LC SWIFT Format: Field 31D (Date and Place of Expiry)

Next field is field 31D (Date and place of expiry). As I mentioned in the earlier post (SWIFT Format: part 3), the date format is written as yy/mm/dd. For example, the date is indicated as 070424, the date is read as April 24th, 2007.

The additional information here is, the name of the country where the LC is to expire must also be indicated, for example, Malaysia, United Kingdom, United States of America etc. It is only the name of the country should appear in this field, name of district should not be indicated.

It is a practice in international trade, where the place of expiry is normally in the country of the seller. This is so because, it provides some cushion to the seller where seller has longer time frame to prepare the goods for shipment, obtain related documents, conduct pre checking of the document to ensure consistency and present them to his bank.

There are also cases where the place of expiry is in the country of the buyer. But this is very rarely. This would shorten some time for the seller to get things ready and present the documents. In this case, the LC must reach the issuing bank which is in the country of the buyer before the expiry of the LC. The time taken for the documents to travel by air courier to the final destination is an additional factor to be considered.

Whereas, if the LC is to expire in the country of the seller, the documents must reach the nominated bank in the country of the seller before the expiry of the LC.

Today, to keep up with the vast global development in trade, most LCs is issued available with any bank by negotiation and place of expiry is always in the country of the seller.

LC SWIFT Format: Field 40E (Applicable Rules)

The next mandatory field is field 40E (Applicable Rules) which must present in every LC issued. This field is customarily indicated by the issuing bank which corresponds to the type of the LC issued, either commercial LC or standby LC. This field must contain one of the following codes:

EUCP LATEST VERSION

The documentary credit is subject to the version of the supplement of the ICC Uniform Customs and Practice for Documentary Credits for Electronic Presentations, International Chamber of Commerce, Paris, France, which is in effect on the date of issue.

EUCPURR LATEST VERSION

The documentary credit is subject to the version of the supplement of the ICC Uniform Customs and Practice for Documentary Credits for Electronic presentations and the version of the Uniform Rules for Bank-to-Bank Reimbursements.

ISP LATEST VERSION

The standby letter of credit is subject to the version of the ICC International Standby Practices, International Chamber of Commerce, Paris, France, which is in effect on the date of issue.

OTHR

The credit is subject to any other rules.

UCP LATEST VERSION

The documentary credit is subject to the version of the ICC uniform Customs and Practice for Documentary Credits, International Chamber of Commerce, Paris, France, which is in effect on the date of issue.

UCPURR LATEST VERSION

The documentary credit is subject to the version of the ICC Uniform Custom and Practice for Documentary Credits and the version of the Uniform Rules for Bank-to-Bank Reimbursements.

The incorporation of either of the codes mentioned above into the LC forms the text of the LC and therefore governs the LC primarily, but of course not solely. Such incorporation will also form a parol of evidence rules in the court of law. Courts and arbitration tribunals applies the UCP because it is the most universally followed set of customary documentary credit rules. However, it does not prevent a court from applying its country’s national law.

For the purpose of this example, which refers to commercial letter of credit, the appropriate code to be incorporated is UCPURR LATEST VERSION or to indicate the full narration only instead of the code.

LC SWIFT Format: Field 20 (Documentary Credit Number)

Next MT700/701 field is field 20, Documentary Credit Number. This field is a self explanatory field. Every LC issued by the issuing bank must bear an ‘identity’ which is recognizable by the LC number. This LC number is a unique number assigned to an LC where every LC issued bears a different LC number.

LC number or identity is normally computer generated or in some banks the number is manually assigned by the issuing bank. It is a combination of alphabet and numeric characters subject to a maximum of 16 characters. The presence of this field is mandatory.

This number will be used as a reference number for payment, enquiry and amendment, if there is any which refers to that same LC. It carries important implications to the whole LC operations. There are cases where multiple LCs issued by the same issuing bank, at the request of the same buyer, addressed to the same seller, with the same amount and same currency. Therefore, the only way to identify which LC is to be paid, accepted or negotiated is by identifying the LC number.

Field 31C (Date of issue) on the other hand, signifies the date on which the LC is issued by the issuing bank. The undertaking to make payment by the issuing bank takes effect from this date. This field must contain 6 numeric characters only with no alphabet in the following manner, yy/mm/dd. For example, if the date is indicated as 070104, it is read as January 04th, 2007.

This date format is also applied to field 31D (Date and place of expiry) and field 44C (Latest date of shipment).

