THE STRATEGY IMPLEMENTED BY PT BANK RAKYAT INDONESIA (PERSERO)
PATTIMURA SEMARANG BRANCH TO ANTICIPATE FRAUD RELATED TO LETTER OF CREDIT
(L/C)
Mukofidhotun Umaroh,
Paniya
Jurusan
Administrasi Niaga, Politeknik Negeri Semarang
Jl.
Prof.H.Sudarto, SH, Tembalang, Kotak Pos 6199/SMS Semarang 50061
ABSTRACT
This article is a study of the Strategy Implemented by PT Bank Rakyat Indonesia (Persero)
Pattimura Semarang Branch to Anticipate Fraud Related to Letter of Credit. The data used in this article are
obtained through an interview with letter of Credit (L/C) department staff of
PT Bank Rakyat Indonesia (Persero) Pattimura Semarang Branch. The interviews were
held 6 (six) times and each interview took two hours. As a paying or
negotiating bank commonly honors drafts or makes payment to beneficiary
(exporter) based only on documents, the
bank may bear risks of financial loss. The potential financial loss by a bank
is due to the custom and practice of documentary credit among the parties
involved in an L/C transaction, which are based on documents, not on goods. A
bank commonly honors draft presented by a beneficiary since the required
documents presented to the bank are in compliance with terms and conditions
stipulated in the L/C to prevent potential financial loss, the bank applies a
certain strategy of carefulness.
Key words: letter of credit,
fraud, financial loss.
INTRODUCTION
Background
The
rapid economic development encourages countries in the world to do
international trades. They mutually make
transactions, in which a seller wants a payment and
buyer wants services or commodities. One of the purposes of international trade is to increase country’s foreign exchange.
The
activity of international trade which includes export and import transaction or services can run well when the
payment receipt can be organized
fluently and safely. One of the most important
things in international trade
transaction is payment method which
involves a bank or banks. To do a transaction an exporter and an importer usually make an agreement on the
payment method in order to minimize the risk. Therefore, to avoid frauds in
case of payment, an exporter chooses a safe
and low risk payment method.
There
are some payment methods used in export and import activity i.e advance account,
open account, collection (inkaso), consignment and letter of credit. Common
payment method used in international trade
is Letter of Credit (L/C), because it provides several advantages to an exporter and an importer
and also there is certainty that a payment will be done by an importer if the
requirements of L/C have been met by an exporter. Letter of Credit is a letter
which is issued by an issuing bank at an importer request in the importer’s country. It is
also addressed to foreign exporter as business partner of the importer.
PT
Bank Rakyat Indonesia (Persero) Pattimura
Semarang Branch gives service as an advising bank, negotiating bank to help
exporter or importer to receive his right. In dealing shipping document related
to Letter of Credit, the bank uses Uniform Customs and Practice for Documentary
credits (UCPDC 600). UCPDC is international standard banking provision used in
banking practice in relation to documentary credit.
In increasing good service to beneficiary, PT
Bank Rakyat Indonesia (Persero) Pattimura
Semarang Branch has a procedure in handling a Letter of Credit including
advising L/C, documents checking, beneficiary checking, negotiating, and doing
a payment. During the L/C checking procedure, there may be a discrepancy in
documents. Those procedures have been done by PT Bank Rakyat Indonesia to
anticipate fraud related to Letter of Credit. Customers and investors should be assured that a bank
will not experience loss due to fraud related to a Letter of Credit (L/C).
Scope of Discussion
In
this article, PT Bank Rakyat Indonesia (Persero) Pattimura Semarang Branch is observed as advising bank,
negotiating bank, paying bank, and accepting bank. Besides aiming at explore
how to anticipate fraud related to Letter of Credit at PT Bank Rakyat Indonesia
(Persero) Pattimura Semarang Branch. This study also explores
document checking, procedures of negotiating Letter of Credit, implementation
of UCPDC (Uniform Customs and Practice for Documentary Credits) No 600 and how the bank handles
distrustful cases.
