THE STRATEGY IMPLEMENTED BY PT RAKYAT INDONESIA (PERSERO) PATTIMURA SEMARANG BRANCH TO ANTICIPATE FRAUD RELATED TO (L/C)

Mukofidhotun Umaroh, Paniya Jurusan Administrasi Niaga, Politeknik Negeri Semarang Jl. Prof.H.Sudarto, SH, Tembalang, Kotak Pos 6199/SMS Semarang 50061

ABSTRACT services can run well when the payment This article is a study of the Strategy receipt can be organized fluently and safely. Implemented by PT Bank Rakyat Indonesia One of the most important things in (Persero) Pattimura Semarang Branch to international trade transaction is payment Anticipate Fraud Related to Letter of Credit. method which involves a bank or . To The data used in this article are obtained do a transaction an exporter and an importer through an interview with letter of Credit usually make an agreement on the payment (L/C) department staff of PT Bank Rakyat method in order to minimize the risk. Indonesia (Persero) Pattimura Semarang Therefore, to avoid frauds in case of payment, Branch. The interviews were held 6 (six) an exporter chooses a safe and low risk times and each interview took two hours. As a payment method. paying or negotiating bank commonly honors There are some payment methods used in drafts or makes payment to beneficiary export and import activity i.e advance (exporter) based only on documents, the , open account, collection (inkaso), may bear risks of financial loss. The potential consignment and letter of credit. Common financial loss by a bank is due to the custom payment method used in international trade is and practice of documentary credit among the Letter of Credit (L/C), because it provides parties involved in an L/C transaction, which several advantages to an exporter and an are based on documents, not on goods. A importer and also there is certainty that a bank commonly honors draft presented by a payment will be done by an importer if the beneficiary since the required documents requirements of L/C have been met by an presented to the bank are in compliance with exporter. Letter of Credit is a letter which is terms and conditions stipulated in the L/C to issued by an issuing bank at an importer prevent potential financial loss, the bank request in the importer’s country. It is also applies a certain strategy of carefulness. addressed to foreign exporter as business Key words: letter of credit, fraud, financial partner of the importer. loss. PT Bank Rakyat Indonesia (Persero) Pattimura Semarang Branch gives service as INTRODUCTION an advising bank, negotiating bank to help Background exporter or importer to receive his right. In The rapid economic development encourages dealing shipping document related to Letter of countries in the world to do international Credit, the bank uses Uniform Customs and trades. They mutually make transactions, in Practice for Documentary credits (UCPDC which a seller wants a payment and buyer 600). UCPDC is international standard wants services or commodities. One of the banking provision used in banking practice in purposes of international trade is to increase relation to documentary credit. country’s foreign exchange. In increasing good service to beneficiary, PT The activity of international trade which Bank Rakyat Indonesia (Persero) Pattimura includes export and import transaction or Semarang Branch has a procedure in handling

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M Umaroh & Paniya a Letter of Credit including advising L/C, International adalah suatu proses transaksi documents checking, beneficiary checking, perdagangan antara penjual dan pembeli, negotiating, and doing a payment. During the yaitu masing-masing berada di Negara yang L/C checking procedure, there may be a berlainan”. International trade is a trade discrepancy in documents. Those procedures transaction process between a seller and a have been done by PT Bank Rakyat Indonesia buyer, each located in different countries. to anticipate fraud related to Letter of Credit. From the explanation, it can be concluded that Customers and investors should be assured International trade is an activity of selling and that a bank will not experience loss due to buying which is done by a person or a fraud related to a Letter of Credit (L/C). company in a country with someone or with a company in different country. Scope of Discussion Before the discussion in anticipating fraud In this article, PT Bank Rakyat Indonesia related to Letter of credit (L/C) is done, it (Persero) Pattimura Semarang Branch is could be better to discuss the definition of observed as advising bank, negotiating bank, export and import trade first. According to paying bank, and accepting bank. Besides Djauhari Ahsjar and Amirullah (2002:1): aiming at explore how to anticipate fraud Ekspor adalah perdagangan dengan cara related to Letter of Credit at PT Bank Rakyat mengeluarkan barang dari dalam keluar Indonesia (Persero) Pattimura Semarang wilayah Pabean suatu negara dengan Branch. This study also explores document memenuhi ketentuan yang berlaku. Impor checking, procedures of negotiating Letter of adalah suatu kegiatan dalam Credit, implementation of UCPDC (Uniform perdagangan dengan cara Customs and Practice for Documentary membeli/mendatangkan barang dari luar Credits) No 600 and how the bank handles negeri untuk dimasukkan ke dalam distrustful cases. negeri.

Purpose of the Study It means all international trades could be This study has several purposes to achieve, identified as export or import, because namely: according to the above definitions, export is a. to describe the negotiation process of sending goods to earn a profit as a business documents required by a Letter of Credit through custom areas outside the exporting (L/C) and the obligation of PT Bank country. Rakyat Indonesia (Persero) Pattimura According to Kuncoro (2006:1) “Strategi Semarang Branch as advising bank, adalah penentuan tujuan dan sasaran jangka negotiating bank, paying bank, and panjang perusahaan, diterapkannya aksi dan accepting bank. alokasi sumber daya yang dibutuhkan untuk b. to know the strategy implemented by PT mencapai tujuan yang telah ditetapkan”. Bank Rakyat Indonesia (Persero) Strategy is the determination of long term Pattimura Semarang Branch to anticipate goals and objectives of the company, the fraud related to Letter of Credit (L/C). implementation of the action and the c. to find out how far the application of allocation of resources needed to reach UCPDC No 600 is by PT Bank Rakyat intended purpose. From the explanation, it Indonesia (Persero) Pattimura Semarang can be concluded that strategy is the process Branch. of determining a plan that focuses on long- term goals of the organization or company, LITERATURE STUDY along with the preparation of a way or the According to Barnas, Carolina and achievement of intended purpose. Lasambauw (1996:25) “Perdagangan