LC SWIFT Format: Field 40A (Form of Documentary Credit)

The second field in MT700/701 is field 40A. This is also a mandatory field where it must present and must be expressly stated to indicate the form of the Documentary Credit or LC. This field must contain one of the following codes:

IRREVOC TRANS STANDBY – The standby letter of credit is irrevocable and transferable

IRREVOCABLE – The documentary credit is irrevocable

IRREVOCABLE STANDBY – The standby documentary credit is irrevocable

IRREVOCABLE TRANSFERABLE – The documentary credit is irrevocable and transferable

REVOCABLE – The documentary credit is revocable

REVOCABLE STANDBY – The standby documentary credit is revocable

REVOCABLE TRANSFERABLE – The documentary credit is revocable and transferable

Article 3 of UCP600 stated that “…a credit is irrevocable even if there is no indication to that effect”.

This article says that, if none of the above codes are expressly indicated in field 40A of the SWIFT format, the LC is deemed irrevocable. Since field 40A is a mandatory field, it is a practice by banks worldwide to expressly indicate a code under this field. Article 3 of UCP600 is merely discouraging the practice of issuing a revocable LC to protect the interest of the seller. But this does not however, prohibits the practice of issuing a revocable LC. By virtue of article 1 which says, “…they are binding on all parties thereto unless expressly modified or excluded by the credit”.

This article allows both parties to modify or exclude some or part of the articles where a revocable LC may be an option.

LC SWIFT Format: Field 27 (Sequence of Total)

As I mentioned in the previous post, LC is a message containing ‘to do list’, information, instruction which forms what is called terms and conditions. As LC is practiced worldwide, the terms and conditions expressly indicated must be arranged in a systematic order so as not to raise any misunderstanding and confusion. Therefore, they are arranged in a sequence order applied worldwide in a format developed by Society for Worldwide Interbank Financial Telecommunication or in short, SWIFT. LC messages travel from bank to bank electronically and finally delivered to seller in hard copy. There are various SWIFT Message Types (MT) used for a different purposes:

Category 0 – Financial System Messages
Category 1 – Customer payments & Cheques
Category 2 – Financial Institution Transfers
Category 3 – Treasury
Category 4 – Collection & Cash Letters
Category 5 – Securities
Category 6 – Treasury Markets
Category 7 – Documentary Credits & Guarantees
Category 8 – Travellers Cheque
Category 9 – Cash Management & Customer Status

LC is issued using MT category 7, which is specifically known as MT700/701 comprising an assigned sequence ‘fields’.

The first field of MT700/701 is field 27 (sequence of total). This field requires only number or figure to be indicated without alphabet and this field is a mandatory field. In other words, it must present and must be indicated. This field represents number of message and total number of messages.

For example, if 1/1 is indicated, it means that this is the only message in one page. 1/2 indicates that this is the first message of a total of 2 messages. In this case, the receiving bank must ensure that it receives both of the messages marking 1/2 and 2/2 under field 27. This is very important because LC carries monetary value and failure to receive all messages would caused unnecessary problem. In some instances, the message can be more than 3 pages.

Part Four: Sample of LC issued (SWIFT Format)

27 : Sequence of Total
1 / 1

40A : Form of Documentary Credit
IRREVOCABLE

20 : Documentary Credit Number
LOC2897000203

31C : Date of Issue
071015

40E : Applicable Rules
UCPURR LATEST VERSION

31D : Date and Place of Expiry
071114 UNITED KINGDOM

50 : Applicant
DAMAS ENTERTAINMENT LTD
LOT 19 - 2 MEDAN SETIA SATU
PLAZA DAMANSARA, BUKIT DAMANSARA
50490 KUALA LUMPUR, MALAYSIA

59 : Beneficiary
CLOWN STATION DIRECT LTD
MERROW BUSINESS CENTRE
GUILDFORD SURREY GU8 9WA
UNITED KINGDOM

32B : Currency Code; Amount
GBP 20,151-23

41D : Available With...By...
ANY BANK
BY NEGOTIATION

42C : Draft At...
SIGHT

42D : Drawee
ISSUING BANK

43P : Partial Shipment
NOT ALLOWED

43T : Transshipment
ALLOWED

44E : Port of Loading / Airport of Departure
ANY AIRPORT IN UNITED KINGDOM

44F : Port of Discharge / Airport of Destination
KUALA LUMPUR INTERNATIONAL AIRPORT, MALAYSIA

44C : Latest Date of Shipment
071031

45A : Descr of Goods / Services
MULTIMEDIA PRESENTATION SYSTEMS AS PER PROFORMA INVOICE NO 097/07 DATED 20TH JANUARY 2007 (F.C.A)

