Iran - Dubai - China LC and Certificates of origin work arounds
We have the following scenario:
- The Buyer is issuing an non - transferable LC from China Bank to a Supplier in Dubai
- The origin of the cargo is Iran
- Chinese LC application is stating loading port as "Any Port In Middle East" and has no mention of Iran
- Documents required for negotiation of the LC include a certificate of Origin.
Problem: The supplier is concerned that there may be problems at the time of negotiation as the documents required include the Iranian Cert of Origin. The Chinese Bank says that it will be fine as there is no mention of Iran in the docs and this is thier "off the record" advice.
However, the supplier remains concerned . We are pursuing a couple of options:
- Remove the requirement for the Cert of Origin from the required documents for negotiaiotn of the LC
- The supplier issues a "declaration of origin" themselves simply stating origin as "Middle East". We then send the original Cert of Origin to the Buyer in China if required for import purposes.
Thoughts:
- A) Is the Cert of Origin required by BANKS as part of the package of docs for negotiation (we are sure its required for import purposes
- B) Can we issue a "Declaration of Origin" and just add it to the list of required documents..? Isn't it a little vague for a negotiated document?
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Since the currency is in USD, the only relevant sanction regulation that would affect the transaction is likely to be the OFAC regulations. As far as I am aware, the fact that the goods are of Iranian origin would only breach the OFAC sanctions if the importer is a USA entity or national, or the banks involved are foreign branches of USA banks.
Otherwise, it would be the issue of dealing with a designated Iranian national or institution which would cause a problem, and not necessarily the origin of the goods.
If your transaction falls outside these parameters, I would consider that you're ok.
Other opinions welcome
The OFAC regulations are legally explicit - alas, the US have put pressure on non - US banks about doing business with Iran; China is less of a problem, but Hong Kong for example will not touch anything to do with an Iranian transaction; banks have taken blanket decisions simply not to deal with anyone in anyway to appease the Americans.
This being the case, the Seller has what appears to be a wholly legitimate fear of there being problems at the time of negotiation - a simple way of dealing with this is too remove the offending item - the Certificate of Origin.
Is the CO a required document no matter what as part of a package for negotiating an LC? Would we be able to use a document that is created from the Seller stating "Middle East" as origin? Would this be legal?
This is a situation requires a relatively innovative solution as opposed to simply following the rules; the issue being that the actual environment this transaction has to move through has been purposely muddied to make it difficult and increase the perceived risk to all parties therefore discourage trade in general.
I appreciate the concerns, especially so, since sanction,injunctions, asset freezing, etc, are all outside the scope of LC practices and UCP. With most bank's USD nostros being in the US, there is very liittle that foreign banks can do without the risk that inadvertent handling of LCs with an Iranian (and others) connection will compromise its relations with its US correspondents.
However, to answer your question, there is no mandatory requirement for a C/O to be called for under an LC- it all depends on the requirements of the buyer/issuing bank/import regulations. The UCP also does not mandate that when a C/O is called for, it must show the "country" of origin, or even that it should be issued by a chamber of commerce. Therefore, where an LC simply calls for a "Certificate of Origin" without any further qualifications, a beneficiary issued C/O showing goods to be of "Middle East" origin would be acceptable. Whether, the facts are legally correct, is not a matter for the banks to conjecture on, provided the data does not contradict with any other document presented.
Hi Friends,
I heard about a Chinese bank, may be Hong Kong, that reject documents due to the Shipping Company appearing on Bill of Lading, notwithstanding a written notation on the rejected cover letter stating "dox complied with l/c terms" added by the issuing bank.
ICC issued a Guidance Paper, document 470/1129 dd 26 March 2010 to inform about the general question.
Many banks having USD accounts with US Banks are afraid that the US Government can freeze the a/c balances if banks are involved in transactions with specially designed Countries, foreign banks to work with US Banks had signed KYC, AML, Patriot Act, so the are half US Citiziens and under the US Laws.
