Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
권호 표지
DOI QR코드

DOI QR Code

Evaluations for Fraud in L/C Transactions, and Counter-Measures

  • Lee, Jae-Sung (Department of International Trade, Dong Eui University)
  • Received : 2020.03.26
  • Accepted : 2020.11.17
  • Published : 2020.11.30
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - The letter of credit has been playing a major role to diminish overall risks which exist among concerned parties even though there are differences such as language, culture, law, and distance. This paper reviews essence of the letter of credit and its transaction principles, as well as overall practical questions based on the L/C transaction principle. It also investigates the risk of fraud occurrences in L/C transactions and the importance of fraud prevention and preventive measures in international L/C transactions, including the Fraud Rule, which is a major topic to consider in business transactions. Design/methodology - It is considered that an importing country's concerned parties and an exporting country's concerned parties face different situations. This study employs the existing framework to identify liability, responsibility, and obligation for all concerned parties across countries. Using a quite direct measurement of principles in the letter of credit, such as principle of independence, principle of abstraction, and principle of strictness and coincidence, we studied these differences. Findings - Our main findings can be summarized as follow. The paper enhances the efficiency of the L/C payment method to provide fraud generated from L/C transactions, presentation of a theoretical framework about fraud and fraud prevention, which international trading companies should acknowledge in a material way based on fraud risk resulting from taking advantage of L/C transaction principles. Originality/value - Existing studies focus on fraud accidents in L/C transactions by taking bad advantage of the characteristics of the letter of credit without suggesting risks of fraud. This paper attempts to evaluate and provide preventive measures as a solution for fraud and risky international business in a letter of credit transaction. This area of trade studies is underexplored, both empirically and theoretically, although the issue has long been important to Korean and world community foreign trade.