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In relation to payment of exported goods, atas permintaan importer Hutabarat (1994:10-11) defines that in an langganan Bank tersebut yang international trade there are kinds of payment ditujukan kepada eksportir di luar methods which are used by trader, namely: negeri yang menjadi relasi a. Advance Payment, by which a buyer importer itu, yang memberi HAK pays in advance to the seller before the kepada eksportir itu untuk menarik goods are shipped by the seller. In wesel-wesel atas importir practice, a buyer transfer some amount of bersangkutan untuk sejumlah uang money before receiving the ordered yang disebutkan dalam surat itu. goods. b. Open Account, by which a buyer pays for Letters of Credit or also called documentary the goods after those goods are received credit are used primarily in international trade by the buyer. This is the common transactions of significant value, for deals payment done within certain period of between an exporter in one country and an time, for example wirthin 30 days after importer in other country. Letter of Credit is shipment date. a document which is issued by issuing bank c. Consignment, by which a shipment of with all kinds of type and character, such as goods to importer in foreign country is revocable and irrevocable L/C, sight and done, while the payment is made by the usance L/C, transferable L/C, back to back buyer after the goods are sold out. In L/C, revolving L/C, red clause L/C, and many other words, the buyer will transfer some others. Common kind of Letter of Credit amount of money to the seller’s bank mostly used is irrevocable L/C, because it is account after those goods are sold. the safest method for an importer and an d. Collection Draft, by which payment is exporter. Irrevocable means that the Letter of collected by an exporter by presenting Credit cannot be amended or cancelled by shipping documents through a bank issuing bank without prior agreement of all which will collect payment through its parties. Letters of Credit used in international corresponding bank in foreign country transactions are governed by the International either using draft or promissory notes. Chamber of Commerce publication called Collection draft takes two kinds, i.e Uniform Customs and Practice for Documents against Payment and Documentary Credits (UCPDC). It is a kind Documents against Acceptance. of a rule used in banking practice all over the e. Letter of Credit (L/C), a kind of payment world. guaranteed by an issuing bank if terms and conditions stipulated in an L/C are Letter of Credit Mechanism met by a beneficiary. It is also addressed In doing export and import activities using to foreign exporter as business relation of payment method Letter of Credit, the parties an importer. involved (a buyer, a seller, and banks) should It seems that Letter of Credit is just a kind of understand a Letter of Credit mechanism. It letter about credit. The definition is not so. can help the parties in doing transaction in According to Amir MS (1996:37): export and import activities and also can Letter of Credit adalah suatu surat reduce the occurrence of a fault. yang dikeluarkan oleh suatu Bank

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FIGURE 1 LETTER OF CREDIT MECHANISM

Source: coonline.co.in/trd_fin_manual/4_afilc.htm

The steps in issuing Letter of Credit (L/C) : once satisfied with his ability to comply 1. Buyer and seller make an agreement which with the terms and conditions of the L/C, forms the basis for opening a documentary he/she ships the goods to the buyer letter of credit. (applicant). 2. Based on the agreement buyer requests his 6. Seller (beneficiary) prepares the banker to issue the documentary letter of documents strictly in compliance with the credit. terms of the letter of credit and hands over 3. Issuing bank (buyer’s bank) issues and the documents to his banker (negotiating transmits the documentary credit through bank) for negotiation. SWIFT (Society for World-wide Interbank 7. Negotiating bank will check the documents Financial Telecommunications) to its based on the terms and conditions of the correspondent bank who advises the credit documentary credit for compliance and to the beneficiary. The bank advising the makes payment to the beneficiary. Documentary credit is known as ‘Advising 8. The negotiating bank transmits the Bank’. negotiated documents under letter of credit 4. Advising bank on receipt of the and claims reimbursement of the value of Documentary Credit validates the documents negotiated. authenticity of the DC, records the content 9. Issuing bank on receipt of the documents in its books and transmits the content to the checks those documents for compliance to beneficiary. terms and conditions subject to which the 5. The beneficiary (seller) on receipt of the DC was issued. It reimburses the documentary credit meets the terms and negotiating bank. For the drafts drawn on conditions of the documentary credit and usance basis the reimbursement is made at

