ASSIGNMENT OF PROCEEDS UNDER LETTER OF CREDIT

A corner of Hoi An Ancient City

QUESTION

Good morning Mr.  Old Man,

I would like to ask for your opinion on the following:There are two presentations by two different Chinese banks under an usance L/C issued by us. Notices of acceptance were sent.

Now each bank advised us that it has irrevocable and unconditionally assigned the proceeds to two different banks, one of which is a bank in China, the other is in Switzerland and asked for our agreement and confirmation.

I am not quite clear Article 39 UCP600 is applied in this case as it only mentions the beneficiary as the assignor, not including nominated bank/negotiating  bank.

What are the risks for issuing bank when accepting to pay the assignee especially when the assignee is in different country? What does the issuing bank do to avoid involving in money laundering activities when entering the transactions.

Could you please give me some advice.

Thank you so much.

TTL

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ANSWER

Hi,

Accepted draft or incurred deferred payment undertaking may be discounted several times in the forfaiting market. If it is an accepted draft, the beneficiary (assignor) can assign his right to receive the proceeds under the draft by endorsement to another party (assignee) who later on may continue to assign his right to receive the proceeds by endorsement to any subsequent beneficiary.

For drafts with tenor of less than 180 days, the issuing bank would be instructed to confirm its acceptance of payment to the presenter and keep in its custody the accepted drafts.

The fact that the presenting bank instructs the issuing bank to remit the proceeds to a third party may fall into the above category, where the beneficiary may have assigned his right to receive the proceeds under the draft to the presenting bank who later on may have assigned its right to another party.

Assignment of proceeds would also occur where the beneficiary who acts as a trader requests the bank to remit the proceeds to the ultimate supplier or manufacturer in accordance with an assignment of proceeds agreement with the bank.

In your case, the Chinese banks made presentation to your bank on behalf and at the request of the beneficiary. Your bank has confirmed under authenticated swift message to the presenting bank its acceptance of the draft or has incurred its deferred payment undertaking and will make payment in accordance with the presenting bank’s instructions indicated in the covering schedule. Your bank now can make the payment in accordance with the presenting bank’s new instructions without fear of getting involved with the presenting bank’s money laundering scheme (if any).

Kind regards,

Mr. Old Man