Keywords

References

  1. Ahn, Kang-Heon (2005), "Review of the Requirements for the Establishment of the L/C Fraud: Focusing on the Mid-American Tire Incident of the Ohio Supreme Court", Korean Forum on International Trade and Business Law, 14(1), 155-177.
  2. Chae, Jin-Ik (2011), "A Study on the Application and Implementation of Consistency Standards for Document Review in L/C Transaction", Journal of Business Administration & Law, 21(3), 357-393.
  3. Choi, Jae-Soon (2014), Smart International Trade Practice, Seoul: One, 36-37.
  4. Choi, Jeong-Ho and Jae-Hyun Lee (2001), "A Study on the Analysis and Prevention of Trade Fraud Type in L/C Transaction", Sogang Journal of Business, 12(1), 197-215.
  5. Choi, Nak-Bok (2009), International Trade Practice, Seoul: Doonam, 220-226.
  6. Choi, Seok-Bum (2017), "Problems and Solutions of Negotiation in L/C Transaction under UCP 600", Journal of International Trade & Commerce, 13(2), 277-290.
  7. Chu, Chang-Yeop and Il-Hyeon Yoon (2008), New International Trade Practice, Seoul: Hyeongseol, 162-163.
  8. Chung, Chan-Hyung (2007), "Fraud Rule in L/C Transactions", Korea Law Review, 49, 61-91.
  9. Chung, Ha-Yun (2020), "Principle of Fraud and Trading Fraud in Back-to-back L/C Transactions: Based on the Supreme Court's Ruling of 2017.11.14 and 216776", Commercial Cases Review, 33(1), 77-124. https://doi.org/10.22864/KCCA.2020.33.1.003
  10. Dolan, J. F. (1991), The Law of Letters of Credit, Boston, MA: Warren, Gorham & Lamont, 32-59.
  11. Dolan, J. F. (2006), "Tethering the Fraud Inquiry in Letter of Credit Law", Banking & Finance Law Review, 21(6), 479-503.
  12. Dong, Taek-Young (2003), "A Study on the Characteristics of L/C Transactions and the Prevention of Fraud", The Journal of Establishment Information, 6(1), 165-194.
  13. Eberch, R. and E. P. Ellinger (1983), "Deferred Payment Credits: A Comparative Analysis of Their Special Problems", The Journal of Maritime Law and Commerce, 14(3), 407-408.
  14. Feenstra, R. C. (2004), Advanced International Trade, Princeton, NJ: Princeton University Press, 338-339.
  15. Gao, Xiang (2002), The Fraud Rule in the Law of Letters of Credit (Global Trade & Finance Series), Alphen aan den Rijn, Netherlands: Kluwer Law International, 29.
  16. Gao, Xiang and R. P. Burkley (2001), "The Development of the Fraud Rule in Letter of Credit Law: The Journey So Far and the Road ahead", Journal of International Economic Law, 23(12), 688.
  17. Gray, H. P. (1976), A Generalized Theory of International Trade, New York, NY: Holmes & Meier, 172-173.
  18. Guest, A. G. (1981), Benjamin's Sale of Goods (2nd ed.), London: Sweet and Maxwell, 1184.
  19. Ha, Gang-Heon and Gwang-Uk Huh (2009), New Trade Business Practice, Seoul: Daejin, 482-504.
  20. Han, Ki-Mun (2007), "An Interpretation of Third Party Fraud in L/C Transaction", The International Commerce & Law Review, 36, 29-46.
  21. Han, Sang-Hyeon (2018), Trade Claim, Seoul: Doonam, 92-98.
  22. Harfield, H. (1974), Bank Credits and Acceptances (5th ed.), New York, NY: Ronald Press, 203-204.
  23. International Chamber of Commerce (ICC) (1993), Uniform Customs and Practice for Documentary Credits (Publication No. 500), Paris: Author, Art. 3.
  24. Jeon, Soon-Hwan (2006), "A Study on the Major Revision Contents and Characteristics of UCP 600", The Journal of Establishment Information, 9(4), 167-199.
  25. Kang, Jin-Wook (2017), "Case Studies in Japan on the Refusal to Honour L/C's of Issuing Banks", Journal of International Trade & Commerce, 13(1), 379-394.
  26. Kang, Won-Jin (2011), "A Study on the Payment Execution and Refusal of Payment in the L/C Transaction by Fraud and Forgery of Documents", The International Commerce & Law Review, 49, 139-164.
  27. Kim, Chong-Chill and Tae-Hwan Kim (2007), "A Study on the Activation of Electronic Letter of Credit System in Korea", Electronic Trade Institute, 5(1), 63-82.
  28. Kim, Dong-Chun (2019), "An Assessment of Negotiation Practice under L/C", Journal of International Trade & Commerce, 15(5), 509-536.
  29. Kim, Dong-Chun and Kyung-Doo Nam (2018), "A Study on the Legal Position, Obligations, and Disclaimer of Accepting Bank under L/C Transaction", Journal of International Trade & Commerce, 14(2), 417-432.