Purpose of the Study
This study has several purposes to achieve, namely:
a.
to describe the negotiation
process of documents required by a Letter of Credit (L/C) and the obligation of PT Bank Rakyat Indonesia (Persero)
Pattimura Semarang Branch as advising bank, negotiating bank, paying bank, and
accepting bank.
b.
to
know the strategy implemented by PT Bank Rakyat Indonesia (Persero) Pattimura Semarang
Branch to anticipate fraud related to Letter of Credit (L/C).
c.
to find out how far the application of UCPDC No 600 is
by PT Bank Rakyat Indonesia (Persero) Pattimura
Semarang Branch.
LITERATURE
STUDY
According to
Barnas, Carolina and Lasambauw (1996:25) “Perdagangan
International adalah suatu proses transaksi perdagangan antara penjual dan
pembeli, yaitu masing-masing berada di Negara yang berlainan”.
International trade is a trade transaction process between a seller and a
buyer, each located in different countries. From the explanation, it can be
concluded that International trade is an activity of selling and buying which
is done by a person or a company in a country with someone or with a company in
different country.
Before the
discussion in anticipating fraud related to Letter of credit (L/C) is done, it
could be better to discuss the definition of export and import trade first.
According to Djauhari Ahsjar and Amirullah (2002:1):
Ekspor adalah perdagangan dengan cara
mengeluarkan barang dari dalam keluar wilayah Pabean suatu negara dengan
memenuhi ketentuan yang berlaku. Impor adalah suatu kegiatan dalam
perdagangan dengan cara membeli/mendatangkan barang dari luar negeri untuk
dimasukkan ke dalam negeri.
It means all
international trades could be identified as export or import, because according
to the above definitions, export is sending goods to earn a profit as a
business through custom areas outside the exporting country.
According to
Kuncoro (2006:1) “Strategi adalah
penentuan tujuan dan sasaran jangka panjang perusahaan, diterapkannya aksi dan
alokasi sumber daya yang dibutuhkan untuk mencapai tujuan yang telah
ditetapkan”. Strategy is the determination of long term goals and
objectives of the company, the implementation of the action and the allocation
of resources needed to reach intended purpose. From the explanation, it can be
concluded that strategy is the process of determining a plan that focuses on
long-term goals of the organization or company, along with the preparation of a
way or the achievement of intended purpose.
In relation to payment of exported goods, Hutabarat (1994:10-11) defines that in an international trade there are kinds of
payment methods which are used by trader, namely:
a.
Advance
Payment, by which a buyer pays in advance to the seller before the
goods are shipped by the seller. In practice, a
buyer transfer some amount of money before receiving the ordered goods.
b.
Open
Account, by which a buyer pays for the goods
after those goods are received by the buyer.
This is the common payment done within certain period of time, for example wirthin 30 days after
shipment date.
c.
Consignment, by which a shipment of goods to importer in
foreign country is done, while the payment is made by the buyer after the
goods are sold out. In other words, the buyer will transfer some amount of
money to the seller’s bank account after those goods are sold.
d.
Collection
Draft, by which payment is collected by an exporter by presenting shipping documents through a bank
which will collect payment through its corresponding bank in foreign country either using draft or promissory notes. Collection draft takes two kinds, i.e Documents against
Payment and Documents against Acceptance.
e.
Letter
of Credit (L/C), a kind of payment guaranteed by an issuing
bank if terms and conditions stipulated in an L/C
are met by a beneficiary. It is also addressed to foreign exporter as business relation of an importer.
It seems that Letter of Credit is just a kind of letter about credit. The definition is not
so. According to Amir MS (1996:37):
Letter of Credit adalah suatu surat yang dikeluarkan oleh suatu Bank atas
permintaan importer langganan Bank tersebut yang ditujukan kepada eksportir di
luar negeri yang menjadi relasi importer itu, yang memberi HAK kepada eksportir
itu untuk menarik wesel-wesel atas importir bersangkutan untuk sejumlah uang
yang disebutkan dalam surat itu.