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the time of maturity of the drafts. Issuing According to Susilo (2008:68-71), there are bank submits the documents to the seven types of Letter of Credit. applicant (buyer). a. Revocable Letter of Credit is an L/C 10. After receiving documents drawn under which may be amended or cancelled by DC issued, the applicant settles payment. issuing bank at any time and without Discrepancies, if any, are notified to the prior notice to the beneficiary at the importer as well as negotiating bank request of an applicant. within stipulated period. b. Irrevocable Letter of Credit is an L/C which cannot be amended or cancelled by The Parties Involved in Letter of Credit issuing bank without prior agreement of According to Joga and Silitonga (2001:16- all parties. 17), there are seven parties involved in Letter c. Confirmed Letter of Credit is the one to of Credit. which the advising bank adds its a. The applicant is the party who requests confirmation, make its own independent the issuing bank to open a Letter of undertaking to make a payment, Credit. The applicant is usually the negotiation or acceptance, providing Importer or the buyer or the Account documents are presented which comply Party. with the terms of the letter of credit. b. Beneficiary is the party who receives a d. Unconfirmed Letter of Credit is equal to Letter of Credit and gets a payment for Irrevocable L/C. Most L/C which is transfer documents which agree with opened by the reputable banks is advised terms of Letter of Credit. The beneficiary by foreign banks without a confirmed is usually the seller or the exporter or the (unconfirmed). shipper or the vendor. e. Back to Back Letter of Credit is a Letter c. Opening Bank opens a Letter of Credit of Credit is which is different but when it in favor of the beneficiary, at the request is used simultaneously can be an and on the instructions of the applicant. alternative such as transferable letter of The opening bank is known as the issuing credit. bank. f. Transferable Letter of Credit is an L/C is d. Advising Bank advises Letter of Credit to whose right is given to the beneficiary to the beneficiary, as well as the notice that divert part or all of the acceptance rights Letter of Credit is available to him/her. of the payment to other party. The The Letter of Credit also mentions terms diversion of these rights can be done only and conditions. once. e. Negotiating Bank purchases export g. Standby Letter of Credit is the one which documents from beneficiary as the is issued as a form of guarantee if the presenter of the documents. buyer fails to make payment at the agreed f. Reimbursing Bank is the one which is period. given authority by Issuing Bank to make payment for a claim from Negotiating Red Clause Letter of Credit Bank. Red Clause Letter of Credit is a specific type g. Confirming Bank is the one which is of letter of credit in which a buyer extends an also instructed to give guarantee of unsecured to a seller. Red Clause Letters payment for Letter of Credit which is of Credit permit documentary credit issued by Issuing Bank. beneficiaries to receive funds in advance for any merchandise outlined in the letter of Types of Letter of Credit credit. These letters are commonly used by beneficiaries who act as purchasing agents for

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M Umaroh & Paniya buyers in another country. b. Benefits in using Letter of Credit (www.investopedia.com) 1) The bank charges which are imposed The Documents required under Letter of to a seller in the handling of Letter Credit (L/C) of Credit . According to Hutabarat (1994:63-64) there 2) For a seller are many documents required in letter of a) The seller will be more credit. guaranteed concerning a a. Transport Documents: Bill of Lading, Air payment of goods which is sent Waybill, Railway Consignment Note. after presentation of the b. Invoice, Proforma Invoice, Commercial documents in accordance with Invoice, Consular Invoice. the terms of L/C. c. Documents :Insurance Policy, b) The seller receives a payment Insurance Certificate, Cover Note. from the paying bank d. Packing List immediately, if all the e. Certificate of Origin documents are in accordance f. Certificate of Inspection with the terms of L/C, even g. Certificate of Quality though the buyer has not h. Manufacturer’s quality certificate received the documents. i. Certificate of Analysis c) The seller can use the L/C for j. Wight Certificate (Weight Note/List) further financing, such as back to k. Measurement List back L/C and so on. l. Sanitary, Health and Veterinary Certificate 3) For a buyer m. Draft / Bill of Exchange a) The buyer usually is not required to provide funds or sometimes Weakness and Benefits in using Letter of just for a specific percentage of Credit imported goods to be redeemed. Each payment method definitely has b) The buyer has rights to receive weakness and benefits in its use. One of them documents required in the L/C to is Letter of Credit. The Letter of Credit which obtain the further financing, is used in transaction has also weakness and that’s a refinance and benefits for the parties involved (buyer, seller, many others. and bank) c) The buyer will be more assured According to Hutabarat (1995:26) the use of a because the bank will refuse a Letter of Credit in international trade has payment to the seller except the weakness and benefits: seller has complied with the a. Weakness in using Letter of Credit terms which are demanded by 1) For a bank the buyer in the L/C. a) The time is spent in processing the documents which are Negotiation of shipping documents required through the banks In letter of credit, negotiation has a specific channel. meaning, not just discussion. Negotiation b) The banks are only interested in means the purchase by the nominated bank of documents and not in goods drafts (drawn on a bank other than the (UCP-DC 600, article 5). nominated bank) and/or documents under a 2) The buyer or the importer does not complying presentation, by advancing or receive assurances that the ordered agreeing to advance funds to the beneficiary goods at a specific price are actually on or before the banking day on which shipped.

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M Umaroh & Paniya reimbursement is due to the nominated bank. c. An issuing bank undertakes to (UCP 600, article 2) reimburse a nominated bank that has When credit availability is by negotiation, the honoured or negotiated a complying beneficiary can receive payment before presentation and forwarded the maturity by negotiating the documents with documents to the issuing bank. the nominated bank. The documents may be Reimbursement for the amount of a negotiated with or without recourse. complying presentation under a credit However, if the L/C is a confirmed one, the available by acceptance or deferred nominated bank which has added its payment is due at maturity, whether or confirmation to an L/C must negotiate the not the nominated bank prepaid or documents without recourse. purchased before maturity. An issuing bank undertaking to reimburse a Issuing Bank’s Undertaking nominated bank is independent of the Undertaking is related to an issuing bank issuing bank’s undertaking to the activity concerning how to handle documents beneficiary. required by letter of credit. According to Article 7 of UCP 600, issuing Confirming Bank’s Undertaking bank undertakes payment: Undertaking is related to a confirming bank a. Provided that the stipulated documents activity concerning how to handle documents are presented to the nominated bank or required by letter of credit. to the issuing bank and that they According to UCP 600 Article 8, confirming constitute a complying presentation, the bank undertakes payment: issuing bank must honour if the credit is a. Provided that the stipulated documents available by: are presented to the confirming bank or 1) Sight payment, deferred payment to any other nominated bank and that or acceptance with the issuing they constitute a complying bank. presentation, the confirming bank must: 2) Sight payment with a nominated 1) Honour, if the credit is available by: bank and that nominated bank a) Sight payment, deferred payment does not pay. or acceptance with the confirming 3) Deferred payment with a bank. nominated bank and that b) Sight payment with another nominated bank does not incur its nominated bank and that deferred payment undertaking or, nominated bank does not pay. having incurred its deferred c) Deferred payment with another payment undertaking, does not nominated bank and that pay at maturity. nominated bank does not incur its 4) Acceptance with a nominated deferred payment undertaking or, bank and that nominated bank having incurred its deferred does not accept a draft drawn on it payment undertaking, does not or, having accepted a draft drawn pay at maturity. on it, does not pay at maturity. d) Acceptance with another 5) Negotiating with a nominated nominated bank and that bank and that nominated bank nominated bank does not an does not negotiate. accept a draft drawn on it or, b. An issuing bank is irrevocably bound to having accepted a draft drawn on honour as of the time it issues the credit. it, does not pay at maturity.

