Seller's seller
Dears, I have received recently a request from our client, he provided me a copy of a contract the buyer wants me to revise the contract and if the requirements in the contract are safe for him to open an LC.The contract contains the following documents requested :1. ORIGINAL SIGNED COMMERCIAL INVOICE2. ONE PHOTOCOPY OF NON-NEGOTIABLE OCEAN BILL(S)OF LADING3. COPY OF CERTIFICATE, SIGNED BY SELLLER’S SELLER,STATING THAT THE ORIGINAL BILLS OF LADING RELATINGTO THE SHIPMENT HAVE BEEN DIRECTLY TOTHE AGENT AT DESTINATION, AND THAT THE SHIPPINGDOCUMENTS PRESENTED UNDER THE LC ARE TRUE AND
CORRECT COPIES OF THE ORIGINALS.
In addition, the following conditions the seller appointed which are as follows :
THIRD PARTY DOCUMENTS EXCEPT INVOICES ACCEPTABLE. TITLE PASSES TO BUYER WHEN SELLER’S SUPPLIER’S DOCUMENTS HAVE BEEN ACCEPTEDUNDER THE L/C ISSUED BY BUYER’S BANK.- DOCUMENTS SHOWING ONE OR MORE THIRD PARTY(IES) AS SHIPPER(S) AND/OR EXPORTER(S) ISACCEPTABLE.- MERCHANTING TRADE REGULATIONS UNDER PART III SECTION B OF MASTER CIRCULAR TITLED“IMPORT OF GOODS AND SERVICES INTO INDIA” DATED 1ST JULY 2005 ISSUED BY THE RESERVEBANK OF INDIA UNDER THE FOREIGN EXCHANGE MANAGEMENT ACT (FEMA) 1999 APPLY TOTHIS TRANSACTION. INSTRUCTIONS FOR FEES AND CHARGES THE FOLLOWING CHARGES ARE TO THE BUYERS ACCOUNT:INCLUDING L/C OPENING CHARGES,RESIMBURSEMENT AND CORRESPONDENT BANKINGCHARGES.CONFIRMATION CHARGES IF ANY,NEGOTIATION CHARGES OTHER CHARGES AT SELLER’S BANK ARE FOR SELLER’S ACCOUNT.
additional conditions are :
CHARTER PARTY BILL OF LADING ACCEPTABLE.
- B/L(S) SHOWING THIRD PARTY CONSIGNEE, NOTIFY
PARTY(IES) AND FREIGHT PREPAID AND/OR FREIGHT
PAYABLE AS PER CHARTER PARTY ACCEPTABLE.
- FAX COPIES OR PHOTOCOPIES OF DOCUMENTS
PRESENTED FOR NEGOTIATION ACCEPTABLE.
- B/L(S) SHOWING DESTINATION AND/OR PORT OF
DISCHARGE “FOR ORDER(S) AS PER CHARTER
PARTY” AND/OR “FOR ORDER(S) AS PER C/P” AND/OR
“FOR ORDERS” AND/OR “AS PER C/P” AND/OR NAMED
PORT(S) ACCEPTABLE.
- THIRD PARTY DOCUMENTS EXCEPT INVOICE
ACCEPTABLE.
- DOCUMENTS AND B/LS SHOWING LARGER, SMALLER
OR DIFFERENT QUANTITIES ACCEPTABLE.
- MERCHANTING TRADE REGULATIONS UNDER PART
III SECTION B OF MASTER CIRCULAR TITLED
“IMPORT OF GOODS AND SERVICES INTO INDIA”
DATED 1ST JULY 2005 ISSUED BY THE RESERVE BANK
OF INDIA UNDER THE FOREIGN EXCHANGE
MANAGEMENT ACT (FEMA) 1999 APPLY TO THIS
TRANSACTION
- DOCUMENTS ACCEPTABLE INSPITE OF ANY OR ALL
DISCREPENCIES WITH THE EXCEPTION THAT
INVOICE VALUE DRAWN MAY NOT EXCCED THE
MAXIMUM VALUE AND THE LETTER OF CREDIT IS
NOT EXPIRED.
- TT REIMBURSEMENT ALLOWED AT MATURITY
My question is, is this a Back to Back LC? If so, would you accept such an LC? and what are your comments?
To supplement the comments already made, this appears in effect to be an LC which will facilitate the "supplier's supplier" by directly performing under the LC, whilst allowing the first supplier to collect the proceeds. The applicant is at risk because the underlying contractual obligations between himself and the 1st supplier is unlikely to be met by this arrangement, and instead, links the applicant to a performance risk by the "supplier's supplier", without (evidently) any contractual obligation.
There are so many unquantifiable risks, vague terminology, aspects of unaddressed due diligence, KYC, etc, that it would be a brave banker undertaking the issuance of such LCs.
Dear Warlord,
Sounds to me to be something very cautious about.
I've seen many an L/C from India and never reference to the Reserve Bank clause of 1999. In fact they typically refer to "Import Export policy 2009-2014" or similar. Secondly, any L/C which calls for the neg B/Ls to be dealt with outside of the L/C is to be avoided at all costs, especially in this case as it involves parties who do not know each previously and it is presumably worth a lot of money as it refers to charter party B/Ls.
There's also a lot of confusing and repeated statements, reference to "seller's seller" and "seller's supplier" and so on which makes me extremely suspicious as to whether this might be a scam.
Bob
Well, Thanks Bob,
Seems to me as you said, a first dealing between my client(the buyer), and the seller. In essence, I dont know how they are looking to deal with such a extremely complicated Conditions, especially when the seller want in the LC something like copy oF NN BL.
What would you do as an LC expert. would you require the removal of some conditions or modify.
More comments are appreciated.
Hi Warloard,
The absolutely vital first step is for your client, the buyer, to establish beyond doubt that the alleged seller is genuine. Otherwise your client will arrange for issue of an L/C which is so open to presentation of fake docs that is tantamount to handing over cash in exchange for copies of dodgy documents. In fact I would hope that your client's bank (is that you?) would not entertain issuing such an L/C. My alarm bells are ringing that this is 99.9% a potential rip-off.
I am suspicious that the seller is quoting the port of discharge as "for orders as per C/P" and "third party consignee" etc which leads me to suspect that they are pretending to sell on CFR terms (ie they arrange the C/P) but your client will have no control over where the vessel will be discharging or who will actually be the consignee (ie not them). Maybe the seller will have a genuine sale to someone else and present copies of those docs under your client's L/C? I assume your client is located in India, but I am confused why the seller is quoting import regulations for India when that is not their role, or is that because the real sale is for shipment to India and your client is somewhere else?
In summary, I suggest that your client would be wise to consider breaking off negotiations with this alleged seller and to look for a genuine, reputable seller of the product they are seeking.
Can you give us details of the alleged seller and the product plus where your client is located so that others reading this can then be aware of this potential fraud?
Disclaimer: Note that I refer to "alleged" and "potential" etc because I am going more on gut feeling and over four decades of experience than facts, based purely on the information contained in your post.
Bob
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