Published in partnership with BAFT

February 2019Volume 23, Number 2

28 FEATURE

INCOTERMS AND LCS

Since first coming into existence in 1936,

the ICC Rules for use of international trade

terms have been periodically updated. The

next revision will be released later this year

and new Incoterms 2020 will enter into

force January 2020. It has been suggested

that bankers are not expected to be

intimately familiar with non-banking trade

term specifics, however trade finance

specialists who are highly knowledgeable of

Incoterms are in an advantageous position

to identify problems arising from use of

incorrect Incoterms. In shining a spotlight

on the relationship between Incoterms and

letters of credit, Pavel Andrle contends it is

incumbent on parties to properly specify

the details to be examined by banks and use

of the relevant Incoterm is vital. To make

his case, Andrle then presents and analyzes

several common issues and pitfalls.

IIIIIn This Issue...

■■■■■ 3 UPDATES: SWIFT PostponesCategory 7 Changes to 2020; U.S. DistrictJudge Vacates Zeeco Opinion; LatestICC Draft Opinions Released; EuropeDiscloses New List of Jurisdictions withWeak AML/CTF Regimes; SCF StandardDefinitions Remain Unchanged; Problems Cited withExport LCs from Bangladesh; Asian Markets Unwillingto Take Venezuelan Oil; NVOCC Register Launched;Drrag Earns CSGP Honours; Oil Blockchain BuildsMomentum; Report: UK Firms Must Step UpCompliance; International Updates; Islamic SupplyChain Financing

■■■■■ 10 READER REACTION:■■■■■ Facts have a Bad Habit of Getting in the Wayof a Good Story

■■■■■ 12 INTERVIEW: Lars HANSÉN andGunnar COLLIN

■■■■■ 18 LITIGATION DIGEST:■■■■■ Group Five Power International (Pty) Ltd.v. Cenpower Generation Company Ltd.■■■■■ North Route 38, LLC v. City of Rochelle■■■■■ Tactic Engineering Pte Ltd (In Liquidation)v. Sato Kogyo (S) Pte Ltd

■ 36 REPORT:■ Executive Summary of the2018 ABA/ABA Financial CrimesEnforcement Conference

■ 46 SCAM SURVEY

2 Documentary Credit World ■ February 2019

Editorial Advisory Board

Lena AnderssonGlobal Product SpecialistSEB (Sweden)

Pavel AndrleTrade Finance ConsultantCzech Republic

Hasan Apaydin (Turkey)

Michael Evan Avidon, PartnerMoses & Singer LLP (NY)

Buddy BakerVP, Investment Banking DivisionGoldman, Sachs & Co. (Chicago)

James G. Barnes*Baker McKenzie (Chicago)

Abdulkader BazaraTrade Finance Structuring HeadAbu Dhabi Islamic Bank (Abu Dhabi)

Jack ChanHong Kong

Dr. Alan Davidson, Senior LecturerTC Beirne School of LawUniversity of Queensland (Australia)

Roger D. Fayers, LLBBarrister (UK); Department of Trade& Industry, Soliciter’s Dept. (retired)

Clyde Fletcher, Documentation ManagerFonterra Limited

Xiang GaoDean & Professor of Law, China Univ.of Political Science & Law (Beijing)

Paula GreavesSVP & Global Trade OperationsProcedures & Technical ConsultantBank of America Merrill Lynch (Seattle)

A.T.M. Nesarul HoqueVice President,Mutual Trust Bank (Bangladesh)

Professor Katsuto Iida(retired, Tezukayama Univ., Japan)

Dean Rafael Illescas OrtizUniversity Carlos III de Madrid (Spain)

Chris JenkinsChief Information OfficerStandard Chartered Bank (Thai) PCL

Jin Saibo, PartnerBeijing Jincheng Tongda & NealLaw Firm (China)

Carter Klein, PartnerJenner & Block (Chicago)

Michelle Kelly-LouwProfessor in Banking LawUniversity of South Africa

*Denotes Editorial Board member

Dr. Karl MarxenOstfalia University of AppliedSciences (Germany)

Khalil MatarAssistant General ManagerAlinma Bank (Saudi Arabia)

David MeynellOwner, TradeLC Advisory

Neal MillardMusick, Peeler & Garrett LLPAdjunct Professor, USC Law School

K. NizardeenFIB (Dubai, UAE)

Vincent O’Brien, Technical Trade AdvisorChina Systems Corporation

Janis S. Penton, Assistant General CounselMUFG Union Bank, N.A.