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e) Negotiating with another embodied in the Uniform Customs and nominated bank and that practice for Documentary Credits (UCPDC), nominated bank does not last revised (1994) known as UCP-DC 500. negotiate. The ICC has developed and established the 2) Negotiate, without recourse, if the UCP by regular versions, the current version credit is available by negotiation with being the UCP 600. It came into effect on 01 the confirming bank. July 2007. The revision of the Uniform b. A confirming bank is irrevocably bound Customs and Practice for Documentary to honour or negotiate as of the time it Credits (commonly called “UCP”) is sixth adds its confirmation to the credit. revision of the rules since they were first c. A confirming bank undertakes to promulgated in 1993. It is the fruit of more reimburse another nominated bank that than three years of work by the International has honoured or negotiated a complying Chamber of Commerce’s (ICC) Commission presentation and forwarded the on Banking Technique and Practice. documents to the confirming bank. The 39 articles of UCP 600 are a Reimbursement for the amount of a comprehensive and practical working aid to complying presentation under a credit bankers, lawyers, importers, exporters, available by acceptance or deferred transport executives, educators, and everyone payment is due at maturity, whether or involved in Letter of Credit transactions not another nominated bank prepaid or worldwide. purchased before maturity. A confirming bank’s undertaking to reimburse another Fraud Related to L/C nominated bank is independent of the In case of negotiating documents, there might confirming bank’s undertaking to the be some fraud cases. Fraud as a general term beneficiary. means a violation of a rule or local ordinance d. If a bank is authorized or requested by or regulation, promise or obligation. the issuing bank to confirm a credit but (www.wikipedia.org). is not prepared to do so, it must inform Fraud is not a new fault. Kinds of Letter of the issuing bank without delay and may credit frauds that is (1) a fake Letter of Credit, advise the credit without confirmation. (2) the beneficiary providing false documentation to show that goods were UCP-DC shipped when in fact no goods were shipped The Uniform Customs and Practice for at all to the bank, (3) red clause Letter of Documentary Credit (UCP-DC), ICC Credit. Publication No. 600 are rules that apply to If any fraud caused is found, the advising any documentary credit (including, to the bank or paying bank or negotiating bank and extent to which they may be applicable, any or accepting bank will deny the documents, standby letter of credit) when the text of the due to a possibility of fake documents of credit expressly indicates that it is subject to Letter of Credit. these rules. They are binding on all parties Article 13 of the UCP 600 requires banks to thereto unless expressly modified or excluded apply reasonable care to ascertain whether by the credit. (UCP-DC 600, article 1) documents, on their face, comply with the The rules of L/C which refers to the terms of the credit. In practice, this is only prevailing international congress of the way that the documentary credit system will International Chamber of Commerce (ICC) work. since 1933 which was then revised in 1951, It would be unreasonable to expect banks, for 1962, 1974, 1983 and finally 1993. The the purposes of the documentary credit, to go results obtained from the congress are beyond the documents presented. Banks take

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M Umaroh & Paniya the view that they are merely financing the DISCUSSION trade transaction. They do not assume Company Business responsibility for the existence or quality of PT Bank Rakyat Indonesia (Persero) Terbuka the commodities traded. The system is based major activities are providing general banking on documents. services primarily to micro, small and medium enterprises. Its banking products Definition of the draft include various types of deposits, loans and When the exporters make a drawing under a banking products. It also offers bank letter of credit, the presented documents (bill guarantees, bank clearance, Automated Teller of lading, invoice, packing list, certificate of Machine, safe deposit boxes, bill payments, origin, and any other) should usually be online transactions, money transfers, credit accompanied by a draft, which is basically cards and trade financing. The Group also a check, representing demand for payment. carries out activities related to fund The draft or Bill of Exchange is drawn management, treasury and international and signed by the exporter (seller). The banking such as cash management, custodian terms of the draft are “at sight” or a services and trustee services. number of days after sight or after the bill of lading date. Segmentation, Targeting, and positioning (www.creditmanagementworld.com) Bank Rakyat Indonesia (BRI) is one of the “At sight” means that the draft is paid upon financial institutions with micro retail market receipt of the documents which are found to segments especially small and micro be confirming. The terms which specify a entrepreneurs in rural areas. BRI is not only number of days sight or after the B/L date, are successful in the domestic level, but also at a commonly called “usance”, indicating that the global level. Most of the customers are issuing bank is obligated to pay the middle and low economic class people and beneficiary (exporter) at some specific future they are the largest segment of Indonesian date. For usance drafts, the obligation to pay society. Savings products offered by the bank begins when the drawee bank “accepts” the almost have the same features (generic), draft and a banker’s acceptance are created. ranging from interest rates up to banking The following Figure 2 is a sample of draft. facilities. BRI has two types of savings that are marketed for different market segments, RESEARCH METHOD namely BRI Britama savings for the corporate Data for this article were obtained from a and urban segment and Simpedes savings for research in Bank Rakyat Indonesia Pattimura the micro level unit and lower middle level Semarang branch segment. Simpedes target is to collect funds a. Primary Data were obtained through an from the people to be more productive people, deep interview with letter of Credit (L/C) useful for economic development and department staff of PT Bank Rakyat business activities in rural areas. Since 1983 Indonesia (Persero) Pattimura Semarang BRI has chosen the positioning strategy as a Branch. The interviews are held 6 (six) bank that provides microbanking services times, each interview took two hours. The which serves lower middle customers so that questions asked were connected with BRI shall have more geographic coverage negotiation and anticipation of fraud than the other bank. related to Letter of Credit (L/C). An exporter and importer in doing transaction b. Secondary data were obtained from in export and import choose one safe references of Letter of Credit from certain payment. Usually payment method which is sources, such as: books, literature, articles, used by them is Letter of Credit. Letter of and website.

