When a bank issues a letter of credit, who should it treat as its customer for due diligence purposes? What should the issuing bank consider with respect to particular transactions?
Generally, the issuing bank should treat the applicant (the buyer) as its customer. In this regard, the issuing bank would consider a number of transaction-related matters, including whether the transaction involves goods that are recognizably outside the scope of the customer’s business or whether the transaction is otherwise unusual for its customer, whether the prices are manifestly out of line with market prices (assuming the relevant letter of credit staff of the issuing bank is aware of market prices on the basis of its general knowledge), whether the goods involved warrant a greater level of consideration (e.g., military equipment), and whether such confirming/advising bank as may be designated by the applicant is reputable. If the issuing bank discerns something sufficiently unusual about the transaction, it should seek clarification about the matter and, if the explanation is insufficient to dispel concerns with regard to the transaction, the issuing bank should escalate it in
Related Questions
- When a bank issues a letter of credit, who should it treat as its customer for due diligence purposes? What should the issuing bank consider with respect to particular transactions?
- When a bank confirms or advises a letter of credit, who should it treat as its customer for due diligence purposes?
- Who should a paying agent or corporate trustee treat as its customer for due diligence purposes?