Gabriel ShamTrade Finance ConsultantSingapore

Kim SindbergExecutive AdviserNordea Trade Finance (Denmark)

Donald R. Smith*President,Global Trade Advisory, Ltd.

Soh Chee Seng, Technical Consultant,Trade Finance Issues, the Associationof Banks in Singapore (Singapore)

Chang-Soon Thomas Song, First Expert,Trade and Services Department,KEB Hana Bank (Seoul)

Lorna K. StrongDeputy General CounselHSBC Global Trade & ReceivablesFinance (London)

Hugo VerschorenConsultant, goVer Trade TechnologiesBelgium

Jun XuDeputy General ManagerBank of China, Jiangsu Branch (China)

KK YeungHong Kong

Alexander Zelenov, DirectorBank for Foreign Economic Affairsof the USSR (Moscow)

Published by Documentary Credit World, Inc. ISSN 1520-0221. Copyright © 2019 by Documentary Credit World, Inc.All rights reserved. No part of this journal may be reproduced in any form, including microfilm, xerography orotherwise, or incorporated into any information retrieval system, without the written permission of the publisher.Single subscription price: $595 per year. Global license information available upon request. This publication is designedto provide accurate and authoritative information in regard to the subject matter covered. It is sold with theunderstanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legaladvice or other expert assistance is required, the service of a competent professional should be sought.

ocumentary Credit World (DCW) is published monthly by Documentary Credit World, Inc.

Opinions expressed in it do notnecessarily reflect the official positions ofthe publishers of DCW, its EditorialBoard, Editorial Advisory Board, or theorganizations with which they areassociated. Authors, editors, members ofDCW’s Editorial Board and EditorialAdvisory Board, and the institutions withwhich they are associated often areactively involved in the field as lawyers,advisers, parties, consultants, or expertwitnesses in many of the mattersaddressed in DCW. The publication oftenreflects and sometimes adopts theirviews. Notwithstanding positionsexpressed in DCW, every effort will bemade to publish differing viewpoints andcontributions expressing such views arewelcomed.

The support of the Journal ofInternational Commercial Lawis gratefully acknowledged.

DDDDD

Documentary Credit World

20203 Goshen Road., No. 343

Gaithersburg, MD 20879 USA

phone: +1-301-330-1970

fax: +1-301-926-1265

e-mail: info@doccreditworld.com

website: www.doccreditworld.com

FounderProfessor James E. Byrne

Contributing EditorsVincent MaulellaVincent O’BrienSoh Chee Seng

Executive EditorChristopher S. Byrnes

Correspondent EditorLisa V. Chin

Case EditorMatthew J. Kozakowski

Scam Survey EditorJacob A. Manning

DesignersMario Escalera, Christopher V. Sandler

Student Research AssociateAnthony R. Bjelke

Emeritus Board Members

DCW is grateful to prior members ofits Board and appreciates their pastservice. Emeritus Board Members arerecognized on the DCW website at:www.doccreditworld.com

February 2019 ■ Documentary Credit World 3

UPDAUPDAUPDAUPDAUPDATESTESTESTESTES

SWIFT Postpones Category 7 Changes to 2020

Changes to SWIFT Category 7 messages for guarantees andstandby letters of credit that had been scheduled to takeeffect in November 2019 have been deferred to

November 2020.

Following country voting by User Group Chairpersons inDecember 2018, the SWIFT Banking Services Committee ratifiedvoting results in January 2019 which overwhelming supporteddeferral of Standards Release (SR) 2019 for Category 7(Guarantees/Standby Letters of Credit) messages to SR 2020.

