In This Issue FEATURE

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1 Volume 14, Number 7 July/August 2010 In This Issue... 3 UPDATES: On Board Notation Paper Released; USCIB & UN LC Convention; New Chair of ICC Banking Commission; ICC Opinion TA686rev; Algerian Law & LC Problems; Marsh Group to Consider LC Alternatives; Who s the Applicant? US Court Eschews Question; Back-It-Yourself Debt Instead of LCs; Robertson Countersues SunTrust; Ex-Im Bank Proposes Changes; Declining Euro & Chinese Exports; Energy Importer Adjusts LC Terms; US Ex-Im Bank & Export Credit to UAE; Pakistan s Unregulated Freight Forwarders; Thai Doc Flow Disrupted; LC Uses; International Updates 12 READERS SPEAK: Express Release B/Ls 15 LITIGATION DIGEST: American Express Bank v. Banco Español de Crédito Danaharta Urus Sdn Bhd v. Lim Thean Seng BHP Billiton Petroleum v. Atlantia Offshore Ltd. Board Solutions Australia Pty. v. Westpac Banking Corporation Newly Decided LC & Guarantee Cases 33 ARTICLE: Creating a Trade Documentation Future with Straight-Through-Processing (STP) 37 INTERVIEW: The New Trade Risk Active Control (TRAC) System 41 TEXT: Tunisian Commercial Code USCIB Letter Endorsing US Adoption of UN LC Convention 47 LC STATISTICS: US Branches of Non-US Banks (1st Quarter 2010) US Banks (1st Quarter 2010) 58 SCAM SURVEY 60 LC TRADE NEWS 30 FEATURE AN ARGUMENT FOR ELIMINATING ACCEPTANCE AND NEGOTIATION CREDITS From time to time, some LC specialists have suggested that there need not be four types of ways to honor commercial letters of credit under UCP. In her article, Two Types of Commercial LCs are Enough, Xuehui Wang (Ofei) explains her position why only sight and deferred payment credits are needed. As practice evolves, Wang contends that differences among the four credit types are diminishing such that there are two categories. Left with the choice of credits being available by sight or deferred payment, Wang believes LC practice can become more simplified while still satisfying the needs of beneficiaries. Next Issue of DCW... A US Perspective on URDG758 Compared to ISP, UCP, and the NY UCC Fortis Bank v. ADIB LC Dispute Published in partnership with BAFT-IFSA

2 DCW INTERVIEW ON THE NEW TRADE RISK ACTIVE CONTROL (TRAC) SYSTEM Trade Risk Active Control (TRAC) is a new collateral management system for trade developed by Swiss trade finance software vendor, MIT ( To gain an understanding of the system, DCW spoke with Paul Cohen Dumani, General Manager of MIT. DCW: Banks are justifiably concerned about accurately measuring and accounting for their risk. Was TRAC developed to enhance banks abilities in this regard and can you give us a brief overview of the system? Cohen Dumani: TRAC is a customer portfolio management system that enables banks front-office (relationship managers), middle-office (credit risk managers) and top managers to monitor their risks appropriately. It was designed to replace the frequently-used Excel spreadsheet in the trade commodity finance sector. DCW: Why do you believe TRAC should be seen as an innovation for commodity financing? Cohen Dumani: It is true that banks nowadays are more or less well equipped with Paul Cohen Dumani GM of MIT systems capable of supporting their back-office operations linked to financial instruments such as letters of credit, guarantees, and collections such as our own flagship product CREDOC, but it is not obviously the case for more complex financing, the monitoring of its allocated credit limits, and the management of collateral. In this case, the most frequentlyused tool is an Excel spreadsheet. The spreadsheet offers great flexibility for relationship managers to follow the evolution of their transactions, and establish the global economic position of a July/August 2010 Documentary Credit World 37

