Responsibility Shifting on
Negotiation of DPC

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27 June 2006


To:   The Chair and Members
Canadian Working Party on the
ICC Commission on Banking Technique and Practice

Dear All,

I have reviewed the suggestions from Hong Kong, Bill Cameron, and the June 2006 draft on the issue brought by bill. Here are my views for sharing.

In case of fraud, we should ask ourselves: Who brings in the problem of trade fraud? Of course it is 90% the beneficiary. Then who picks up the beneficiary? Of course it is the applicant, not the issuing bank, which is only a finance service provider. The applicant also has to KYC. Hence it is fair to put the risk on the applicant for his not observing KYC. The issuing bank is an innocent party and should not be penalised by frauds.

However, if the applicant disappears, then it is the issuing bank to clean up the mess and it has to effect payment to the nominated negotiating bank for the deferred payment credit. So to a certain extent the issuing bank also bears a portion of the risk. We can see it this way. The disappearing applicant is picked up by the issuing bank. This is a KYC mistake again. So the issuing bank has to eat with its mistake.

I wish to hear your own thoughts on this.

Best regards,

T. O.

 
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