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Credit terms and conditions must be fulfilled documents must comply with terms and by an exporter, so a fault can be anticipated. conditions in L/C. Bank Rakyat Indonesia Every bank has a strategy in anticipating any refers to UCP 600 article 14 to examine fraud related to Letter of Credit. Nevertheless, documents: there is still a bank which creates potential 1. A nominated bank acting on its loss in handling Letter of Credit, such as bank nomination, a confirming bank, if any, burglary by fake Letter of Credit in 2003, and the issuing bank must examine a causing loss about Rp. 1.7 trillion at Bank presentation to determine, on the basis Negara Indonesia. of the documents alone, whether or (http://korup5170.files.wordpress.com). This not the documents appear on their case can be made as a discourse to all banks face to constitute a complying in handling services related to Letter of presentation. Credit. 2. A nominated bank acting on its nomination, a confirming bank, if any, Requirements for The Negotiation of and the issuing bank shall each have a Letter of Credit at Bank Rakyat Indonesia maximum of five banking days In negotiating beneficiary’s shipping following the day of presentation to documents, Bank Rakyat Indonesia determine if a presentation is implements requirements which must be met complying. This period is not by beneficiary. Those requirements are: curtailed or otherwise affected by the a. The beneficiary must have an account at occurrence on or after the date of Bank Rakyat Indonesia. They must have presentation of any expiry date or last an account of minimum USD 1000 in day for presentation. valas. Whereas, in Britama Dollar the 3. A presentation including one or more beneficiary must have a minimum account original transport documents subject of USD 10. to articles 19, 20, 21, 22, 23, 24 or 25 b. The beneficiary must be a reliable must be made by or on behalf of the customer and not included in the blacklist. beneficiary not later than 21 calendar c. The exported goods are not the prohibited days after the date of shipment as ones. described in these rules, but in any d. The destination country is not the event not later than the expiry date of prohibited nation. the credit. e. The documents of the exported goods must 4. Data in a document, when read in be clean and completed in accordance with context with the credit, the document Letter of Credit. itself and international standard f. The exporter fills out the submission form banking practice, need not be identical of negotiation facilities. to, but must not conflict with, data in g. The exporter fills out the general that document, any other stipulated conditions of draft transfer form by Bank document or the credit. Rakyat Indonesia. 5. In documents other than the h. The beneficiary meets the administrative commercial invoice, the description of requirements. the goods, services or performance, if stated, may be in general terms not Document Checking conflicting with their description in The documents presented by beneficiary must the credit. comply with the terms and conditions 6. If a credit requires presentation of a stipulated in the L/C. The most interesting in document other than a transport L/C negotiation is that the required document, insurance document or

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commercial invoice, without 11. The shipper or consignor of the stipulating by whom the document is goods indicated on any document to be issued or its data content, banks need not be the beneficiary of the will accept the document as presented credit. if its content appears to fulfil the 12. A transport document may be issued function of the required document and by any party other than a carrier, otherwise complies with sub-article owner, master or charterer provided 14 (d). that the transport document meets 7. A document presented but not the requirements of articles 19, 20, required by the credit will be 21, 22, 23 or 24 of these rules. disregarded and may be returned to the presenter. Bank’s Strategy to Anticipate Fraud 8. If a credit contains a condition Related to Letter of Credit (L/C) without stipulating the document to Bank Rakyat Indonesia has some strategies to indicate compliance with the anticipate fraud related to Letter of Credit as condition, banks will deem such follows: condition as not stated and will a. Checking Letter of Credit Authenticity disregard it. In checking the authenticity of Letter of 9. A document may be dated prior to the Credit, PT Bank Rakyat Indonesia Pattimura issuance date of the credit, but must Semarang Branch does not handle it alone, not be dated later than its date of because Bank Rakyat Indonesia only has a presentation. role to check the documents whether 10. When the addresses of the appropriate or not with the requirements in beneficiary and the applicant appear Letter of Credit . Letter of Credit in any stipulated document, they authenticity checking is handled directly by need not be the same as those stated the “BRI” head office in Jakarta, because the in the credit or in any other head office has a standard and the system to stipulated document, but must be check the authenticity of Letter of Credit. within the same country as the Checking Letter of Credit authenticity done respective addresses mentioned in by BRI Pattimura to anticipate a fake Letter the credit. Contact details (telefax, of Credit. telephone, email and the like) stated There are two ways used by Bank Rakyat as part of the beneficiary's and the Indonesia to check Letter of Credit applicant's address will be authenticity based on L/C received: disregarded. However, when the 1) L/C received by SWIFT address and contact details of the Generally, issuing bank in foreign country applicant appear as part of the sends Letter of Credit by swift, so it is consignee or notify party details on a definitely authentic. In this case, the bad risk transport document subject to in Bank Rakyat Indonesia can be minimized. articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.

