Volume 22, Number 8 September 2018 InII This Issue... 18 FEATURE ■■■ 3 UPDATES: Antiboycott DOCUMENTARY CREDIT PRACTICES: Regulations Still in Play; DLT and Trade’s New Age; Special Purpose CONTROVERSY & GUIDANCE Vehicle to Drive Trade with Iran?; Banks and Traders Band Together to Four issues deemed worthy of specific focus Launch Komgo; Domestic Correspondent Report: Turkey; Nepal’s Supreme Court and attention will be addressed under this Decides against Local Banks in Guarantees Case; Pilot Test of Fully Digitized “Smart Guarantee” Underway; heading at the October 2018 ICC Banking International Updates Commission Technical Meeting in Tbilisi, ■■■ 9 LITIGATION DIGEST: Georgia. Presenters will take up discussion ■■■ Café Can Cun Co Inc. v. Halcor Development Corp. ■■■ Ottoway Engineering Pty Ltd. v. Westpac Banking of the usage of drafts, negotiation, the Corp. [No. 3] ■■■ Power Rental Asset Co Two, LLC v. Forge Group future of UCP, and discrepancy rates. To Power Pty LTD examine certain onerous challenges and ■■■ 27 ARTICLES: ■■■ “The Digitalisation of considerations on the minds of industry Transferable Documents and specialists, DCW features written segments Instruments in International Trade” by Dr. Alan DAVIDSON on these four areas. What contributing ■■■ “Can a Bank Both Issue and Negotiate an LC? Chinese Court factors make each of these hot-button Affirms Shocking Decision” by YAN Zhida practice issues controversial? What ■■■ 41 LC STATISTICS: guidance is currently available? Will US Branches of Non-US Banks (1Q18) issuance of additional guidance provide ■■■ 44 SCAM SURVEY adequate relief and remedy? Or are more drastic measures needed to confront the lingering hardships facing documentary credit practice? Published in partnership with BAFT ocumentary Credit World (DCW) Editorial Advisory Board Dr. Karl Marxen Ostfalia University of Applied is published monthly by Sciences (Germany) DDD Documentary Credit World, Inc. Lena Andersson Global Product Specialist Opinions expressed in it do not SEB (Sweden) Khalil Matar Assistant General Manager, necessarily reflect the official positions of Hasan Apaydin (Turkey) Internal Audit the publishers of DCW, its Editorial Alinma Bank (Saudi Arabia) Board, Editorial Advisory Board, or the Michael Evan Avidon, Partner Moses & Singer LLP (NY) David Meynell organizations with which they are Owner, TradeLC Advisory associated. Authors, editors, members of Buddy Baker DCW’s Editorial Board and Editorial VP, Investment Banking Division Neal Millard Goldman, Sachs & Co. (Chicago) Musick, Peeler & Garrett LLP Advisory Board, and the institutions with Adjunct Professor, USC Law School which they are associated often are James G. Barnes* Baker McKenzie (Chicago) K. Nizardeen actively involved in the field as lawyers, Head of Trade Finance & advisers, parties, consultants, or expert Abdulkader Bazara Corporate Operations witnesses in many of the matters Trade Finance Structuring Head Emirates Islamic Bank (Dubai, UAE) Abu Dhabi Islamic Bank (Abu Dhabi) addressed in DCW. The publication often Vincent O’Brien, Technical Trade Advisor reflects and sometimes adopts their Jack Chan China Systems Corporation views. Notwithstanding positions SVP and Senior Trade Technical Advisor (Hong Kong) Janis S. Penton, Assistant General Counsel expressed in DCW, every effort will be MUFG Union Bank, N.A. made to publish differing viewpoints and Dr. Alan Davidson, Senior Lecturer Kim Sindberg contributions expressing such views are TC Beirne School of Law University of Queensland (Australia) Executive Adviser welcomed. Nordea Trade Finance (Denmark) Roger D. Fayers, LLB Donald R. Smith* The support of the Journal of Barrister (UK); Department of Trade & Industry, Soliciter’s Department President, International Commercial Law (retired) Global Trade Advisory, Ltd. is gratefully acknowledged. Clyde Fletcher, Documentation Manager Soh Chee Seng, Technical Consultant, Fonterra Limited Trade Finance Issues, the Association Documentary Credit World of Banks in Singapore (Singapore) 20203 Goshen Road., No. 343 Xiang Gao Dean and Professor of Law Chang-Soon Thomas Song, First Expert, Gaithersburg, MD 20879 USA China University of Political Science Trade and Services Department, KEB Hana Bank (Seoul) phone: +1-301-330-1970 & Law (Beijing) fax: +1-301-926-1265 Paula Greaves Lorna K. Strong Deputy General Counsel e-mail: [email protected] SVP & Global Trade Operations Procedures & Technical Consultant HSBC Global Trade & Receivables website: www.doccreditworld.com Bank of America Merrill Lynch (Seattle) Finance (London) Founder A.T.M. Nesarul Hoque Hugo Verschoren Consultant Professor