Letters
of Credit or also called documentary credit are used primarily in international
trade transactions of significant value, for deals between an exporter in one
country and an importer in other country.
Letter of Credit is a document which is issued by issuing bank with all kinds of type and character, such
as revocable and irrevocable L/C, sight and usance L/C, transferable L/C, back
to back L/C, revolving L/C, red clause L/C, and many others. Common kind of
Letter of Credit mostly used is irrevocable L/C, because it is the safest
method for an importer and an exporter. Irrevocable means that the Letter of
Credit cannot be amended or cancelled by issuing bank without prior agreement
of all parties. Letters
of Credit used in international transactions are governed by the International
Chamber of Commerce publication called Uniform Customs and Practice for
Documentary Credits (UCPDC). It is a kind of a rule used in banking practice
all over the world.
Letter of Credit
Mechanism
In doing
export and import activities using payment method Letter of Credit, the parties
involved (a buyer, a seller, and banks) should understand a Letter of Credit
mechanism. It can help the parties in doing transaction in export and import
activities and also can reduce the occurrence of a fault.
FIGURE 1
LETTER OF CREDIT
MECHANISM
Source:
coonline.co.in/trd_fin_manual/4_afilc.htm
The steps in
issuing Letter of Credit (L/C) :
1.
Buyer and seller make an agreement
which forms the basis for opening a documentary letter of credit.
2.
Based on the agreement buyer
requests his banker to issue the documentary letter of credit.
3.
Issuing bank (buyer’s bank) issues
and transmits the documentary credit through SWIFT (Society for World-wide
Interbank Financial Telecommunications) to its correspondent bank who advises
the credit to the beneficiary. The bank advising the Documentary credit is known
as ‘Advising Bank’.
4.
Advising bank on receipt of the Documentary Credit validates the
authenticity of the DC, records the content in its books and transmits the
content to the beneficiary.
5.
The beneficiary (seller) on receipt of the documentary credit meets the
terms and conditions of the documentary credit and once satisfied with his
ability to comply with the terms and conditions of the L/C, he/she ships the
goods to the buyer (applicant).
6.
Seller (beneficiary) prepares the
documents strictly in compliance with the terms of the letter of credit
and hands over the documents to his banker (negotiating bank)
for negotiation.
7.
Negotiating bank will check the
documents based on the terms and conditions of the documentary credit for
compliance and makes payment to the beneficiary.
8.
The negotiating bank transmits the
negotiated documents under letter of credit and claims reimbursement of the
value of documents negotiated.
9.
Issuing bank on receipt of the
documents checks those documents for compliance to terms and conditions subject
to which the DC was issued. It reimburses the negotiating bank. For the drafts
drawn on usance basis the reimbursement is made at the time of maturity of the
drafts. Issuing bank submits the documents to the applicant (buyer).
10.
After receiving documents drawn
under DC issued, the applicant settles payment. Discrepancies, if any, are
notified to the importer as well as negotiating bank within stipulated period.
The
Parties Involved in Letter of Credit
According
to Joga and Silitonga (2001:16-17), there are seven parties involved in Letter of Credit.
a.
The applicant is the party who requests the issuing bank to open a
Letter of Credit. The applicant is usually the Importer or the buyer or the
Account Party.
b.
Beneficiary is the party who receives a Letter of Credit and gets
a payment for transfer documents which agree with terms of Letter of Credit. The
beneficiary is usually the seller or the exporter or the shipper or the vendor.
c.
Opening Bank opens a Letter of Credit in favor of the
beneficiary, at the request and on the instructions of the applicant. The
opening bank is known as the issuing bank.
d.
Advising Bank advises
Letter of Credit to the beneficiary, as well as the notice that Letter of
Credit is available to him/her. The Letter of Credit also mentions terms and
conditions.
e.
Negotiating Bank purchases
export documents from beneficiary as the
presenter of the documents.
f.
Reimbursing Bank is the one which is given authority by Issuing
Bank to make payment for a claim from Negotiating Bank.
g.
