Forged Documents in LCs – Rare, but Unforgettable

After many years working with Letters of Credit, I have come to a rather uncomfortable truth:

Most of the time, things run smoothly.

But the moment a set of documents starts to feel “off”, your heartbeat changes.

And when the question arises — “What if the documents are forged?” — it is no longer a theoretical exercise.
It becomes a test of professional judgment.

The question

A reader recently asked two very practical questions:

• What should a nominated bank do if it detects forged documents?
• What should an issuing bank do to protect the applicant in such a case?

Simple questions. Not-so-simple answers.

First: What do the rules say?

Under International Chamber of Commerce UCP 600, Article 34, banks:

Assume no liability or responsibility for the genuineness or falsification of documents.

At first glance, this sounds like a complete disclaimer.

It is not.

If a nominated bank has:

• examined documents with reasonable care,
• found no sign of fraud, and
• honoured or negotiated without recourse,

then, in principle, it retains the right to reimbursement from the issuing bank — even if the documents are later found to be forged.

However… there is always a “however”.

Once the matter reaches court, local law prevails.
UCP 600 may still carry weight — but it is no longer the final word.

Second: When the nominated bank detects the fraud

This situation is relatively straightforward:

→ Do not honour.
→ Do not negotiate.
→ In most cases, do not forward the documnts to the issuing bank.

If you proceed despite clear signs of fraud, you are effectively stepping into your own legal trap.

Third: When the issuing bank detects the fraud

Now things become more delicate.

The issuing bank should:

• Inform the applicant immediately
• Issue a notice of refusal
• Clearly state fraud as the reason
• Most importantly:
  → Advise the applicant to seek a court injunction to stop payment

From this point onward, the matter is no longer entirely in the bank’s hands.

A very expensive line

There is one distinction practitioners should never forget:

• If the nominated bank only forwards documents → the situation is still manageable
• If it has already paid or negotiated → the situation becomes significantly more complex

Because the money is already out.

And the real question becomes: who ultimately bears the loss?

The nominated bank may rely on Article 34 for protection —
but whether a court agrees is another matter entirely.

A practical lesson

From a case I handled years ago, one lesson stands out:

→ In fraud situations, a nominated bank should consider pursuing the beneficiary directly as early as possible.

Why?

• Same jurisdiction → easier legal action
• Faster than engaging in cross-border disputes with the issuing bank

And in reality, courts rarely side with parties involved in document forgery.

A closing thought

In LC practice, we often say:

“Banks deal with documents, not goods.”

True.

But sometimes,
documents stop being just documents.

And at that point, what banks are dealing with is no longer just operations —
but risk, law, and professional judgment.

Which is why:

Forged documents — rare, but once encountered, never forgotten.

_____

Mr. Old Man