of the LC.

On the other hand, if the LC specifically mentioned “3 original invoice”, it means that 3 original invoice must be presented by the seller. This is a clear cut case.

Sometimes LC specifically mentioned, invoice in “3 copies”, “in duplicate” or “in two fold”. In this case, seller is said to have satisfied the condition of the LC by presenting at least one original invoice and the rest can be in copies. This is in accordance with article 17(a) of UCP 600.

If the LC does not mention either original invoice or copies to be presented, the seller shall present either original invoice or copies.

Discrepancy In Commercial Invoice

The commercial invoice is the commonest document in international trade because nearly no letter of credit issued without stipulating an invoice. In most cases, commercial invoice is the only document which the beneficiary issues himself which is in accordance with UCP 600, article 18(a)(i), “…A commercial invoice must appear to have been issued by the beneficiary (except as provided in article 38).”

It is the primary document where it reflects out what the goods are in respect of which presentation is been made and it states the price which is being claimed in respect of them. It serves as an accounting document and documentary evident in which the seller declares that he has sold to the buyer, what he has sold and at what price he has sold.

With regards to the commercial letter of credit, an invoice is a specific document which is closely related to the goods/services, quantity and price. The “description” of the goods is normally the cause for discrepancy which resulted in rejection by banks. This is because most of the traders do not understand the implications of non compliance.

To describe details of the goods should not at all be a major problem because it should go according to what is already described in field 45A of SWIT format. It is as simple as copying the description in a letter of credit into an invoice. For example, if the description in field 45A states “Advertising balloons and advertising blimps: 100 sets of helium balloons, 150 sets of advertising balloons and 50 sets of advertising blimps”, the invoice should bear the same description.

However, article 14(d) of UCP 600 in a way, provides allowance to the beneficiary where the description of the goods/services need not be identical but must not conflict with any data in any other document called for under the letter of credit. But bear in mind, a slightest mistake which brings a different meaning and does not refer to the goods mentioned in the letter of credit or ambiguous description, it is deemed to be a discrepancy by the bank. Therefore, to avoid any unnecessary disputes later on, the "description" is best to appear as a mirror-image.

The description of the goods/services in Insurance Certificate or Bill of Lading for example, may be described in general and need not be exactly as what is described in the invoice or letter of credit. It can be as general as “Advertising balloons and advertising blimps”. On principle, all data contents in all documents and the letter of credit itself must not conflict with each other.

S.W.I.F.T

Society For Worldwide Interbank Financial Telecommunication or in short SWIFT is a private international telecommunication network which was established in Belgium in early 1970s and became operational on May 9, 1977. SWIFT however, is not a financial institution but provides telecommunication service for transmission of financial and non-financial messages to all member banks worldwide. SWIFT is solely a transporter of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis.

As a message transporter, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity.By introducing IPSec-based security, a suite of protocols for securing Internet Protocols (IP) communications, SWIFT continues to maintain its leadership in providing the most secure financial messaging services.

Interested e-commerce community who wish to get connected with SWIFT may subscribe to their direct connectivity facility using SWIFTNet services. Before subscribing, it is advisable to access to web hosting articles to find out more information on various ranges of software and security features available in the market.

Web hosting articles provide good source of information for the public, particularly e-commerce community in obtaining a holistic understanding on how the electronic medium works in message transmission while at the same time maintaining the security that is the most important feature.

Every bank that subscribes to SWIFT is assigned with a Bank Identifier Code or BIC which is a unique code to identify each different bank. For example, RHB Bank, one of the anchor banks in Malaysia and a member of SWIFT is identified with the BIC, RHBBMYKL. When SWIFT sends any message to this BIC, it will reach RHB Bank head office in Malaysia. It works on a basic concept similar to an email address or domain name as explained in many web hosting articles over the internet. There are two types of BIC, 8 character BIC or known as "BIC8" and 11 character BIC which is known as "BIC11". A BIC8 identifies a financial institution in a country or a location whereas BIC11 identifies the financial institution’s branch.

Messages sent through SWIFT are formatted according to message type, for example, MT100, MT700, MT202, MT799 and so on. The format is arranged using a specific alpha numeric code to identify data like name of beneficiary, name of a bank, location, amount, sender and other related information. This will enhance the processing of different type of messages by member banks before transmitting them to their respective branches.

High-tech cargo theft

The transportation industry in the U.S is reported to be within the circa of USD2.7 trillion. This statistic represents 17 percent of the whole U.S economy. Out of this, it is reported that around USD30 to USD50 billion worth of cargo is stolen worldwide each year. This alarming figure demands a serious security measure to be integrated into the transportation and delivery processes especially when dealing with high-tech cargo, for example electronic devices. These items are essential in industrial automation and attract high demand worldwide in pursuing to lower the cost of production and enhancing operations.

Trading parties, therefore need to conduct due diligent on transport operators or forwarding agents before appointing one. This is important for both trading parties because the movement of the cargo from the point of origin to the final destination should be readily updated and accessible at any time to both parties.

The security measures increasingly critical when dealing with parties of different countries. For example, ABC Technology, a company located in Malaysia is buying solid state relays, electromagnetic relays and relay socket PCD from Mil-Com Components, a company domicile in the U.S. Even if the trade term CIF is agreed upon by both parties, the buyer still can make a suggestion to the seller, Mil-Com to appoint a well established transport operator which also has an office in Malaysia. Although, the obligation to contract for transport lies in the hand of the seller, but the buyer may determine which transport operator he is comfortable with.

However, there are many other aspects leading to loss of cargo or stolen cargo such as the spread of global crime syndicates where a new breed of smarter criminals able to adapt to the new technologies of the cargo transportation industry.