Confirming Bank is the one which is also instructed to give
guarantee of payment for Letter of
Credit which is issued by Issuing Bank.
Types of Letter of Credit
According
to Susilo (2008:68-71), there are seven types of Letter of Credit.
a.
Revocable Letter of Credit is an L/C which may be amended or cancelled by issuing bank at any time and
without prior notice to the beneficiary at the request of an applicant.
b.
Irrevocable Letter of Credit is an L/C which cannot
be amended or cancelled by issuing bank without prior agreement of all parties.
c.
Confirmed Letter of Credit is the one to which the advising bank adds its
confirmation, make its own independent undertaking to make a payment,
negotiation or acceptance, providing documents are presented which comply with
the terms of the letter of credit.
d.
Unconfirmed Letter of Credit is
equal to Irrevocable L/C. Most
L/C which is opened by the reputable banks is advised by foreign banks without a confirmed (unconfirmed).
e.
Back to Back Letter of Credit is a Letter
of Credit is which is different but when it is used simultaneously can be an
alternative such as transferable letter of credit.
f.
Transferable Letter of Credit is an L/C is whose right is given to the beneficiary to divert part or all of the acceptance
rights of the payment to other party. The diversion of these rights can be done
only once.
g.
Standby Letter of Credit is the one which is issued as a form of
guarantee if the buyer fails to make payment at the agreed period.
Red
Clause Letter of Credit
Red Clause Letter of Credit is
a specific type of letter of credit in which
a buyer extends an unsecured loan to a seller. Red Clause Letters of Credit
permit documentary credit beneficiaries to receive funds in advance for any merchandise outlined in the letter of
credit. These letters are commonly used by beneficiaries who act as purchasing
agents for buyers in another country. (www.investopedia.com)
The
Documents required under Letter of Credit (L/C)
According to
Hutabarat (1994:63-64) there are many documents required in
letter of credit.
a.
Transport
Documents: Bill of Lading,
Air Waybill, Railway Consignment Note.
b.
Invoice, Proforma Invoice,
Commercial Invoice, Consular Invoice.
c.
Insurance
Documents :Insurance Policy, Insurance
Certificate, Cover Note.
d.
Packing
List
e.
Certificate
of Origin
f.
Certificate
of Inspection
g.
Certificate
of Quality
h.
Manufacturer’s
quality certificate
i.
Certificate
of Analysis
j.
Wight
Certificate (Weight Note/List)
k.
Measurement
List
l.
Sanitary,
Health and Veterinary Certificate
m.
Draft
/ Bill of Exchange
Weakness and Benefits in using Letter of Credit
Each payment method definitely has
weakness and benefits in its use. One of them is Letter of Credit. The Letter
of Credit which is used in transaction has also weakness and benefits for the
parties involved (buyer, seller, and bank)
According to
Hutabarat (1995:26) the use of a Letter of Credit in international trade has
weakness and benefits:
a.
Weakness
in using Letter of Credit
1)
For
a bank
a)
The
time is spent in processing the documents which are required through the banks
channel.
b)
The
banks are only interested in documents and not in goods (UCP-DC 600, article
5).
2)
The
buyer or the importer does not receive assurances that the ordered goods at a specific price are actually shipped.
b.
Benefits
in using Letter of Credit
1)
The
bank charges which are imposed to a seller in the handling of Letter of Credit
.
2)
For
a seller
a)
The
seller will be more guaranteed concerning a payment of goods which is sent
after presentation of the documents in accordance with the terms of L/C.
b)
The
seller receives a payment from the paying bank immediately, if all the
documents are in accordance with the terms of L/C, even though the buyer has
not received the documents.
c)
The
seller can use the L/C for further financing, such as back to back L/C and so
on.
3)
For
a buyer
a)
The
buyer usually is not required to provide funds or sometimes just for a specific
percentage of imported goods to be redeemed.
b)
The
buyer has rights to receive documents required in the L/C to obtain the further
financing, that’s a loans refinance and many others.
c)
The
buyer will be more assured because the bank will refuse a payment to the seller
except the seller has complied with the terms which are demanded by the buyer
in the L/C.
