The L/C Soft Clause And Prevention Of It

Documentary letter of credit (L/C), honored 'the life blood of international business', is the most extensive and safest payment instrument in international trade payment system. However, due to the faultiness of relative legislation and the characteristics of independent and abstract, there are many problems during the practising of L/C. For example, the fraud against the importer caused by the exporter's illusive documents, the importer and exporter fraud against banks and L/C soft clause fraud against the exporter caused by the importer. Currently, there are definite solutions for the foregoing two problems. Nevertheless, the debate for the third one is vehement and the answer is still uncertain.Along with the deeper reforming and opening of Chinese economy and the increasingly tight relations with other countries, the L/C business has been fiercely exploited. Accordingly, the problems caused by the L/C soft clause have been coming out increasingly and become the main fraudulent instruments of many illegal businessmen. Consequently these frauds not only cause a great loss to the parties of L/C, but also destroy the function of payment instrument of L/C. The debate against the L/C soft clause is continued and fierce since 1990. However, the solutions are ineffective and the definition of this issue is still indefinite. Up to now, the international authority has not yet given a specific definition to it.According to the international finance and international trading theories, the author utilizes comparing and practicing analysis methods to systematically research different dimensions of L/C soft clause. Meanwhile the author indicates four perspectives based on the classical cases, international uniform institution, relative laws and author's experience: First, holding the standpoint of subjective and objective to determine the nature of L/C soft clause. Second, analyzing the effectiveness of soft clause based on actual conditions. Third, using 'fraud exception principle' to relieve the fraud caused by soft clause. Finally this paper indicates the main measures to prevent soft clauses in L/C in the hope of leading the L/C system to a more perfect and healthier direction.