The significant upgrade to Documentary Credit messagesoccurred as scheduled in November 2018. But the upgrade toGuarantee and Standby LC messages anticipated for 2019 is nowplanned for November 2020.

When DCW asked SWIFT about why a vote was requested,Andrew Muir from SWIFT Standards commented: “Due to theuniquely impactful nature of standards changes in 2018, theSWIFT community voted to defer these changes by one year, andwe therefore updated our implementation plans accordingly.”

To ensure SWIFT users are aware of the upcoming changes inSR 2020 and MT 798, SWIFT Standards has organized and madeavailable on the SWIFT site a webinar recording, slides, andFAQs.

U.S. District Judge Vacates Zeeco Opinion

F ollowing the decision in Zeeco, Inc. v. JPMorgan Chase Bank,N.A., 2018 WL 1414119 (N.D. Okla. Mar. 21, 2018), JamesG. Barnes (Senior Counsel, Baker & McKenzie LLP,

Chicago) sent an email to the co-chair and members of theAmerican Bar Association sub-committee focusing on letter ofcredit law as codified in the 1995 revision of the U.S. UniformCommercial Code, Article 5 (June 2018 DCW p.8-9).

Part of Zeeco dealt with an interpretation of U.S. UCC 5-116(b),particularly the fourth sentence of 5-116(b) which provides that “abank is considered to be located at the place where its relevantbranch is considered to be located under this subsection.” InZeeco, the judge interpreted that sentence as inapplicable pursuantto section 5-116(a) where the parties have specified a choice oflaw on the basis that 5-116(b) beings with “Unless subsection (a)applies”.

4 Documentary Credit World ■ February 2019

UPDAUPDAUPDAUPDAUPDATESTESTESTESTES

On 8 February 2019, however, the district court judge vacated the Zeeco opinion in response to anunopposed motion by JPMorgan Chase. The parties have settled and all state and federalproceedings have been dismissed with prejudice.

Latest ICC Draft Opinions Released

T he ICC Banking Commission has released its set of 5 Draft Opinions that will be discussed atthe plenary session of its next Annual Meeting in Beijing on 11 April 2019. They include:

• TA886 – Citing UCP600 Art. 18(a)(i) and ISBP745 Para. A21(a), (c)(i), Issuing Bank refusal ofpresented invoice bearing Chinese character stamp but lacking text in English language;

• TA887 – Whether or not a document presented by a bank in London having a branch inVietnam complies with the LC requirement that the document be issued by an international bankhaving a branch office in Vietnam;

• TA888 – Four examples of LC wording attempting to modify UCP600 Art. 16(c)(iii)(b) given;whether these clauses can be disregarded; clarification of two scenarios when an issuing bank musthonour;

• TA889 – Referring to ISBP745 Para. Q9, Confirming Bank refusal of an EUR1 certificatecontaining a consignee field marked “to order” as inconsistent with consignee information on B/L;

• TA890 – Issuing Bank deems presented bill of lading discrepant due to “signing capacity notspecified”; Interpretation of UCP600 Art. 20(a)(i) and ISBP745 Para. E5(c); Use of “or on behalf of” isin the context of an alternative wording to “for”; it does not have the same meaning as “as agentfor”.

Europe Discloses New List of Jurisdictions with Weak AML/CTF Regimes

Based on the stricter criteria of its 5th anti-money laundering directive in force since July 2018,the European Commission publicized its updated list of jurisdictions it considers to havedeficient anti-money laundering and counter-terrorist financing frameworks.

Released on 13 February 2019, the Commission’s list identifies 23 jurisdictions outside Europe thathave strategic deficiencies in their AML/CTF regimes: Afghanistan; American Samoa; Bahamas;

February 2019 ■ Documentary Credit World 5

UPDAUPDAUPDAUPDAUPDATESTESTESTESTES

Botswana; DPRK (North Korea); Ethiopia; Ghana; Guam; Iran; Iraq; Libya; Nigeria; Pakistan;Panama; Puerto Rico; Samoa; Saudi Arabia; Sri Lanka; Syria; Trinidad & Tobago; Tunisia; US VirginIslands; and Yemen.