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FIGURE 2 MECHANISM IN HANDLING L/C RECEIVED BY SWIFT

Source: Division of Foreign Exchange, 2012

The steps in handling L/C received by does not send a copy of Letter of Credit SWIFT: to “BRI” head office in Jakarta, because a) Letter of Credit is issued by issuing bank L/C is received by SWIFT. Usually it is in foreign country. Advising bank definitely authentic, so BRI can handle it receives Letter of Credit by SWIFT, directly without waiting for the because the issuing bank as a information given by head office about correspondent with advising bank. L/C authenticity. b) After BRI checks the documents whether Below are three samples of Letter of Credit appropriate or not with the requirements authenticity in BRI Pattimura, each of which in Letter of Credit, then the bank gives is received by SWIFT. information to beneficiary that the beneficiary has got Letter of Credit from a) Sight Letter of Credit an issuing bank at the request of a buyer / applicant. In this case, BRI Pattimura

INSTANCE TYPE AND TRANSMISSION ORIGINAL RECEIVED FROM SWIFT PRIORITY : NORMAL MESSAGE OUTPUT REFERENCE : 2120 120321BRINIDJAA0835518423041 CORRESPONDENT INPUT REFERENCE:152020321COBADEFFD29027817 56864

MESSAGE READER SWIFT OUTPUT: FIN 700 SENDER : COBADEFF290 COMMERZBANK AG BREMEN RECEIVER : BRINIDJA083 BANK RAKYAT INDONESIA SEMARANG Source: Division of Foreign Exchange in BRI Pattimura Semarang Branch, 2012

In this L/C BRI immediately take over and if payment to the beneficiary directly. Sight the documents are accordance with the means when shipping documents are requirements in L/C, then the bank will make examined.

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b) Usance Letter of Credit

------Instance Type and Transmission ----- Copy received from SWIFT Priority : Normal Message Output Reference: 1648 100810BRINIDJAA0834972627806 Correspondent Input Reference: 1748 1008 10SCBLHKHHBXXX084680714 9 ------Message Header ------Swift Output : FIN 700 Issue of a Documentary Credit Sender : SCBLHKHHXXX STANDARD CHARTERED BANK (HONGKONG) LIMITED HONG KONG HK Receiver : BRINIDJA083 BANK RAKYAT INDONESIA (PATTIMURA BRANCH) SEMARANG ID Source: Division of Foreign Exchange in BRI Pattimura Semarang Branch, 2012

Generally, in this L/C the payment will be beneficiary will be charged interest rate of 5% done by the issuing bank after 90 days of the up to 8%. BRI has its own policy in giving date of shipment of the goods. However, if interest rate. For the beneficiary who is the beneficiary needs the payment done conducting transactions at BRI, the interest immediately, the bank will bail out the will be smaller. payment in advance. In this case, the c) UPAS (Usance Payable at Sight) Letter of Credit INSTANCE TYPE AND TRANSMISSION ORIGINAL RECEIVED FROM SWIFT PRIORITY : NORMAL MESSAGE OUTPUT REFERENCE: 1222 100917BRINIDJAA0035009679618 CORESSPONDENT INPUT REFERENCE: 1422 1009 17IINBNKRSEAXXX4581585699 MESSAGE READER SWIFT OUTPUT : FIN 700 SENDER : HNBNKRSEXXX HANNA BANK HANNA BANK ANNEX FLOOR 09-10, 2-KA, ELUJIRO, CHUNG-KU SEOUL RECEIVER : BRINDJA083 BANK RAKYAT INDONESIA SEMARANG Source: Division of Foreign Exchange in BRI Pattimura Semarang Branch, 2012

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The payment in UPAS Letter of Credit is the beneficiary will receive a payment bailed out by Bank Rakyat Indonesia first. USD95,347.4476. Way the calculation is However, the beneficiary can not receive the USD103,638.53 – (8%X USD103.638,53)= full of the nominal value mentioned in the USD95,347.4476. L/C, because 8% interest will be charged of In the Table 1 the result of compliance of the nominal value. For instance the nominal the documents with the Letter of Credit is mentioned in this L/C is USD103,638.53, so shown.

TABLE 1 COMPLIANCE OF THE DOCUMENTS WITH THE LETTER OF CREDIT Sent Authenticity No L/C Number Type Available via Yes No 1 BBTIA400107222 Irrevocable SWIFT Yes - By Payment 2 579010260719-T Irrevocable SWIFT Yes - By Negotiation 3 M12G9009RU00363 Irrevocable SWIFT Yes - By Negotiation Source: Division of Foreign Exchange, 2012

Based on the data above Bank Rakyat 2) L/C received by mail Indonesia receives Letter of Credit through Letter of Credit received by SWIFT. It means that Letter of Credit mail or facsimile may lead to fraud. For received by BRI Pattimura is authentic, so instance the issuing bank is not bona fide the bank does not need checking on L/C by and the requirement in Letter of Credit is BRI head office Jakarta. SWIFT stands for not in accordance with the provisions Society of Worldwide Interbankl Financial of the UCP 600. Telecommunication.

