Research On The Letter Of Credit Fraud

As the most important way of payment in international trade, L/C is playing a more and more important role in promoting the development of international trade and the global economics. Compared with other ways of settlement, L/C substitutes the bank credit for the commercial credit, consequently international settlement becomes safer than ever before. L/C also has some other characteristics. For example, L/C is one piece of independent document that is not attached to the trade contract; and in credit operations, bank deals with documents, not with goods. While all the documents are consistent with L/C, the bank should undertake the first payment responsibility. However, under the urging of greedy psychology, some bad men also take advantage of the independence principle and rigid consistence principle of L/C to cheat the related traders. As a result, while L/C is playing its main role in international settlement, its inevitable by-product——L/C fraud comes out.L/C fraud has not only caused severe economic loss to international traders and the related national banks, but also has seriously disturbed the normal order of international trade and financial management.The first part of this article makes an introduction to the emergence and development of L/C firstly, then through the summing-up of characteristics of L/C, it points out that the independence principle and other inner flaws of L/C ,which make it become the main method of international settlement are simultaneously also the causes of L/C fraud. Then it makes a brief introduction to the concept and the constituent conditions of L/C fraud.