International Business Transactions in a Nutshell by Ralph Folsom

International Business Transactions in a Nutshell by Ralph Folsom

Author:Ralph Folsom
Language: eng
Format: epub
ISBN: 9781634607735
Publisher: West Academic
Published: 2016-08-15T00:00:00+00:00


ELECTRONIC ASPECTS OF LETTER OF CREDIT TRANSACTIONS

Electronic communications have taken over some aspects of letter of credit practice, but not others. They dominate the issuance process in bank-to-bank communications, and are sometimes used by applicants to initiate the issuance process. However, for a variety of reasons banks and other interested parties have not yet been able to create an entirely paperless transaction. First, the beneficiary still commonly wants a piece of paper—or at least a scanned electronic copy or pdf version of a formal letter—committing the banks to pay upon specified conditions. Second, even with an electronic letter of credit, most industries have not accepted electronic forms in the place of the significant documents typically required by a letter of credit. The principal example is an electronic negotiable bill of lading, which, for the reasons discussed in Chapter 3 (see “Electronic Bills of Lading”), has not yet found broad or stable acceptance. Thus, in the presentation phase for letters of credit, the parties commonly still 234

use physical documents, while funds settlement (payment) likely will be electronic.

Over three quarters of letter of credit communications between banks—including the issuance, advice, and confirmation of letters of credit—is paperless; and nearly all informal communication is electronic. Nonetheless, bank-to-beneficiary communication is still paper-based. Letter of credit issuers of course now can communicate directly with beneficiaries via computer, however, and this is now the norm. UCP Article 11 also expressly contemplates “teletransmission,” which will continue to facilitate the use of electronic practices. Moreover, the UCP has issued a separate set of rules, the Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation (“eUCP”), which—if expressly incorporated in a letter of credit—permits a beneficiary to present equivalent “electronic records” for any required document.

The SWIFT System. Most bank-to-bank communications concerning letters of credit are routed through the dedicated lines of SWIFT (the Society for Worldwide Interbank Financial Telecommunication). SWIFT is a Belgian not-for-profit organization owned by banks as a cooperative venture for the transmission of financial transaction messages. It requires all such messages to be structured in a uniform format, and uses standardized elements for allocating message space and for message text. Each bank in the system has a 235

unique SWIFT bank code (e.g., Citibank in New York = CITIUS33), and each type of message has a unique number (e.g., Issuance of Letter of Credit = MT700). Each message type also has a set of uniform fields for specific types of information (e.g., 45A = Description of Goods and Services). In this way, banks may communicate their inter-bank messages on a computer-to-computer basis without human intervention.

A bank issuing a letter of credit communicates that message to the nearest SWIFT access point. The message is then routed on a dedicated data transmission line to a regional processor, where it is validated. From the regional processor, it is routed over a dedicated line to one of three main data centers, one each in the United States, the Netherlands, and Switzerland. From there it is routed through a regional processor to a SWIFT access point and to the receiving bank.



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