Preventing Letter of Credit Fraud

Abstract

Letters of Credit (Ls/C), the mostly used method of financing international trade, have become a growing concern for the entire international trading community due to Ls/C fraud. Concerned parties in Ls/C transaction lose billions of dollars every year due to fraud. Such fraud has risen for many reasons. Some of them are sole use of documents, geographical distance in international trade, containerisation, usage of discounted deferred Ls/C, and lack of prosecution. Many scholars criticise municipal laws worldwide for being reluctant to intervene with a Letter of Credit (L/C) transaction. Legislators conversely reply that courts intervening with the bankers guarantee can otherwise make it lose its integrity and be unacceptable. Since there is not a great deal the legislators are doing, concerned bodies are suggested by the current research to take some steps to avoid Ls/C fraud like checking the background of the seller, shipping goods by reliable transport services, arranging for pre-shipment inspection, asking for performance bond, and receiving trade documents electronically.