Negotiation of shipping
documents
In
letter of credit, negotiation has a specific meaning, not just discussion. Negotiation
means the purchase by the nominated bank of drafts (drawn on a bank other than
the nominated bank) and/or documents under a complying presentation, by
advancing or agreeing to advance funds to the beneficiary on or before the
banking day on which reimbursement is due to the nominated bank. (UCP 600,
article 2)
When
credit availability is by negotiation, the beneficiary can receive payment
before maturity by negotiating the documents with the nominated bank. The
documents may be negotiated with or without recourse. However, if the L/C is a
confirmed one, the nominated bank which has added its confirmation to an L/C
must negotiate the documents without recourse.
Issuing
Bank’s Undertaking
Undertaking
is related to an issuing bank activity concerning how to handle documents
required by letter of credit.
According
to Article 7 of UCP 600, issuing bank undertakes payment:
a.
Provided
that the stipulated documents are presented to the nominated bank or to the
issuing bank and that they constitute a complying presentation, the issuing
bank must honour if the credit is available by:
1)
Sight
payment, deferred payment or acceptance with the issuing bank.
2)
Sight
payment with a nominated bank and that nominated bank does not pay.
3)
Deferred
payment with a nominated bank and that nominated bank does not incur its
deferred payment undertaking or, having incurred its deferred payment
undertaking, does not pay at maturity.
4)
Acceptance with a nominated bank and that
nominated bank does not accept a draft drawn on it or, having accepted a draft
drawn on it, does not pay at maturity.
5)
Negotiating with a nominated bank and that
nominated bank does not negotiate.
b.
An
issuing bank is irrevocably bound to honour as of the time it issues the
credit.
c.
An
issuing bank undertakes to reimburse a nominated bank that has honoured or
negotiated a complying presentation and forwarded the documents to the issuing
bank. Reimbursement for the amount of a complying presentation under a credit
available by acceptance or deferred payment is due at maturity, whether or not
the nominated bank prepaid or purchased before maturity. An issuing bank
undertaking to reimburse a nominated bank is independent of the issuing bank’s
undertaking to the beneficiary.
Confirming
Bank’s Undertaking
Undertaking is
related to a confirming bank activity concerning how to handle documents
required by letter of credit.
According to UCP
600 Article 8, confirming bank undertakes payment:
a.
Provided
that the stipulated documents are presented to the confirming bank or to any
other nominated bank and that they constitute a complying presentation, the
confirming bank must:
1)
Honour, if the
credit is available by:
a)
Sight
payment, deferred payment or acceptance with the confirming bank.
b)
Sight
payment with another nominated bank and that nominated bank does not pay.
c)
Deferred
payment with another nominated bank and that nominated bank does not incur its
deferred payment undertaking or, having incurred its deferred payment
undertaking, does not pay at maturity.
d)
Acceptance
with another nominated bank and that nominated bank does not an accept a draft
drawn on it or, having accepted a draft drawn on it, does not pay at maturity.
e)
Negotiating
with another nominated bank and that nominated bank does not negotiate.
2)
Negotiate,
without recourse, if the credit is available by negotiation with the confirming
bank.
b.
A
confirming bank is irrevocably bound to honour or negotiate as of the time it
adds its confirmation to the credit.
c.
A
confirming bank undertakes to reimburse another nominated bank that has
honoured or negotiated a complying presentation and forwarded the documents to
the confirming bank. Reimbursement for the amount of a complying presentation
under a credit available by acceptance or deferred payment is due at maturity,
whether or not another nominated bank prepaid or purchased before maturity. A
confirming bank’s undertaking to reimburse another nominated bank is
independent of the confirming bank’s undertaking to the beneficiary.
d.
If
a bank is authorized or requested by the issuing bank to confirm a credit
but is not prepared to do so, it must
inform the issuing bank without delay and may advise the credit without
confirmation.