“We have established the strongest anti-money laundering standards in the world, but we have tomake sure that dirty money from other countries does not find its way to our financial system”, saidEuropean Commissioner for Justice, Consumers and Gender Equality Vera Jourová in the EuropeanCommission press release announcing the list.

According to the European Commission statement, banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financialoperations involving customers and financial institutions from these high-risk jurisdictions to betteridentify any suspicious money flows.

SCF Standard Definitions Remain Unchanged

Nearly three years after release of the Global Supply Chain Finance Forum’s “StandardDefinitions for Techniques of Supply Chain Finance”, DCW has learned that there are noupdates planned at the moment for this document published in March 2016.

At the time of its release, the 100-page document setting forth definitions for nine supply chainfinance techniques and an enabling framework was described as a “living document” to be updatedas necessary to “remain aligned with market developments”.

A GSCFF representative informed DCW in February 2019 that to increase levels of adoption ofterminology contained in the document, a newly established working group is currently producingguidance papers for Receivables Discounting and Payables Finance to begin with and potentiallyother techniques to follow. The group will also engage with accountants to help clarify theaccounting treatment of the four receivables purchase techniques (receivables discounting, forfaiting,factoring, and payables finance).

Problems Cited with Export LCs from Bangladesh

F rom recent discussion among LC specialists, DCW has learned that bankers at someUS-based financial institutions are aware of banks in Bangladesh releasing discrepantdocuments to applicants without acceptance or payment, claiming that their country’s

Central Bank (Bangladesh Bank) allows for such practice. In one described instance, an issuer in Bangladesh received documents with time drafts (180

days after acceptance) drawn on the Issuing Bank, identified discrepancies, refused documents viaSWIFT, and then released the original documents to the applicant for the applicant to takedelivery of the goods. Thereafter, numerous SWIFT messages were sent to the Issuing Bank andignored. Eventually, the US bank received acceptances over 30 days after the goods were pickedup at the port of discharge and since the terms were 180 days after acceptance, the maturity dateswere more than 30 days after the date goods were picked up. The US bank took the stance thatthe acceptance should have been calculated as of the date the issuer released the originaldocuments. The US bank’s customer ended up receiving payment more than 210 days after the

6 Documentary Credit World ■ February 2019

UPDAUPDAUPDAUPDAUPDATESTESTESTESTES

issuer released documents. The matter was further complicated by the applicant’s attempt tonegotiate lower pricing. Ultimately, the customer waited an extra 30+ days and received less thanthe invoice amount.

In another situation, a banker went through a similar experience with a set of sight documents.

In this incident, the issuing bank in Bangladesh refused based on discrepancies and immediatelyreleased original documents to the applicant. The applicant picked up the goods and the issuerthen failed to respond to SWIFT messages from the beneficiary’s bank for over 30 days. One day,the funds suddenly appeared with no explanation.

Seeking explanation of Bangladesh regulations allowing for such practice, US bankers have

been directed to Bangladesh’s Guidelines for Foreign Exchange Transaction (GFET) Vol. 1,Chapter 7, Point 26:

“Remittance against discrepant documents/documents received directly by the importers ADs [Authorized Dealers, those branches licensed to open LCs] may allow remittance againstdiscrepant documents/documents received directly by the importers after the goods havebeen cleared from the customs, on the basis of the relative LCAF [Letter of Credit ApplicationForm], the authenticated copy of the customs bill of entry for consumption or customscertified invoice in the case of import by post/courier and the relative invoices.” According to one unofficial interpretation, when an underlying transaction is covered by a

documentary credit, this Point 26 instruction means that: 1) In case of a complying presentation, the above provision is not applicable. The issuing bank

has obligation to honor as per documentary credit terms. There is no contradiction between locallaws & regulations and international rule i.e. UCP600.