We will see !
Other comments appreciated
So... it seems so far that we if we assume a CO is a required document by the issuing bank - it must be issued, however we get around the risk problem by changing currency to EURO's from USD.
If the CO is not required by issuing bank, then we can see about the option of using the "Middle East" declaration instead if agreed by the Buyer.
Many thanks for the response to my queries - there are a good many people who want to make these transactions legitimately who are caught up in these issues and simply give up. The main fear being as Pan points out above that they may have account balances frozen.
I will update you as the saga unfolds. Hopefully, there will be no drama.
Many thanks Gents.
(Side note: I cant for the life of me get line breaks in the rich text editor here..!! dont the <p> </p> html...nothing... my apologies!)
Hello
Rule number one: if you are breaking a law knowingly, don’t.
Having said this – I am not so sure about the assumption that the CO is the issuing bank’s demand. Rather – if needed at all – it will be needed by the applicant as IMPORTER for customs purposes where it will commonly be an optional document (although with certain products and commodities it can be compulsory).
It general the CO arises where the Import country has a trade agreement with the Origin country, and the certificate is needed for the importer to secure a preferential rate of duty. If this was the case, the mention of Iran would be beneficial and not likely to cause problems with the issuing bank, being situated in the country which has the trade deal with Iran. But, if this is the case then a certificate stating ‘middle east’ will serve no purpose; this is not a specific country but rather a very arbitrary ‘area’ which has expanding and contracting borders, depending on one’s point of view (and political leaning) and could not have a customs application. So if ‘middle east’ is acceptable, then the document was not necessary in the first place and the ‘problem’ is solved.
So, with respect, I believe the certificate ‘solution’ will rest with the applicant, however it may be that if the applicant is on-selling the goods (and the certificate is required by the end-user who may or may not be resident in the apparent destination country) they may have no choice, though perhaps then it is even possible for the applicant and beneficiary to arrange the certificate outside of the credit terms.
Just some thoughts, but again, and with the greatest respect, while I appreciate you are trying to find a ‘solution’, there is no commercial consideration that justifies breaking the law: be careful.
(...I had format problem when I changed to Windows 7. For this forum I write in MS Word then cut and paste into Notepad, then cut and paste again onto the site...)
cheers
phill doran
...thus: another step on the road to mercantile enlightenment...
Thanks you for your comment Phill
With all respect I believe you have misundertood; I have mentioned anything about breaking any law and this was never the intention. We are navigating through the problem to get where we want to go in a legal and safe manner.
I have presented the scenario as it is; the goal being to ensure that no law is broken. It would be a dull minded fool indeed that asked for advice on breaking the law on an internet forum…
After much valuable feedback from the fora, it seems that the simplest solution is to change currency to Euros/ GBP / Yen etc, as there are no regulations restricting such transactions. I had failed to understand that the USD is - of course - property of the USA and if a Bank is doing transactions using their paper that facilitators (banks) of the transaction would be in some way bound by regulations if the issuer of the paper required it.
You are correct on the CO issue ultimately being with the Applicant. It is also the case that in a good transaction both parties seek to cooperate together to ensure a good relationship for future business and it is for us to develop solutions to issues if they arise. In this situation for example we could simply courier the CO directly to the Applicant for importation purposes.
The copy and paste is clearly not working..... Akh! Instead I have tossed in bullet points as a temp solution...
I think I have found the part of the comment that aroused suspicion:
"Is the CO a required document no matter what as part of a package for negotiating an LC? Would we be able to use a document that is created from the Seller stating "Middle East" as origin? Would this be legal? This is a situation requires a relatively innovative solution as opposed to simply following the rules;.."
This is more a case of a lack of clarity by me in explaining - in particular "This is a situation requires a relatively innovative solution as opposed to simply following the rules;.." can indeed be read as Phill has interpreted though this was not my intention.
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