46A : Documents Required
FOLLOWING DOCS REQUIRED IN TRIPLICATE UNLESS OTHERWISE STATED
+2 COPIES OF BENEFICIARY’S DRAFT AT SIGHT MARKED DRAWN UNDER ZEALOT BANK LTD IRREVOCABLE DOCUMENTARY CREDIT NUMBER LOC2897000203
+SIGNED COMMERCIAL INVOICE
+CLEAN AIR WAYBILLS INDICATING CREDIT NUMBER LOC2897000203 CONSIGNED TO ZEALOT BANK LTD MARKED FREIGHT TO COLLECT AND NOTIFY APPLICANT
+PACKING LIST
+CERTIFICATE OF UNITED KINGDOM ORIGIN
+BENEFICIARY’S CERTIFICATE OF ASSURANCE

47A : Additional Conditions
+A DISCREPANCY FEE OF USD20-00 / MYR50-00 WILL BE DEDUCTED FROM THE PROCEEDS IF DOCS ARE PRESENTED WITH DISCREPANCY/IES AND ACCEPTANCE OF SUCH DOCS PRESENTED WITH DISCREPANCY/IES WILL NOT IN ANY WAY ALTER THE TERMS AND CONDITIONS OF THIS CREDIT
+GOODS TO BE SHIPPED BY AIRLINER APPOINTED BY THE GOVERNMENT OF MALAYSIA. CERTIFICATE OF APPOINTMENT FROM THE GOVERNMENT OF MALAYSIA TO BE SUBMITTED FOR NEGOTIATION

71B : Charges
ALL CHARGES OUTSIDE MALAYSIA ARE FOR ACCOUNT OF BENEFICIARY

48 : Period of Presentation
DOCS TO BE PRESENTED WITHIN 14 DAYS AFTER THE ISSUANCE OF THE SHIPPING DOCS BUT WITHIN THE VALIDITY PERIOD OF THE CREDIT

49 : Confirmation Instruction
WITHOUT

78 : Instruction to Pay / accpt / nego Bank
+AMOUNT OF NEGOTIATION MUST BE ENDORSED AGAINST THIS CREDIT
+ALL DOCS TO BE AIR COURIERED IN ONE LOT TO ISSUING BANK, ZEALOT BANK LTD, NO 47 & 49 JALAN BAHAGIA, TAMAN TUN DR ISMAIL, 60000 KUALA LUMPUR, MALAYSIA
+UPON RECEIPT OF DOCS IN STRICT COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS CREDIT, WE SHALL REMIT PROCEEDS AS PER YOUR DISPOSAL INSTRUCTION

I will explain details of each terms and conditions in the next post.

Part three: Responsibility of the issuing bank

The issuing bank, as mentioned in the previous post, is a bank which issues the LC at the request and on the instruction of the buyer. The issuing bank, in most cases is the bank of the buyer where he maintains banking relationships. Prior to giving the instruction to issue the LC, buyer and seller had concluded a sales agreement or contract and agreed to settle the trade payment using LC.

In the LC operations, other than the buyer, seller and issuing bank, there are other banks involved such as advising bank, nominated bank and in some instances, confirming bank. The issuing bank is the ‘anchor’ bank, the last bank in the line of banks, which holds the definite undertaking to pay and the final destination where the documents must reach, before they fall in the hand of the buyer.

The main responsibility of the issuing bank is to make payment, either directly to the seller or to reimburse the bank which had made the payment to the seller.

The seller, upon shipment of the goods, presents the documents to his bank. His bank may or may not pay him for the value of the documents depending on whether or not his bank is expressly nominated by the issuing bank to make payment. Even if his bank is expressly nominated by the issuing bank to make payment, this does not mean that his bank holds the ‘definite undertaking’ to pay. Meaning, his bank may refuse to pay and send the said documents to issuing bank for payment. Upon receipt of the same, the issuing bank will examine the documents to ensure compliance. When the issuing bank is satisfied, payment will be remitted for the credit of the seller’s account via his bank.

If, however, the seller’s bank agrees to make payment against the documents to the seller, the seller’s bank will credit the amount into his account. The documents than, will be sent to the issuing bank for final examination. Upon receipt of the said documents and in compliance with the terms and conditions of the credit, the issuing bank will remit the payment for the credit of the seller’s bank, being reimbursement of the amount paid to the seller.

In any event, either the nominated bank pays to the seller or not, the issuing bank must honour its undertaking to pay provided that the documents are in compliance with the terms and conditions of the credit. The issuing bank is also responsible to examine the document within the stipulated time to decide whether or not the documents are in compliance.