2) In case of discrepant documents, provided that the discrepancy is valid and followed by an

adequate & timely notice of refusal according to UCP600 Article 16(c), the above provision isapplicable. The issuing bank is not authorized to effect payment without obtaining Bill of Entry.However, the following standard procedures are adhered to by issuing banks in Bangladesh:

Upon received waiver from the applicant acceptable to the issuing bank, the issuing bank will

earmark the bill amount in local currency from the Customer/applicant’s account, free from theapplicant discretion, at the issuing bank’s discretion by creation 100% margin or any other formand thereafter only hand over documents to the applicant. Afterward, payment will be effectedafter obtaining bill of entry.

As Bangladesh customs, Bangladesh Bank (central bank), and all commercial banks are well

connected online, obtaining bill of entry does not take much time and the issuing bank can easilydownload the respective bill of entry from the online platform as soon as goods have beencleared from the customs (port).

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Asian Markets Unwilling to Take Venezuelan Oil

In spite of otherwise favorable conditions, Asian markets havelargely declined to pursue importation of Venezuelan crudeoil out of concern over US sanctions policies. According to

S&P Global, advantageous arbitrage opportunities and theappealing quality of the crude would suggest that Asian marketswould be aggressive buyers of Venezuelan oil. Not so, due to theuncertain impact of sanctions.

Traders told S&P Global that most financial institutions arehesitant to provide letters of credit or other forms of support forthe acquisition of Venezuelan crude outside of the US because ofuncertainty surrounding payment clearance. The sanctions requireany payment for crude from Venezuelan state-owned PDVSA tobe deposited into blocked accounts within the US, effectivelymaking the US-centric ban a case of “financial sanctions”applicable globally, according to an unnamed Singapore tradercited by S&P Global.

NVOCC Register Launched

T he International Chamber of Commerce’s InternationalMaritime Bureau (IMB) announced on 15 January 2019launch of its Non-Vessel Owning Common Carriers

(NVOCC) Register and Code of Conduct.

The effort puts into motion a project introduced by IMBDirector Pottengal Mukundan to the international bankingcommunity at the April 2018 ICC Banking Commission Meeting inMiami (May 2018 DCW 25). Based on IMB estimates, 95% of falsebills of lading identified by IMB are issued by NVOCCs.

The goal of the IMB NVOCC Register is to improve anti-fraudstandards and provide a mechanism to recognize participatingNVOCCs who adhere to a minimum set of anti-fraud measures intheir operations. As described in a news release announcing thelaunch, when an NVOCC signs up to the Register it assumescompliance with the 12-point IMB NVOCC Code of Conduct forthe issuance of B/Ls. NVOCC signatories are required to keeprecords of back-up documentation which may include master billsof lading and authority to issue the bills of lading. Should IMBdetect a suspect NVOCC-issued B/L, NVOCC will be asked tofurnish its back-up documentation. If the result is inadequate, theNVOCC could be removed from the Register unless the NVOCCputs its staff through an IMB-designed online training course andassessment module.

Drrag EarnsCSGP Honours

In January 2019, AhmedDrrag completed the courseof studies and passed theCertified Standby &Guarantee Professional(CSGP) examination. Mr.Drrag is AVP & Manager inthe Trade Finance ServiceDepartment at UnionNational Bank in Abu Dhabi,UAE. Previously in hisbanking career of more than24 years, Mr. Drrag workedin the Trade Finance ServiceDepartment of ArabInternational Bank in Cairo,Egypt. On the occasion ofhis CSGP achievement, Mr.Drrag dedicates his CSGPcertificate to the memory ofProfessor James E. Byrne.

In addition to CSGP, Mr.Drrag is also a holder ofCDCS, CSDG, CTFC & CITFdesignation and Diploma forQualified Trade FinanceSpecialists (QTFS) from TheLondon Institute of Banking& Finance.

8 Documentary Credit World ■ February 2019

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IMB asks banks to “gently suggest to customers that they encourage their NVOCCs to join theNVOCC Register”. IMB contends that NVOCCs have economic incentive to heighten their standardsand conform to the Code of Conduct which will “reduce the risk of fraud, multiple financing, moneylaundering and breach of sanctions.” A link was also provided for more information about the IMBNVOCC Register Concept.

