FEATURE - The Institute of International Banking Law & Practice

More documents

Recommendations

Info

FEATURE US Federal Financial Institutions Examination Council has been put forth to bankers for comment. In addition, the Financial Action Task Force (FATF) has approached the ICC and asked them to establish a task force on money laundering. Its first step is to look at UN Security Council sanctions then narrow its focus to address certain aspects of trade. For standbys, how far do banks go in determining details of a transaction for compliance purposes One participant indicated that if the request is received for a trade standby, his bank gets copies of the export license if it was required by the government for the export. Panelists noted that these regulations are not only for money laundering, but also to detect outright fraud. Some speculated that perhaps issuing banks might have uncovered the massive Solo Industries fraud of the 1990s much sooner if these regulations had been in place and were followed. Another panelist mentioned a case where a company had an office that was under-invoicing in South America to avoid Brazilian taxes, demonstrating that even with “good” companies, banks must exercise diligence. One panelist cautioned that based on reports of IFSA committee meetings, banks should give the same level of careful attention to their standbys’ commercial documents as they would for a commercial letter of credit. He is being told by the examiners that banks need to check everything, even on collections. One commenter urged banks not to limit themselves by product. Although one bank indicated it was able to “push back” a bit on compliance expectations for reimbursement products, banks need to put into place controls for their whole suite of products, including their open account transactions. Banks are expected to know more about their regular customers. As banks increasingly get transactions for the same beneficiary, regulators will observe that the bank has established a relationship with that beneficiary and expect that the bank would do “Know Your Customer” checks. One participant stated that banks need to be careful because “relationship” has not been defined. The USA PATRIOT Act states that a bank only has to know one party in the transaction. Another attendee believes that a bank does not need to do a “KYC” on a beneficiary until it has done around six transactions for that beneficiary. Instead of KYC, sometimes a bank only has to do a Customer Identification Program (CIP) check which is less onerous. However one panelist told bankers in the audience that they need to warn their sales group that a KYC check is necessary before they start calling on new business since the regulations say that these prospects are customers if sales is calling on them. Moving on to other topics, the de-materialization of documents and authentication matters are not troublesome, but are continuing trends. Two large initiatives currently underway were highlighted by one panelist. An electronic invoice initiative begun by the European Union could significantly reduce traderelated processing. The target is to have this completed and formats available for EU countries by year-end 2009. A similar initiative regarding electronic invoice has also commenced in the United States. Some LC specialists noted their industry struggles with authentication and digital signature differences. There needs to be two standards where the receiver wants an authentic message (i.e., the message has not changed between sender and receiver) and the digital signature of the issuer. While one panelist stated that Europe has laws in place to deal with this, there is no June 2008 ■ Documentary Credit World 15
FEATURE established recognition for a digital signature in the United States and banks have to follow standard practice. There is a “digital signatures act”, but there is no national or recognized system that authenticates them. Banks were advised to be very careful on how they use the words “digital signatures”. Any authentication system only identifies the sender, not the actual person who sent the message. A related issue is an MT700 (Issue of a Documentary Credit) where the receiving bank assumes that the sender is the issuer, but the instructions state to send documents to a completely different bank. If the presenting bank gets a refusal from the other entity, is it proper Where does the engagement lie Others agreed this can be troublesome, noting that some banks use an MT700 rather than an MT710 (Advice of a Third Bank’s or a Non- Bank’s Documentary Credit) as they should. Overview and Update: The LC Year in Review Jim WILLS gave an overview of SWIFT for the past year. SWIFT has not received any requests for changes due to the implementation of UCP600. The deadline for submitting changes for the next revision of SWIFT standards is June 2008. The most common message sent is the MT103. Messages regarding trade transactions account for only about one percent of the total messages going through SWIFT. Open account messages are growing much more dramatically. The following changes take effect in November 2008: 1. The MT760 (Guarantee) will be renamed to include standby letters of credit. 2. The MT769 (Advice of Reduction or Release) will also apply to standby letters of credit. 3. In Field 40C (Applicable Rules) of the MT760, SWIFT will add the code word ISPR and remove the code word URCG. The code words NONE and OTHR will remain unchanged. 4. Unless otherwise specified, the rules specified in Field 40C will also be the rules to which the counterguarantee is subject. This was the number one change requested last year, mainly by Europe. Banks should used the code word NONE if the rules to which the counter guarantee are subject are not the same as the rules to which the guarantee is subject. 5. Field 79 (Narrative) of the MT499 and the MT799 Free Text Messages will still be the same size in the number characters, but the field will be repeatable until it reaches a maximum limit of 10,000 characters. 6. Field 79 of the MT707 (Amendment to a Documentary Credit) can be repeated, but only twice. The maximum message size will increase from 2,000 characters to 10,000 characters. 7. In the MT734 (Advice of Refusal), Field 77J (Discrepancies) will increase in size to 70*50. The Trade Services Utility (TSU) is an open account mechanism. Shipping documents and certificates are now a part of this. Fifty-four trade banks in 24 countries or territories are currently participating. SWIFT is looking at 2009 to start the process of changing trade messages to an XML format. Among questions raised by the audience, Annual Survey delegates were reminded that because MT 760 Field 40C can contain laws, and not just ICC rules, banks have to be careful in how it is used. Buddy BAKER (Atradius) followed with an update of Basel II. Already effective in Canada, Mexico, and Europe, Basel II will not go into effect in the United States until 2009. At that time it will be mandatory for the 11 institutions categorized as “core banks” in the United States which represent onethird of the assets in the US. This covers regulatory capital 16 Documentary Credit World ■ June 2008
Page 1 and 2: FEATURE 2008 ANNUAL SURVEY OF LETTE
Page 3 and 4: FEATURE at a bank’s accounting en
Page 5 and 6: FEATURE The bill of lading showed t
Page 7 and 8: FEATURE delivery) and TA.625rev (ap
Page 9 and 10: FEATURE when they haven’t. Others
Page 11 and 12: FEATURE THE ALL-IN-ONE LC Reference
Page 13: FEATURE Panelists noted that if the
Page 17 and 18: FEATURE compliance matters when the
Page 19 and 20: FEATURE stating that the seller had
Page 21 and 22: FEATURE and the transactions had to
Page 23: FEATURE transaction because of the

FEATURE - The Institute of International Banking Law & Practice

Create successful ePaper yourself

Delete template?

Save as template?