UCP-DC
The Uniform
Customs and Practice for Documentary Credit (UCP-DC),
ICC Publication No. 600 are rules that apply to any documentary credit
(including, to the extent to which they may be applicable, any standby letter
of credit) when the text of the credit expressly indicates that it is subject
to these rules. They are binding on all parties thereto unless expressly
modified or excluded by the credit. (UCP-DC 600, article 1)
The rules of L/C which refers to the
prevailing international congress of the International Chamber of Commerce
(ICC) since 1933 which was then revised in 1951, 1962, 1974, 1983 and finally
1993. The results obtained from the congress are embodied in the Uniform
Customs and practice for Documentary Credits (UCPDC), last revised (1994) known
as UCP-DC 500.
The ICC has
developed and established the UCP by regular versions, the current version
being the UCP 600.
It came
into effect on 01 July 2007. The revision of the Uniform Customs and Practice
for Documentary Credits (commonly called “UCP”) is sixth revision of the rules
since they were first promulgated in 1993. It is the fruit of more than three
years of work by the International Chamber of Commerce’s (ICC) Commission on
Banking Technique and Practice.
The 39 articles
of UCP 600 are a comprehensive and practical working aid to bankers, lawyers,
importers, exporters, transport executives, educators, and everyone involved in
Letter of Credit transactions worldwide.
Fraud Related to L/C
In case of
negotiating documents, there might be some fraud cases. Fraud as a general term
means a violation of a rule or local ordinance or regulation, promise or
obligation. (www.wikipedia.org).
Fraud is not a
new fault. Kinds of Letter of credit frauds that is (1) a fake Letter of
Credit, (2) the beneficiary providing false documentation to show that goods
were shipped when in fact no goods were shipped at all to
the bank, (3) red clause Letter of Credit.
If any fraud
caused is found, the advising bank or paying bank or negotiating bank and or
accepting bank will deny the documents, due to a possibility of fake documents
of Letter of Credit.
Article 13 of
the UCP 600 requires banks to apply reasonable care to ascertain whether
documents, on their face, comply with the terms of the credit. In practice,
this is only way that the documentary credit system will work.
It would be
unreasonable to expect banks, for the purposes of the documentary credit, to go
beyond the documents presented. Banks take the view that they are merely
financing the trade transaction. They do not assume responsibility for the
existence or quality of the commodities traded. The system is based on
documents.
Definition
of the draft
When
the exporters make a drawing under a
letter of credit, the presented
documents (bill of lading, invoice, packing list, certificate of origin,
and any other) should usually
be accompanied by a draft, which is
basically a check, representing demand
for payment. The draft
or Bill of
Exchange is drawn and
signed by the
exporter (seller). The terms
of the draft
are “at sight” or a
number of days after sight or after the bill of lading date. (www.creditmanagementworld.com)
“At sight” means that the draft is paid upon
receipt of the documents which are found to be confirming. The terms which specify a number of days sight
or after the B/L date, are commonly called “usance”, indicating that the
issuing bank is obligated to pay the beneficiary (exporter) at some specific
future date. For usance drafts, the obligation to pay begins when the drawee
bank “accepts” the draft and a banker’s acceptance are created. The following
Figure 2 is a sample of draft.
RESEARCH
METHOD
Data for this article were obtained from a research in Bank Rakyat
Indonesia Pattimura Semarang branch
a.
Primary
Data were obtained through an deep interview with letter of Credit (L/C) department staff
of PT Bank Rakyat Indonesia (Persero) Pattimura
Semarang Branch. The interviews are
held 6 (six) times, each interview took two hours. The questions asked were connected
with negotiation
and anticipation of fraud related to Letter of Credit (L/C).
b.
Secondary
data were obtained from references of Letter of Credit from certain sources,
such as: books, literature, articles, and website.