Oil Blockchain Builds Momentum

Vakt, a London-based oil trading blockchain platform, claims it has reached an importantthreshold to demonstrate that the energy trading market is primed for adoption ofblockchain technology.

According to Financial Times, Vakt has signed up companies behind nearly two-thirds of all dealsin North Sea crude grades. “We felt that we needed about 60 to 70 per cent of a market to reachignition point [that would] incentivise other people to join,” said Vakt chief executive Etienne Amicas quoted in the article.

Relying on blockchain technology, Vakt aims to digitalise LCs and other paper-backed processingcurrently used in physical commodity deals.

Financial Times also reportsthat agricultural traders led byArcher Daniels Midland, Bunge,Cargill, Louis Dreyfus Company,and Cofco are also consideringformulation of a comparableplatform for their industry.

Publication Noted:

Can Blockchain Revolutionize International Trade?by Emmanuelle Ganne, (163 pages), available from

the World Trade Organization website.

Report: UK Firms Must Step Up Compliance

A FinCrime Compliance Report released by FSCom in October 2018 posits that UK-basedfinancial services firms must improve crucial compliance areas in order to counteractincreasingly sophisticated financial crime threats. Among the key compliance areas

identified: Politically Exposed Persons (PEPs) and Sanctions; Risk-Based Approach; Customer DueDiligence; Transaction Monitoring and Ongoing Monitoring; Training; Anti-Money LaunderingPolicies and Procedures; and Money Laundering Regulation Officers.

Of these areas of concern, FSCom Director Philip Creed highlighted two. “Transaction monitoringsystems remain a problem. Alerts are generic and could be implemented better, therefore we fullyexpect this to be a high priority for firms and regulators over the next few years”, said Creed in anFSCom blog post. He added: “Higher focus must also be placed on staff training. Firms need toview it as a continuous process that is essential for the development and protection of the firm,rather than a tick box exercise.”

International UpdatesBELARUS: Belinvestbank has initiated its first deal to provide targeted funding conforming to

terms of its agreement with the International Bank for Economic Cooperation. The initial deal

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supports delivery of aircraft maintenance equipment from AERO-GSE of Poland to Minsk NationalAirport. According to a Belarus News report, use of documentary credits will figure prominently inagreement deals as they minimize commercial risks and make transactions “more reliable”.

CAMBODIA: Electricite de Cambodge, an electricity utility in Cambodia, is inviting bids toimplement a 60 MW solar project in the country’s Kampong Chhnang province through aninternational competitive bidding process. Proposals must be submitted by 17 May 2019 and includea USD 500,00 “irrevocable and unconditional standby letter of credit or bank guarantee” issued by abank or financial institution licensed to do business in Cambodia. ■

Islamic Supply Chain Financing

Question: What is the difference between Factoring and Islamic Invoice Financing?

Answer: Factoring is a financial transaction whereby a seller sells its accounts receivable (i.e.invoices) to a third party (factor) at a discount for immediate funds to boost its working capital/cash flow requirements.

The question then follows whether factoring is Haram or Halal? As invoices are essentiallydebts and selling debts is haram (prohibited), then discounting the debt or invoice is considered aclassic case of usury. However, there are alternative solutions and there is factoring or similarservices that are Halal and Sharia compliant. These Islamic factoring services adhere to Shariaprinciples and offer efficient working capital and liquidity solutions on a non-recourse basis. Theexact details of how they work may vary but comply with Sharia principles.

The essential difference between factoring and invoice discounting basically is determined bywho takes control of the sales ledger and responsibility for collecting payment. However, infactoring, the seller sells their receivables to the factor. In this scenario, as there are no underlyinggoods available (as goods have already been delivered), Islamic Banks keep these receivables ascollateral or security and do another Murabaha under Tawarruq to pay the seller (their customer)a percentage of the invoice to facilitate the working capital requirements. In this situation, thematurity of the Murabaha will be the same as the maturity of the receivable. Upon receipt ofpayment the Tawarruq Murabaha will be settled and any remaining amount will be credited tothe seller’s account. This could be with or without recourse to their customer.

