DCW Trade Finance Year-in-Review

Looking Back: DCW's Trade Finance Headlines from 2018

Since 1996, Documentary Credit World has had it's finger on the pulse of the LC industry, producing monthly issues featuring news, articles, statistics, and more. Each year, DCW Executive Editor Christopher Byrnes pulls together his picks for the memorable news of the year, presenting this year-in-review to delegates at the IIBLP trade finance conferences around the world. Looking back on 2018, DCW trade finance headlines covered a range of trade finance topics, including sanctions, fraud, compliance, usage of LCs, digitization, and more. Let's take a look!

PNB Guarantees Fraud

On 29 January 2018, Punjab National Bank filed a criminal complaint with India’s Central Bureau of Investigation against three companies and four people. In its filing, PNB named as defendants billionaire jeweler Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, as well as Modi’s companies, Solar Exports, Stellar Diamonds and Diamond R US, and Choksi’s companies, Gitanjali Gems, Gili India and Nakshatra. At the time, PNB alleged that it had discovered a loss of Indian Rupees 2.8 billion (USD43 million). In a regulatory filing just over two weeks later, PNB increased its total losses due to the fraud to INR 113.94 billion (USD1.77 billion). The fraud remains the largest ever discovered by an Indian bank.

The Headline:

• “Massive Fraud Uncovered at India’s Punjab National Bank” – Feb 2018

Why It Made News:

• Unauthorized Use of SWIFT
• Losses of USD 1.77b / 54 Employees Implicated

See February 2018 DCW Table of Contents

Wolfsberg Corresponding Bank Due Diligence Guidance

Also in the February 2018 issue, the Wolfsberg Group published an updated Correspondent Banking Due Diligence Questionnaire Questionnaire in early 2018 with accompanying guidance material. The 17-page CBDD Questionnaire aims to set an enhanced and reasonable standard for cross-border and/or other higher risk CBDD, reducing to a minimum any additional data requirements.

The Headline:

• “Correspondent Banking Due Diligence Guidance Released by Wolfsberg” – Feb 2018

Why It Made News:

• Aim: Greater Efficiencies in Due Diligence Process
• More Harmonized Regulatory Standard

Sustainable Development of LCs

A prominent actor in the commercial LC world (who asked to remain anonymous) pens an open letter to the broader community imploring banks to emphasize the continued use of commercial LCs. In the author's words, "Resources need to be invested in CLCs in order to keep the processes and services modern. One place where this resource investment is critical is for the training and ongoing development of staff expertise. This is vital for those responsible for product development as well as those specialists handling issuance/advise/confirmation of CLCs, document examination, financing (negotiation, acceptance, deferred payment), and payment."

The Headline:

• “An Open Letter to Trade Banks: Let’s Not Neglect the Commercial LC!” – Jul/Aug 2018

Why It Made News:

• Resources Imbalance
• Need for Ongoing Training

See July/August 2018 DCW Table of Contents

Branches as Separate Banks

Following a 15-year odyssey through the Philippine court system, a letter of credit dispute between a Philippine bank and a Korean bank finally came to an end last year. The dispute over a USD 300,000 LC ultimately became a USD 1 million case due to USD 700,000 in interest which accrued from when litigation first commenced.

The Headline:

• “Philippine Supreme Court Enforces Treatment of Bank Branches as Separate Banks” – Oct 2018

Why It Made News:

• Head Office had No Role, Court had no Jurisdiction
• 15 Years of Litigation

Misuse of Bills of Lading 

A method observed in Asia to move money around is what has been termed as a circular transaction, sometimes referred to as round tripping. It was elaborated that these types of transactions can be considered as money laundering in certain countries with potential severe consequences for participants in such schemes.

The Headline:

• “Circular Transactions and Synthetic LCs in Asia – Jul/Aug 2018

Why It Made News:

• Vehicle for Moving Funds, Not Goods
• Stance in Some Jurisdictions: ML

See July/August 2018 DCW Table of Contents

Sanctions Clause Wording

Pavel Andrle weighs in potential problems with ICC Opinion TA.884. He question if  ICC Opinion TA884 will "prompt banks to elaborate on their 'internal policy compliance clauses'? Will it motivate banks to construct clauses that are 'substantiated in detail'? In my view, this would be very unfortunate development!"

The Headline:

• “Reviewing the October 2018 ICC Opinions” – Nov/Dec 2018

Why It Made News:

• “At Our Sole Discretion” / “Internal Policy”
• A Threat to Irrevocability

See November/December 2018 DCW Table of Contents

SWIFT Changes for Commercial Credits

After 20 plus years of service, the familiar set of SWIFT Cat 7  (Category 7) messages will underwent a significant revision that took effect November 2018. This feature highlights the big changes and considers the implications.

The Headline:

• “SWIFT Cat 7 Messages Primed for Major Update: It’s the Final Countdown to SR 2018”– Apr 2018

Why It Made News:

• Massive Revision of MTs for LCs
• Structure, Characters, MT 798

See April 2018 DCW Table of Contents

UCP: Future & E-Compatibility

In the wake of the decision not to revise UCP600, David Meynell offers his thoughts on why improved practices and education are in fact more important than a revision. In part, his article is a response to another DCW guest article from 2017, entitled "UCP600 – A Second Taste of Reality from China”  by Li Yonghong and Shao Yufeng. 

The Headline:

• “More Evidence Why Practices, Not UCP600 Rules are the Problem” – Jan 2018

Why It Made News:

• Education to Change Flawed Practices & Processes
• eCompatibility to Meet Market Expectations

See Jan 2018 DCW Table of Contents

See Nov/Dec 2017 Table of Contents