FIGURE 3 MECHANISM IN HANDLING L/C RECEIVED BY MAIL OR FACSIMILE

Source: Division of Foreign Exchange, 2012

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The procedures done by Bank Rakyat Jakarta, BRI Pattimura follow up Letter Indonesia in handling Letter of Credit of Credit to the beneficiary. received by mail are as follows: d) However, if not authentic, then the bank a) Letter of Credit is issued by issuing bank will not process it. in foreign country, and Advising bank or BRI receives L/C by mail. b. Verification of the Documents b) Before Bank Rakyat Indonesia Pattimura Compliance with the Goods follows up the Letter of Credit to the Before payment done by Bank Rakyat beneficiary, the bank proposes the copy Indonesia, the bank must verify the of Letter of Credit to head office in documents to be comply with the goods. This Jakarta about L/C authenticity and is done by BRI in order to reduce the contact the party of the head incidence of fraud from the beneficiary and office to give information that the bank minimize the loss not expected by the bank. has sent via facsimile. Then, head office In the Tables 2 the result of synchronization will immediately check the authenticity documents with the Letter of Credit and the of Letter of Credit, and gives a reply to documents with the goods is shown. BRI Pattimura no later than one day. c) After Letter of Credit is declared authentic by the head office in

TABLE 2 VERIFICATION OF THE DOCUMENTS COMPLIANCE WITH THE GOODS Synchronization No. L/C Number Type Documents Goods 1 BBTIA400107222 Irrevocable Not fake On board 2 579010260719-T Irrevocable Not fake On board 3 M12G9009RU00363 Irrevocable Not fake On board Source: Division of Foreign Exchange, 2012

From the data above it can be concluded that shipped. Bank Rakyat Indonesia the documents comply with the goods. In never handles and accepts the red clause checking whether the documents comply with Letter of Credit, because the risks in this type the goods or not, the bank only makes Bill of of Letter of Credit are high for the advising Lading as a proof. This case fictitiousness can bank and the buyer. However, if one day be happened, because the bank does not have customers want to have transaction using red an informant to check the actual conditions at clause Letter of Credit, the bank will help the port. In anticipating fraud related to the them to do transaction. BRI is strict to goods will be send, the writer has a anticipate the loss caused by red clause Letter suggestion that the bank should have an of Credit. The strictness is as follows: informant to check the actual conditions at the 1) Collection port directly. The collection reserved to a new customer and buyer in a relationship with Bank c. The Way in Handling Red Clause Letter Rakyat Indonesia. In this case, the bank of Credit only has role to help the beneficiary to In foreign transactions, some buyers request charge the payment in Issuing Bank. The red clause Letter of Credit to be allowed payment will be received by beneficiary under an L/C. Red clause Letter of Credit is after the issuing bank pays to the Bank a payment in advance before the goods are Rakyat Indonesia.

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2) Negotiating serious problem with letters of credit, their Bank Rakyat Indonesia will help numbers appear to be declining, in part customers have relationship with the bank because of the effectiveness of the checklist early. However, there are several contained in the ISBP. Practitioners are urged requirements that must be met by the to refer to this publication whenever doubts beneficiary, those are: arise as to how to structure and check a. The goods must be shipped by the documents in Credits utilizing UCP 600. beneficiary proven by Bill of Lading. Whereas, according to article 1 application of b. The beneficiary must present URR, the Uniform Rules for Bank to Bank documents stipulated in the L/C. Reimbursement under Documentary Credits, c. After the documents are presented in ICC Publication No. 525, shall apply to all accordance with the terms of Letter of Bank to Bank Reimbursement where they are Credit, then the bank will pay to the incorporated into the text of the beneficiary. Payment will be done by Reimbursement Authorization. They are BRI as sight L/C. binding all parties thereto, unless otherwise expressly stipulated in the Reimbursement Application of UCPDC 600 in Handling Authorization. The issuing bank is Letter of Credit at Bank Rakyat Indonesia responsible for indicating in the Documentary In dealing with shipping document related to Credit (“Credit”) that Reimbursement Claims Letter of Credit, Bank Rakyat Indonesia uses are subject to these Rules. In a Bank to Bank Uniform Customs and Practice for Reimbursement subject to these Rules, the Documentary credits (UCPDC 600) to Reimbursement bank acts on the instructions examine the documents. UCPDC is and/ or under the authority of the Issuing international standard banking provision used Bank. These rules are not intended to override in banking practice in relation to documentary or change the provisions of the Uniform credit. One of the implementation of UCPDC Custom and Practices for Documentary 600 used by Bank Rakyat Indonesia is based Credit. on article 5 that Bank deals with documents and not with goods, services or performance The Obligation of PT Bank Rakyat to which the documents may relate. In Indonesia Pattimura Semarang Branch practice when dealing with Letter of Credit, In dealing with export Letter of Credit Bank the bank has no contact with the goods. It just Rakyat Indonesia Semarang Pattimura Branch checks whether the documents presented by has a role as advising bank and negotiating beneficiaries are comply with the terms bank. Its obligation is to advise or forward of the Letter of Credit. Letter of Credit to beneficiaries. Bank Rakyat Besides, using UCP 600 as reference in Indonesia has strict rules in negotiating a handling Letter of Credit, Bank Rakyat Letter of Credit so that frauds and errors can Indonesia also refers to ISBP (International be minimized. As an advising bank, Bank Standard Banking Practice for the Rakyat Indonesia will verify the test key if the Examination of Documents Under L/C is notified by Telex/Fax and checking Documentary Credits) and URR (Uniform signatures on the L/C if the L/C is opened by Rule for Bank to Bank Reimbursement). ISBP mail. Besides, BRI also ask the company is an additional guidance to banks. The ISBP profile and annual report of the importer if is originally created to help reduce the large necessary. percentage of documents refused for The procedures implemented by the Bank discrepancies on first presentation. Anecdotal Rakyat Indonesia as negotiating bank are: evidence suggests that this objective has been a. Beneficiary presents the partially attained. Though refusals remain a required documents first to the bank.