DISCUSSION
Company
Business
PT
Bank Rakyat Indonesia (Persero) Terbuka
major activities are providing general banking services primarily to micro,
small and medium enterprises. Its banking products include various types of
deposits, loans and banking products. It also offers bank guarantees, bank
clearance, Automated Teller Machine, safe deposit boxes, bill payments, online
transactions, money transfers, credit cards and trade financing. The Group also
carries out activities related to fund management, treasury and international
banking such as cash management, custodian services and trustee services.
Segmentation, Targeting, and positioning
Bank
Rakyat Indonesia (BRI) is one of the financial institutions with micro retail
market segments especially small and micro entrepreneurs in rural areas. BRI is not only successful in the domestic
level, but also at a global level. Most of the customers are middle and low
economic class people and they are the largest segment of Indonesian society.
Savings products offered by the bank almost have the same features (generic),
ranging from interest rates up to banking facilities. BRI has two types of savings that are
marketed for different market segments, namely BRI Britama savings for the
corporate and urban segment and Simpedes savings for the micro level unit and
lower middle level segment. Simpedes target is to collect funds from
the people to be more productive people, useful for economic development and
business activities in rural areas.
Since 1983 BRI has chosen the positioning strategy as a bank that
provides microbanking services which serves lower middle customers so that BRI
shall have more geographic coverage than the other bank.
An
exporter and importer in doing transaction in export and import choose one safe
payment. Usually payment method which is used by them is Letter of Credit.
Letter of Credit terms and conditions must be fulfilled by an exporter, so a
fault can be anticipated.
Every
bank has a strategy in anticipating any fraud related to Letter of Credit. Nevertheless,
there is still a bank which creates potential loss in handling Letter of
Credit, such as bank burglary by fake Letter of Credit in 2003, causing loss
about Rp. 1.7 trillion at Bank Negara Indonesia. (http://korup5170.files.wordpress.com).
This case can be made as a discourse to all banks in handling services related
to Letter of Credit.
Requirements
for The Negotiation of Letter of Credit at Bank Rakyat Indonesia
In negotiating
beneficiary’s shipping documents, Bank Rakyat Indonesia implements requirements
which must be met by beneficiary. Those requirements are:
a.
The
beneficiary must have an account at Bank Rakyat Indonesia. They must have an
account of minimum USD 1000 in Giro valas. Whereas, in Britama Dollar the
beneficiary must have a minimum account of USD 10.
b.
The
beneficiary must be a reliable customer and not included in the blacklist.
c.
The
exported goods are not the prohibited ones.
d.
The
destination country is not the prohibited nation.
e.
The
documents of the exported goods must be clean and completed in accordance with
Letter of Credit.
f.
The
exporter fills out the submission form of negotiation facilities.
g.
The
exporter fills out the general conditions of draft transfer form by Bank Rakyat
Indonesia.
h.
The
beneficiary meets the administrative requirements.
Document
Checking
The documents presented by beneficiary must
comply with the terms and conditions stipulated in the L/C. The most interesting in L/C negotiation is that
the required documents must comply with terms and conditions in L/C. Bank Rakyat Indonesia refers to UCP 600
article 14 to examine documents:
1. A nominated bank acting on
its nomination, a confirming bank, if any, and the issuing bank must examine a
presentation to determine, on the basis of the documents alone, whether or not the
documents appear on their face to constitute a complying presentation.
2. A nominated bank acting on
its nomination, a confirming bank, if any, and the issuing bank shall each have
a maximum of five banking days following the day of presentation to determine
if a presentation is complying. This period is not curtailed or otherwise
affected by the occurrence on or after the date of presentation of any expiry
date or last day for presentation.
3. A presentation including
one or more original transport documents subject to articles 19, 20, 21, 22,
23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21
calendar days after the date of shipment as described in these rules, but in
any event not later than the expiry date of the credit.
4. Data in a document, when
read in context with the credit, the document itself and international standard
banking practice, need not be identical to, but must not conflict with, data in
that document, any other stipulated document or the credit.
5. In documents other than the
commercial invoice, the description of the goods, services or performance, if
stated, may be in general terms not conflicting with their description in the
credit.
