The Hindu Business Line : Check global trade fraud, banks told

DELINEATING the myriad ways in which international trade frauds are committed, Mr P.K. Mukundan, Director, International Maritime Bureau and International Chamber of Commerce's Commercial Crime Bureau, on Monday said that Article 13 of the UCP 500 requires banks to apply reasonable care to ascertain whether documents - on their face - comply with the terms of credits.

Speaking at a seminar on `International Trade Frauds', organised by ICC India on Monday, he stressed that in practice, this was the only way the documentary credit system would work.

Mr Mukundan also said that in a trade transaction, banks take the view that they are only a financing body and do not assume responsibility for the existence or quality of the commodities traded - the entire system is based on documents.

In today's world of technological advances, where laser printers and colours copiers are common, any document can be forged, according to him.

Mr Mukundan said that banks have no way of verifying the stamp or signature of a bill of lading. This also applies to other documents required under an average letter of credit.

"Like most commercial systems, the letter of credit system is designed for use by the honest businessman. It is not designed to protect him from the fraudster. The buyers must therefore make checks into the track record of the sellers before they open a letter of credit."

Mr Mukundan suggested that the banks pick up bills of lading presented to them at random among their good and not so well known clients and have them checked at regular intervals.

Such checks are done free of cost by the CCS Bureau for its banking members. The risk of documentary credit fraud can be minimised if buyers and sellers check the background of their contractual partners before entering into commitments, he added.

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Check global trade fraud, banks told