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M Umaroh & Paniya b. Bank verifies Letter of Credit in vertical Pattimura Branch has several strategies as and horizontal. Vertical checking is to follows: check the Firstly, checking the authenticity of the L/C compliance of documents with Letter of received. There are two ways used by Bank Credit. Whereas, horizontal checking Rakyat Indonesia to check Letter of Credit is the bank checking for the suitability of based on L/C received: the document with other documents. 1. When an L/C is received through SWIFT, c. If beneficiary meets the terms and Bank Rakyat Indonesia Semarang conditions stipulated in Letter of Credit, Pattimura Branch trusts that issuing bank the bank directly negotiates. in foreign country sends a definitely d. Bank has to be sure that the issuing bank is authentic Letter of Credit. bona fide, in order that negotiation 2. When an L/C is received via email, the documents will be paid. Bank Rakyat bank applies several procedures in Indonesia has a rule to ensure the bona fide handling the Letter of Credit received as of Issuing bank that is the issuing bank follows: must already have commercial line or often a. Letter of Credit is issued by issuing refers to as correspondent bank. bank in foreign country, and Advising e. Subsequently, Bank Rakyat Indonesia bank or BRI receives L/C by mail. examines the shipping documents which b. Before Bank Rakyat Indonesia have been submitted by the beneficiary and Pattimura follows up the Letter of ensure that all documents are in Credit to the beneficiary, the bank accordance with the terms and conditions proposes the copy of Letter of Credit of Letter of Credit. to head office in Jakarta about L/C f. The negotiating bank should ask authenticity and contact the party of acceptance from the issuing bank, if the the head office to give information submitted documents are agains usance that the bank has sent via facsimile. Letter of credit. Acceptance is a statement Then, head office will from the issuing bank that they accept draft immediately check the authenticity and promise to pay at maturity date, for of Letter of Credit, and gives a reply to example 180 days after the date of Bill of BRI Pattimura no later than one day. Lading. c. After Letter of Credit Types of Letter of Credit which are handled is declared authentic by the head by Bank Rakyat Indonesia are sight L/C, office in Jakarta, BRI usance L/C, and Upas L/C. Sight is cash Pattimura follow up Letter of payment and usance is payment at maturity Credit to the beneficiary. date. Whereas, Upas is combination between d. However, if the L/C is not authentic, sight and usance, where in sight there is in then the bank will not process it. exporter and in usance there is in importer. 3. During the shipment of goods to All Letters of Credit advised by Bank Rakyat destination port, the BRI Bank conducts a Indonesia Semarang Pattimura Branch will be verification of the documents which have examined by BRI head office in Jakarta, and been decided to comply with the goods then submitted again to the branch office as before payment is given to beneficiary. the giver of negotiation facility. This is done by BRI in order to reduce the incidence of fraud from the beneficiary and CONCLUSION minimize the loss not expected by the To anticipate any fraudulence related to letter bank. of credit which may cause potential financial 4. In dealing with shipping document related loss, Bank Rakyat Indonesia Semarang to Letter of Credit, Bank Rakyat Indonesia

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uses Uniform Customs and Practice for Documentary credits (UCPDC 600) to Kuncoro, Mudrajad. 2009. Metode Riset examine the documents. UCPDC is untuk Bisnis dan Ekonomi Edisi 3. international standard banking provision Jakarta: Erlangga. used in banking practice in relation to Kuncoro, Mundrajat .2006. Strategi. Jakarta: documentary credit. One of the Erlangga implementation of UCPDC 600 used by Mechanism of letter of credit. Online at Bank Rakyat Indonesia is based on article http://www.ucoonline.co.in (accessed 5 that Bank deals with documents and not 04-18-2012). with goods, services or performance to Narbuko, Cholid dan Abu which the documents may relate. In Ahmadi.2003.Metodologi practice when dealing with Letter of Penelitian.Jakarta: Bumi Aksara. Credit, the bank has no contact with the Poniman. et al. 2010. Pedoman Penulisan goods. It just checks whether the Tugas Akhir Jenjang Pendidikan documents presented by beneficiaries Diploma III (DIII) Jurusan are comply with the terms of the Letter of Administrasi Niaga. Semarang: Credit Jurusan Admiistrasi Niaga Politeknik Negeri Semarang. REFERENCES Susilo, Andi. 2008. Buku Pintar Ekspor- Ahsjar, Djauhari dan Amirullah.2002. Teori Impor. Jakarta: Trans Media. dan Praktek Ekspor Impor. Tri Joga, Josef Bambang dan Lusia M Yogyakarta: Graha Ilmu. Silitonga. 2001. Modul Ekspor Amir M.S. 1996. Seluk Beluk dan Teknik Impor. (Untuk Kalangan Sendiri). Perdagangan Luar Negeri. Jakarta: Semarang: Politeknik Negeri Lembaga PPM Semarang. Andhiboroto, Soepriyo. 1992. Letter of Credit http://elearning.gunadarma.ac.id/docmodul/lc Dalam Teori dan Praktek. Semarang: _form-pdf/bab2-3%20 Dahara prize. http://www.businessdictionary.com Arbi, Syarif. 2003. Seri Impor Petunjuk http://www.wikipedia.org Praktis Perdagangan Luar Negeri. http://www.LintasBerita.com/dmiakeuangan/j Yogyakrta: Anggota IKAPI enis-jenislc Barnas, Benny dan Carolina. 1996. Seluk http://korup5170.files.wordpress.com/2008/06 Beluk dan Teknik Perdagangan /menyimak-kasus-letter-of-credit- bnidoc.pdf International. Bandung: Pusat International Chamber of Commerce.2007. pengembangan Pendidikan Uniform of Customs and Practice for Politeknik. Documentary Credit (UCP-DC). Best, John W. 1981. Research in Education. Paris. Washington: prentice Hall Ginting, Ramlan. 2000. Letter of Credit Tinjauan Aspek Hukum dan Bisnis. Jakarta: Salemba Empat. Hutabarat, Roselyne.1989.Transaksi Ekspor Impor Edisi Kedua.Jakarta: Erlangga.

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