Authenticated SWIFT Messages in LC Transactions

Key Court Case for SWIFT Authentication in LCs

The subject of extensive discussion at the recently concluded 2017 Americas Standby & Guarantee Forum in New York City, the 2001 case of Industrial & Commercial Bank Ltd. v. Banco Ambrosiano Veneto S.P.A. decided by the High Court of Singapore 16 years ago still has significance today for the LC community and SWIFT users.

Sender Bears Responsibility for Own SWIFT Communication

Dubbed by DCW a "Case Classic", this case still resonates in it's handling of the issue of SWIFT messages and their authenticity. When a rogue employee at the issuing bank gets a handle on a bank's SWIFT key and sends unauthorized messages to the beneficiary, confusion abounds. With two standby LCs at stake for USD 3 million and 12 million, the beneficiary sues for wrongful dishonor.

The High Court of Singapore sided with the beneficiary, citing that an authenticated SWIFT message is binding on the sending bank, regardless of whether the authenticating test keys have been obtained fraudulently within the sending bank. This well reasoned opinion states an important rule, namely that a bank checks the apparent authenticity of a communication by the use of SWIFT and that it may rely on SWIFT messages.

The case is revisited and analyzed in the October edition of DCW, available now. Subscribe to DCW.

Want to know more about the discussions that take place at the Standby & Guarantee Forums? Revisit the 2016 blog post series "Notes from the Standby & Guarantee Forum", where key topics from the 2016 event are summarized.