  30. Kim, Duck-Kwon and Kyung-Bae Kim (2003), "A Study on the Prevention of Fraud and Refusal of Payment in International Trade Transaction", Journal of International Trade Studies, 9(2), 167-190.
  31. Kim, Gi-Seon (2005), "Analysis of Amendment: US Letter of Credit (Chapter 5)", Journal of Commercial Law, 23(4), 241-267.
  32. Kim, Jong-Seok (2017), "A Study on the Acceptance Requirements of Bill of Lading in Documentary L/C Transaction", Regional Industry Review, 40(3), 261-277.
  33. Koo, Jong-Soon and Eon-Suk Huh (2007), Trade Payment, Seoul: Pakyoungsa, 87-89.
  34. Kwon, Seung-Ha and Keun-Sik Park (2018), "A Study on the Influence of e-L/C Application on Customer", Journal of International Trade & Commerce, 14(2), 241-255.
  35. Lee, Dae-Woo (2002), "Applying Example of Fraud Rule on Document Review in L/C", Journal of International Trade, 17(3), 137-158.
  36. Lee, Jae-Sung (2019), International Trade Practice & FTA Management, Seoul: Prinart H, 52-53.
  37. Lee, Jong-Won (2007), "A Study on Exceptional Fraud in L/C and Fraud Countermeasure", Journal of International Trade, 22(2), 151-166.
  38. Lee, Oun-Yeong (2017), "Bank's Responsibility in Non-L/C Type Trade Financing", Regional Industry Review, 40(1), 273-292.
  39. Lee, Shin-Kyuo (2017), "Problems and Implications of Trade Settlement under Letter of Credit in a Small and Medium-sized Trading Company", Journal of International Trade & Commerce, 13(4), 263-281.
  40. Monteiro, F. and W. Harle (2007), "Documentary Credits: The Autonomy Principle and the Fraud Exception: A Comparative Analysis of Common Law Approaches and Suggestions for New Zealand", Auckland University Law Review, 13, 144-170.
  41. Nam, Pung-Woo (2011), Trade Payment, Seoul: Doonam, 298-305.
  42. Neo, D. S. S. (2004), "A Nullity Exception in Letter of Credit Transactions?", Singapore Journal of Legal Studies, July, 46-75. https://www.jstor.org/stable/24869531
  43. Park, Suk-Jae (2019), "A Comparative Study on the International Standard Banking", Journal of International Trade & Commerce, 15(2), 161-173.
  44. Park, Young-Hyun (2020), "A Study on the Defence of Refusal for the Payment of Issuing Bank under Standby Letter of Credit and Documentary Credit", Journal of International Trade & Commerce, 16(5), 615-634.
  45. Schmitthoff, C. M. (1990), Export Trade (9th ed.), London: Stevens & Sons, 404-405.
  46. Suk, Kwang-Hyeon (2004), "A Study on the Principles of International L/C Transactions and Fraud: Focused on the Laws of Korean Law", Journal of General Theory of Law, 21, 105-123.
  47. Woo, Seong-Koo and Seong-Mun Sohn (2000), "A Study on the Redemption of Credit Fraud in China by Related Parties", Regional Industry Review, 22(1), 87-109.
  48. Uniform Commercial Code (UCC) of the United States of America, Arts. 5-108 and 5-109.
  49. Johnson v. Taylor Bros & Co Ltd [2012] AC 144
  50. Korean Seoul District Court Decision 1992Gahap19434 Decided September 12, 1996.
  51. Korean Seoul District Court Decision 1993Gahap54182 Decided July 22, 1994.
  52. Korean Seoul District Court Decision 2003Gahap56484 Decided January 25, 2006.
  53. Korean Seoul High Court Decision 1996Na15864 Decided October 22, 1996
  54. Korean Seoul High Court Decision 2007Na36218 Decided October 2, 2008
  55. Korean Supreme Court Decision 1997Da54017 Decided March 13, 1998.
  56. Korean Supreme Court Decision 2000Da63691 Decided June 28, 2002.
  57. Korean Supreme Court Decision 2005Da6327 Decided April 28, 2006.
  58. Korean Supreme Court Decision, 1999Da49750 Decided February 21, 2002.
  59. Korean Supreme Court Decision, 2000Da60296 Decided October 11, 2002.
  60. Korean Supreme Court Decision, 2001Da68266 Decided March 15, 2003.
  61. Korean Supreme Court Decision, 2008Da88337 Decided January 13, 2011.
  62. Landauer & Co v. Craven & Speeding Bros (1912) 2 KB 94
  63. Standard Chartered Bank V. Pakistan National Shipping Corporation and Another [1998] 1 Lloyd's Rep. 656
  64. Sztejn v. J. Henry Schroder Banking Corporation et al. 177 Misc. 719, 31 N.Y.S. 2d 631 (1941)