James E. Byrne Vice President, Mutual Trust Bank (Bangladesh) goVer Trade Technologies Belgium Contributing Editors Professor Katsuto Iida (retired, Tezukayama University, Jun Xu Vincent Maulella Japan) Deputy General Manager Vincent O’Brien Bank of China, Jiangsu Branch (China) Soh Chee Seng Dean Rafael Illescas Ortiz University Carlos III de Madrid (Spain) KK Yeung Executive Editor Hong Kong Christopher S. Byrnes Chris Jenkins Chief Information Officer Alexander Zelenov, Director Correspondent Editor Standard Chartered Bank (Thai) PCL Bank for Foreign Economic Affairs Lisa V. Chin of the USSR (Moscow) Jin Saibo, Partner Case Editor Beijing Jincheng Tongda & Neal Justin B. Berger Law Firm (China) Emeritus Board Members Scam Survey Editor Carter Klein, Partner DCW is grateful to prior members of Jacob A. Manning Jenner & Block (Chicago) its Board and appreciates their past service. Emeritus Board Members are Designers Michelle Kelly-Louw recognized on the DCW website at: Professor in Banking Law Mario Escalera, Christopher V. Sandler University of South Africa www.doccreditworld.com Student Research Associates *Denotes Editorial Board member Anthony R. Bjelke Published by Documentary Credit World, Inc. ISSN 1520-0221. Copyright © 2018 by Documentary Credit World, Inc. Victoria L. Glover All rights reserved. No part of this journal may be reproduced in any form, including microfilm, xerography or Michelle M. Yearick otherwise, or incorporated into any information retrieval system, without the written permission of the publisher. Single subscription price: $595 per year. Global license information available upon request. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the service of a competent professional should be sought. 2 Documentary Credit World ■ September 2018 UPDAUPDAUPDATESTESTES Antiboycott Regulations Still in Play lthough US antiboycott regulations date back more than 40 years, they still need to be heeded. Antiboycott A regulations put into place in the 1970s prohibit US entities from complying with certain requirements of unsanctioned boycotts. Furthermore, regulations require that US persons receiving boycott requests report them to the US Commerce Department’s Bureau of Industry and Security (US BIS). Violations still occur. For instance, a US company is in breach of US antiboycott regulations if it responds to an overseas importer’s request to provide a written statement that it has no business ties to Israel. According to a recent article by Chris Gillis of American Shipper, eight companies and at least one freight forwarder were charged for failure to comply with US antiboycott regulations in 2017. “Freight forwarders come into contact with these potential issues when dealing with orders that are generally destined to the Middle East region and a majority of the time we see requests or potential requests when letters of credit are being used in the transaction,” said Michael Ford, chief compliance officer at BDP International, as quoted in Gillis’ article. With one exception, civil penalty amounts assessed in 2017 for antiboycott violations were less than USD 100,000. While some companies may consider such penalties as simply a cost of doing business, avoidance of a potential reputational risk tends to enough motivation for companies to conform. Gillis reports that BIS believes the negative publicity from posting the settlements on its website is usually enough to encourage most companies to stay compliant. BIS also publishes its warning letters to companies with alleged antiboycott violations. Gillis adds that these types of warning letters are the only ones that BIS makes public. In September 2017, Phillips Specialty Products Inc. received a warning letter that described BIS’ discovery of the company’s use of a shipping certificate affixed to a letter of credit stating: “We hereby state that the carrying vessel is allowed to enter Libyan ports.” Text of this warning letter is available on the BIS website. The site also offers compliance information and resources, including training seminars. September 2018 ■ Documentary Credit World 3 UPDAUPDAUPDATESTESTES DLT and Trade’s New Age present-day USD 1.5 trillion global trade finance gap projected to widen to USD 2.4 trillion by 2025 can be narrowed by USD 1.1 trillion through use of blockchain and other A distributed ledger technology (DLT), according to a recent White Paper released by the World Economic Forum and Bain & Company. Titled “Trade Tech – A New Age for Trade and Supply Chain Finance”, the report’s modeling suggests that DLT can facilitate some USD 1.1 trillion in new trade volume globally. Additionally,