Documents Presented Directly to the Issuing Bank – What Happens Next?

Intro

One common question in documentary credit practice is whether a beneficiary can bypass the nominated bank and present documents directly to the issuing bank. This situation often arises close to expiry dates, during holidays, or in domestic LCs. But once the documents land on the issuing bank’s desk, another set of questions follow: how does the issuing bank handle refusal notices, and what payment message should be used? Let’s unpack these issues step by step.

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QUESTION

Dear Mr. Old Man,

We issue an LC available with Bank N by negotiation.

Now the beneficiary presented the documents directly to our bank bypassing the nominated bank (i.e., Bank N), and the documents contain some discrepancies.

I want to know:

1/ Can the beneficiary present the documents directly to the issuing bank?

2/ How can the issuing bank give a notice of refusal directly to the beneficiary if the documents contain some discrepancies?

3/ In case of payment, will the issuing bank use MT 202 or MT 103?

Thanks for your advice.

Best regards,

LA

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ANSWER

Hi LA,

Thank you for your question. Here is my response:

 1/ Can the beneficiary present the documents directly to the issuing bank?

Sub-article 6(a) UCP 600 states: “A credit available with a nominated bank is also available with the issuing bank.”

Accordingly, the beneficiary may present the documents directly to the issuing bank, bypassing the nominated bank or its own bank.

In practice, this often happens in situations such as:

• The LC expires at the issuing bank, and presentation to the nominated bank would risk late presentation.
• The LC expires at the issuing bank while banks in the beneficiary’s country are closed for national holidays.
• Domestic LCs where the beneficiary is also a customer of the issuing bank.

2/ How can the issuing bank give a notice of refusal directly to the beneficiary?

Under sub-article 16(c) UCP 600, if the documents are discrepant and the issuing bank decides to refuse, it must issue a single notice of refusal to the beneficiary. The notice must include:

• A statement of refusal;
• The discrepancies identified;
• The bank’s proposal for the disposal of the documents.

The notice must be sent by telecommunication, or if not possible, by other expeditious means, no later than the close of the fifth banking day following the day of presentation.

In practice:

• If the beneficiary is local, the issuing bank may hand over the notice in writing and obtain the beneficiary’s acknowledgement.
• If not, the issuing bank can send the notice directly by fax, email, or courier.
• Alternatively, the issuing bank may send a SWIFT message (MT 734 – advice of refusal, or MT 799 – authenticated free format) to the advising bank, which then relays the refusal notice to the beneficiary. This ensures the use of SWIFT while maintaining proper communication flow.
• A phone call can be useful as courtesy, but it should always be backed up with written or recorded confirmation.

 3/ Payment via MT 202 or MT 103?

• MT 202 is used for interbank transfers (bank-to-bank).
• MT 103 is used for customer credit transfers (bank-to-customer).

In your case, since the issuing bank pays the beneficiary directly (e.g., crediting the beneficiary’s account or sending funds to its bank), MT 103 would normally be used. MT 202 applies if the transfer is purely between banks without involving a customer account.

I trust this clarifies your questions.

Kind regards,

Mr. Old Man