In one of my previous banks we customized a product almost similar to factoring to meet therequirement of a customer under the Tawarruq concept. Under this product the seller delivers thegoods to a pre-approved buyer and raises the invoices. The bank will pay 85% of the invoicevalue, keeping the receivables as security by buying and selling shares (under Tawarruq). Underthe documentation there is a document where the beneficiary agrees to pay the bank at maturity(payment assignment) and the bank directly receives (collects) payment from the buyer. Uponreceipt of funds the bank will settle the Murabaha and credit the balance amount to the customer.Also, the bank randomly inspects goods prior to delivery. Moreover, there was a Takaful (CreditInsurance) policy to cover payment in the event of default as well.

— K. Nizardeen, COO, FIB, Dubai/Malaysia, and EXCO Member of the ICC Banking Commission.

10 Documentary Credit World ■ February 2019

READER REACTIONREADER REACTIONREADER REACTIONREADER REACTIONREADER REACTION

FFFFFACTS HAACTS HAACTS HAACTS HAACTS HAVE A BAD HABIT OF GETTING IN THE WVE A BAD HABIT OF GETTING IN THE WVE A BAD HABIT OF GETTING IN THE WVE A BAD HABIT OF GETTING IN THE WVE A BAD HABIT OF GETTING IN THE WAAAAAYYYYYOF A GOOD STORYOF A GOOD STORYOF A GOOD STORYOF A GOOD STORYOF A GOOD STORY

“Updates” (Jan. 2019 DCW) mentions Standard Chartered Bank-Singapore’s claimed “first blockchain-enabled trade financetransaction” which allegedly “involved digitally generating tradedocuments”. I take such reports with a grain of salt.

The named Singapore-based Agrocorp is an intermediary traderwho purchases from, in this case, an unidentified Australianexporter. The company identified as the Bangladeshi importer is infact no such thing, but is an Australian-based provider of softwarewhich assists exporters including preparing export documents andlinking certain service providers to the exporter.

The Australian exporter must obtain a paper-based phytosanitarycertificate issued to comply with both the Australian Government’sand the Bangladeshi Government’s quarantine requirements.Bangladeshi import regulations also require a radiation certificateissued by the Australian quarantine authorities which as for thephytosanitary certificate is printed on special government securitypaper, the reverse of each sheet being individually numbered.

Bangladeshi importers will typically also require a certificate oforigin issued by a chamber of commerce, a certificate of analysisissued by a superintendence company, and often other documentsissued by parties other than the exporter. I fail to understand howthese service providers who are not set up to issue theirdocuments via blockchain could be involved.

As I understand it too, Bangladesh regulations still require largeimports to be paid by letter of credit which they would haveissued to Agrocorp, who in turn will have most likely issued theirown LC to the unidentified exporter or possibly purchased onopen account or collection basis.

I suspect that often the banks’ IT and marketing people get carriedaway with their efforts in promoting “shadow” transactions whenin reality the transaction remains paper-based through traditionalmethods. These shadow transactions are merely banks’ efforts topublicly justify their huge expenditure on blockchain softwarewhen in reality they are just interesting half-baked curiosities.Facts have a bad habit of getting in the way of these stories.

– Bob RonaiImport-Export Services Pty Ltd

Kewarra Beach, Australia

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Additional 2019 events, dates, and locations are pending and will be announced. For the most currentinformation, visit:www.iiblp.org For a complete list of resources available, please contact the Institute.

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Annual Survey of Letter of Credit Law & PracticeAMERICAS: Tampa – 21-22 March 2019HONG KONG: 13 July 2019SE ASIA: Singapore – 15-16 July 2019CHINA: July 2019

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Guarantee & Standby ForumSE ASIA: Singapore – 17 July 2019CHINA: July 2019AMERICAS: New York – October 2019

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