3 customer at a given time. The position is calculated on the spreadsheet by consolidating data manually coming from heterogeneous sources. The global economic position supports the decision-making process of a relationship manager or a credit comity, when deciding whether or not to finance. Despite its proven flexibility, a spreadsheet has some limitations. It is not sufficiently secure as far as the reliability of the data presented is concerned. Spreadsheets also typically support the decision-making process for financing amounts up to seven or eight digits. Therefore, market demand is increasing for innovative dashboard tools that can be easily integrated into a bank s IT infrastructure and are capable of automating the extraction of data coming from various systems in order to present a reliable, real-time view of a customer s global economic position. In this regard, TRAC can be considered as an innovation in the trade finance industry. DCW: OK, but don t you think standard back-office systems already include notions of limits, risks, and collaterals? Cohen Dumani: Yes, they already do but bear in mind a trade finance back-office system or a loan system are designed to process, book, and follow up the financial instruments they automate, whether it is letters of credit, guarantees, collections, or loans. You already find notions of risks, limits, and collateral in such systems but only in the framework of one given operation. I will oppose here two notions: Transaction and Operation. A Transaction being made of several operations of purchases and sales that can sometimes be linked to a documentary instrument such as an LC. Nowadays, banks are engaged in more complicated financing transactions involving many operations of purchases and sales linked to LCs (import or export), open account, or even cash. Therefore, a traditional backoffice system often cannot give you the complete view of a more complex financing scheme, especially in terms of monitoring collateral and the different risks involved under one transaction. For this reason, we designed TRAC, which is complementary but autonomous software to our core product, CREDOC. One must also bear in mind that the job tasks of a traditional back-office trade finance specialist are different from those of a front-office relationship manager. Indeed, the latter needs the appropriate tools to make decisions in terms of financing, while the former needs a tool to book and follow up its documentary business. DCW: You said TRAC is complementary but autonomous to CREDOC? Can you explain that? 38 Documentary Credit World July/August 2010

4 Cohen Dumani: As already mentioned, the goal of TRAC is to calculate the global economic position of a customer at a given time. This can be done by aggregating data coming from a traditional trade finance back-end system such as CREDOC (eg., data on an import LC) and from a core banking system that supplies information on customers account balances. The industry of back-end trade finance software is quite mature, so our initial thinking was to design a system that could exchange information with CREDOC as well as with other trade finance software in the market so we could assist banks that already have a back-office system in place other than CREDOC. This gives us different options in the market. We can offer CREDOC without TRAC, TRAC without CREDOC, or both as an integrated solution. DCW: Do you see major constraints when trying to integrate TRAC with backoffice systems of your competitors? Cohen Dumani: No, provided, of course, our competitors would be ready to cooperate with us (even indirectly) on specific projects at the request of their customers. Furthermore, all trade finance back-end systems are SWIFT-centric because they handle SWIFT trade finance messages. A major area of concern remains on the lips of bankers and software vendors: How can we improve risk management? Therefore, most systems share the same set of common fields imposed by SWIFT to ensure straight through processing. This will make things easier for us when we are confronted with uploading data into TRAC from a system other than CREDOC. The data to be uploaded will be quite standard (transaction type, amount, currency, amendment, utilization, payment). DCW: Do you already come across competition for TRAC? Cohen Dumani: Not really. We ve seen banks very interested in TRAC that have examined whether their own loan systems providers could cover the missing parts, such as transactional-based financing (multiple purchase and sells) and collateral management that are usually not covered by traditional loan systems. On the other hand, there are many collateral management systems in the market but very few designed specifically for banks trade commodity finance and structured trade finance activities. So, we believe that with CREDOC and TRAC, we have now a very unique and strong offering. DCW: Do you think there is a strong demand in the market for a tool such as TRAC? Cohen Dumani: In today s current crisis climate, a major area of concern remains on the lips of bankers and software vendors: How can we improve risk management? And trade finance and commodities financing do not escape from such debate. Furthermore, Basel II regulations oblige banks to look more in-depth into how they evaluate their risks linked to trade finance, since it will have repercussions on capital requirements for this activity. For these reasons, and according to our own research, we believe there is a huge demand for tools such as TRAC, because reliance on an Excel spreadsheet increases operational risk and is no longer an acceptable solution for auditors. DCW: You mentioned Basel II. As bank regulations and requirements are never static, how will TRAC keep up July/August 2010 Documentary Credit World 39

