Forged Documents under LCs: Who Bears the Risk?

Intro
Most LC transactions pass quietly, exactly as they should.
But every now and then, a set of documents raises a different kind of question—one that no banker enjoys facing.

This Q&A revisits how banks should respond when presented documents turn out to be forged, and why the answer is rarely as straightforward as the rules suggest.

 Question

Dear Mr. Old Man,

I would appreciate your comments on the following:

• What should a nominated bank do if the presented documents are found to be forged?
• What should an issuing bank do to protect the applicant in such a situation?

Best regards,

Y.

_______

Answer

Dear Y.,

A good question—and not as rare in practice as many would hope.

Let’s start with the basic principle.

Under Article 34 of UCP 600, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, or falsification of any document.

This leads to an important consequence:

If a nominated bank has honoured or negotiated documents without recourse, after examining them with reasonable care and without any awareness of fraud, it is generally entitled to full reimbursement from the issuing bank—even if the documents are later found to be forged.

That said, once a dispute reaches the courts, the outcome may ultimately depend on local law, which can override the UCP framework.

1. When the nominated bank detects forgery

If the nominated bank itself identifies that the presented documents are forged, the position is straightforward:

It must not honour or negotiate the presentation.
In fact, it should not even forward such documents to the issuing bank on behalf of the beneficiary.

2. When the issuing bank detects forgery

If the issuing bank finds that the documents are forged, it should act carefully and promptly:

• Inform the applicant immediately
• Consider issuing a notice of refusal
• State clearly that the documents are forged
• Advise the applicant to seek a court injunction to suspend payment

From that point onward, the issuing bank should act in accordance with any court order obtained.

3. A practical distinction

The situation is relatively simple if the nominated bank has merely presented documents without honouring or negotiating them.

In such cases, a beneficiary who has submitted forged documents is unlikely to pursue the claim aggressively.

However, matters become more complex if the nominated bank has already honoured or negotiated the documents.

In that scenario, the nominated bank may rely on Article 34 before the court and request that any injunction be lifted—but whether the court agrees will depend entirely on local law.

4. A practical note from experience

As I wrote years ago in “Recourse in case the documents are discrepant or forged” (LC Views, 2007):

In fraud cases, the nominated bank should, as a first step, consider taking legal action against the beneficiary to recover the funds—especially if reimbursement from the issuing bank is withheld.

This is often the more practical route, since the nominated bank and the beneficiary are typically in the same jurisdiction.

And, as a matter of principle, courts do not tend to side with a party that has engaged in fraud.

Best regards,
Mr. Old Man