(精品)risk-control-in-LC.ppt

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1、Trade SeminarTrade Seminar Risk Control in LC Documents CheckingRisk Control in LC Documents Checking Standard Chartered BankStandard Chartered Bank19 August 200419 August 2004Presented by:KY ChanPresented by:KY ChannDiscrepancies?nMajority of discrepancies would finally be accepted nBut why some ar

2、e still unpaid?What causes LC unpaid?What causes LC unpaid?nPerformance-seller failed to deliver the goodsnTransaction-goods failed to arrive at destination and/or to clear customsnPaymenta.Non-acceptance buyer failed to accept goods shippedb.Commercial credit buyer unwilling or unable to pay c.Poli

3、tical government policy,war,strikes,etcd.Foreign exchange transfer availability of foreign exchangee.Foreign exchange rate fluctuation buyer refused to pay due to unfavorable forex changeRisks of International TradeRisks of International Trade Identification&Management of Identification&Management o

4、f Foreign Trade ExposureForeign Trade ExposureSeller RiskManaged By1.Merchandise Acceptance RiskSample Certificate2.Non payment-Commercial RiskConfirmed LCCredit Insurance3.Cancellation-Amendment RiskSale ContactIrrevocable LC4.Sovereign RiskCredit Insurance5.Own Country Risk -6.Transit RiskMarine/C

5、argo Insurance7.Exchange Proceed RiskForward contractLocal Currency Bill8.Interest RiskInterest Rate Swap Identification&Management of Identification&Management of Foreign Trade Exposure(Foreign Trade Exposure(ContCont)Seller RiskManaged By9.Cost Escalation RiskEx-factory quoteCredit InsuranceFreigh

6、t Risk Policy 10.Liquidity Need (Pre/Post Performance)Packing Loan Red Clause LCLC Negotiation /Confirmed LCCredit Insurance11.Buyers Credit NeedAcceptance/Negotiation/Deferred Payment LC12.3rd Party Local Assurance Need Cross Border Litigation Risk Non-recourse Funding Need Confirmed LC13.3rd Party

7、 Assurance NeedIrrevocable LC from Issuing BankBuyer RiskManaged By1.Non-Shipment/Delivery Performance Bond2.Merchandise quality i.e.wrong deliveryInspection by own agent or 3rd party(i.e.Societe Generale de Surevillance)Export Quality Control Acts,etc 3.Price FluctuationSale Contact(where possible)

8、Identification&Management of Identification&Management of Foreign Trade Exposure(Foreign Trade Exposure(ContCont)Document CheckingDocument CheckingnBank deals with documents but not goods,services or other performance to which documents may relate.Therefore,checkers competence is important in docume

9、nt checking process.nA checker must adhere to UCP500 with reasonable care and acquaint himself/herself with the different features and purpose of various documents.nChecker should follow the below guidelines during document checking:-Completeness-Correctness-Consistency-Care-Common sense-Conformity-

10、Compliance-Credit vs Contract-Conditions without stating documents-Completion of checking-Clauses of disclaimerDocument Checking(Document Checking(ContCont)nToo exhaustive checking on immaterial items will carry risks:-Delay processing turnaround-Dispute-Financial loss-Reputation Document Checking(D

11、ocument Checking(ContCont)How to control Document How to control Document Checking Risk?Checking Risk?nChecker competence-Conduct skill assessment-URC/ISBP-Common sensenUnderstanding/knowledge of customers-KYC-Close communication with Relationship ManagersnInternal communication to enhance business

12、sense-Share market information-Internal training,seminarnAdopt different checking standards for different segments of customers/types of transactions-Establish internal document checking policy-More rigid standard for Back to Back LC,Standby LC,Confirmed LC,Commodity,Large transaction amount,Walk-in

13、 customer-Junior checker to take care of relatively simple transactions-Referral to seniornIf the bank is not comfortable with customers transaction,the bank can choose not to negotiate the documentsHow to control Document How to control Document Checking Risk?(Checking Risk?(ContCont)FraudFraudnAny

14、 loss,or attempt to cause a loss,involving deceptionnDirect financial,reputation and indirect costs (employee morale,time and costs)Causes of Staff FraudCauses of Staff FraudnFinancial problemsnFrustrated personal/career aspirationnGreed/envynFearnPoor MoraleExamples of FraudExamples of FraudnStaff

15、looked afternLarge bills drawn and money not cyclednLC established with payment to be made against stale documentsnCash deposit offered as security by unknown customer to secure issue shipping guarantee unlimited by amountnForged LCsnForged documentnInferior goods/empty containersExamples of Fraud(E

16、xamples of Fraud(ContCont)nLC terms&conditions are simple and straight forward calling for:a.Simple documents e.g.cargo receipt;orb.No transport document requirement;orc.No evidence of shipment/receipt of goodsnAgent commission LC involves a high commission of the invoice amount to be paid to 3rd pa

17、rty/agentnUnit price of goods exceeds known market unit price moditiesnDiscrepant document issues wherein buyer&seller agree to reduce large amount,e.g.more than 30%or more of unit price or document value.Examples of Fraud(Examples of Fraud(ContCont)nRepeated/multiple trade transactions with round v

18、alues/similar goods where volume do not appear to commensurate with the companys size,if known.nInactive account or normally small transactions suddenly trading large value items at close frequencynExport bills proceeds to be credited to 3rd party accounts/customers own personal account or remitted

19、to overseas accounts with particular to where production of drugs or drug trafficking or terrorism may be prevalentWhat are the Warning Signs?What are the Warning Signs?nMiddlemen representing othersnRequest to issue for commodity not in line with core business or line in which company have no exper

20、tise or where there is great demand but shortage of supplynTransactions involving several countries especially tax havensnImpatience for quick paymentnOver friendly,e.g.suggesting expensive entertainment or acceptance of gifts at cost pricenCommissions requested to arrange issue standby LC or simila

21、rnUnknown sellers or buyers offering very profitable businessnLow prices but large profitsEffect of Fraud in relation to Effect of Fraud in relation to Bank CommitmentsBank Commitments nInjunction will override banks obligations.LC issuing bank will be prevented from honoring compliant drawingsnRepu

22、tationPossible Risk PrecautionsPossible Risk PrecautionsnCheck carefully authenticity of LCnDo not get drawn into issuing unworkable LCsnDo not pay against LCs with unclear termsnReferences and credit checksnGoods inspectionnVessel,check on sailing/routenBe suspicious for requests for quick paymentnOnly handle if deal is in line with customers core businessnKYC