5 changes both at the national and international level to best serve banks? Cohen Dumani: TRAC has a powerful Business Intelligence engine embedded. So an end-user responsible for supplying data for Basel II calculations, will be able, with all the data at their disposal, to create the necessary reports useful in the frame of Basel II regulations. With this engine, we are able to create tailor-made statistics and reports that aggregate data both at a national and international level. DCW: TRAC is a fairly new system. What is you roadmap for the product? Cohen Dumani: We ve been working actively over the past three years on the issue of trade commodity finance automation because customers and prospects were pressing us to do something in this area. At present, we have completed the development and a first release of TRAC is ready to be implemented. As a matter of fact, it will be implemented for testing next month at a bank in Geneva that is very active in trade commodity finance. If all goes well, the bank intends to go live with the system beginning in Now a Fully-Searchable Electronic Volume! Indexed for easy reference to terms from Acceptance to Wrongful Dishonor and all items in between! More Pages... More Cases... Than Ever! Update Your Collection or Start Your Reference Library Today! Regular Price: US$ 129 DCW Readers: US$ 89 Price for Conference Delegates: FREE! (see page 63) THE ALL-IN-ONE REFERENCE TOOL! Highlights of this year s 773-page edition include: 26 Articles including Overview of Int l Banking Law & Practice in 2009 by BYRNE, analysis of UCP600, ICC Opinions, UCC, URDG Revision, Sanctions, and more from leading experts 125 LC and Guarantee Case Summaries from 10 countries and regions around the world including China New Era (UCP600 & Sample Signatures) from HK, Fortis Bank (UCP600 & Strict Compliance ) from England; Leighton Contractors (Unconscionability) from Singapore; Nareerux (Good Faith) from Canada; Old Republic (Evergreen Clauses) from USA, and Sanwa Bank (Negligence) from China 7 Government Actions and Practice Reports impacting LC and Guarantee practice 2 Cases Full Text of Unpublished Decisions * Shipping Additional To order, contact: Institute of International Banking Law & Practice, Inc Ryecroft Court Montgomery Village, MD 20886, USA info@iiblp.org (fax) 40 Documentary Credit World July/August 2010

6 THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE Ryecroft Court Montgomery Village, MD USA Phone: Telefax: REFERENCE MATERIALS The Institute offers the most comprehensive collection of reference materials in the industry. It also regularly conducts seminars on topical issues, general educational forums, and custom training for bankers, lawyers and corporate financiers. All of these products are designed to assist the letter of credit professional, with the practical issues you face on a daily basis. Its most popular reference materials include: UCP600: An Analytical Commentary Over 1400 pages, a comprehensive interpretation of each article of UCP600 in light of LC practice and case law with valuable appendices and indices Annual Review of International Banking Law & Practice New Title Available! Complete 15-year collection of the industry s definitive record of international banking activity on 1 disk. New Title Available! URDG758 Compared with ISP & UCP (DVD) A 7.5 hour programme, the only informed comparison of the three sets of rules. The Comparison of UCP600 & UCP500 Analysis of the rules changes and differences. LC Rules & Laws: Critical Texts (4th Edition) Your all-in-one reference guide for LCs. ISP98 & UCP500 Compared See the differences quickly and easily. 2010/2011 EDUCATIONAL CALENDAR An Introduction to ISP98 (DVD) Understanding ISP98 (DVD) The best way to learn about the standby rules. The World s Premiere LC Event of the Year! World's Only Event for Interactive Discussion of Guarantee & Standby Topics Full day focus on LC practice, forms, and litigation issues. Annual Survey of Letter of Credit Law & Practice AMERICAS: Tampa, FL March 2011 EUROPE: La Hulpe, Belgium May 2011 MIDDLE EAST: Dubai May 2011 HONG KONG: July 2011 SE ASIA: Singapore July 2011 Guarantee & Standby Forum AMERICAS: New York 21 October 2010 EUROPE: London 20 May 2011 MIDDLE EAST: Dubai 22 May 2011 HONG KONG: July 2011 SE ASIA: Singapore July 2011 Letter of Credit Law Summit AMERICAS: New York 22 October 2010 Scheduled event dates and locations are tentative and subject to change. For the most current information, visit: The Institute also develops specialized programs for banks and corporations. For a complete list of resources available, please contact the Institute Goshen Road, No. 343; Gaithersburg, MD USA fax phone info@doccreditworld.com July/August 2010 Documentary Credit World 63