6. If a credit requires
presentation of a document other than a transport document, insurance document
or commercial invoice, without stipulating by whom the document is to be issued
or its data content, banks will accept the document as presented if its content
appears to fulfil the function of the required document and otherwise complies
with sub-article 14 (d).
7. A document presented but
not required by the credit will be disregarded and may be returned to the
presenter.
8. If a credit contains a
condition without stipulating the document to indicate compliance with the
condition, banks will deem such condition as not stated and will disregard it.
9. A document may be dated
prior to the issuance date of the credit, but must not be dated later than its
date of presentation.
10. When the addresses of the
beneficiary and the applicant appear in any stipulated document, they need not
be the same as those stated in the credit or in any other stipulated document,
but must be within the same country as the respective addresses mentioned in
the credit. Contact details (telefax, telephone, email and the like) stated as
part of the beneficiary's and the applicant's address will be disregarded.
However, when the address and contact details of the applicant appear as part
of the consignee or notify party details on a transport document subject to
articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.
11. The shipper or consignor of
the goods indicated on any document need not be the beneficiary of the credit.
12. A transport document may be
issued by any party other than a carrier, owner, master or charterer provided
that the transport document meets the requirements of articles 19, 20, 21, 22,
23 or 24 of these rules.
Bank’s
Strategy to Anticipate Fraud Related to Letter of Credit (L/C)
Bank Rakyat Indonesia has some
strategies to anticipate fraud related to Letter of Credit as follows:
a.
Checking Letter of Credit Authenticity
In checking
the authenticity of Letter of Credit, PT Bank Rakyat Indonesia
Pattimura Semarang Branch does not handle it alone,
because Bank Rakyat Indonesia only has a role to check
the documents whether appropriate or not with the requirements
in Letter of Credit . Letter of Credit authenticity checking is
handled directly by the “BRI” head office in Jakarta, because
the head office has a standard and
the system to check the authenticity of Letter of Credit.
Checking Letter of Credit authenticity done by BRI Pattimura to anticipate a
fake Letter of Credit.
There are two
ways used by Bank Rakyat Indonesia to check Letter of Credit authenticity based
on L/C received:
1) L/C
received by SWIFT
Generally,
issuing bank in foreign country sends Letter of Credit by swift, so it is
definitely authentic. In this case, the
bad risk in Bank Rakyat Indonesia can be minimized.
FIGURE 2
MECHANISM IN HANDLING L/C RECEIVED BY SWIFT
Source: Division of Foreign Exchange, 2012
The
steps in handling L/C received by SWIFT:
a)
Letter
of Credit is issued by issuing bank in foreign country. Advising bank receives
Letter of Credit by SWIFT, because the issuing bank as a correspondent with
advising bank.
b)
After
BRI checks the documents whether appropriate or not with the
requirements in Letter of Credit, then the bank gives information to
beneficiary that the beneficiary has got Letter of Credit from an issuing bank
at the request of a buyer / applicant. In
this case, BRI Pattimura does not send a copy of Letter of Credit to “BRI” head
office in Jakarta, because L/C is received by SWIFT. Usually it is definitely
authentic, so BRI can handle it directly without waiting for the information
given by head office about L/C authenticity.
Below are three
samples of Letter of Credit authenticity in BRI Pattimura, each of which is
received by SWIFT.
a) Sight Letter of Credit
|
INSTANCE TYPE
AND TRANSMISSION
ORIGINAL RECEIVED FROM SWIFT
PRIORITY : NORMAL
MESSAGE OUTPUT REFERENCE :
2120 120321BRINIDJAA0835518423041
CORRESPONDENT INPUT
REFERENCE:152020321COBADEFFD29027817 56864
MESSAGE
READER
SWIFT
OUTPUT: FIN 700
SENDER :
COBADEFF290 COMMERZBANK AG BREMEN
RECEIVER : BRINIDJA083 BANK
RAKYAT INDONESIA SEMARANG
|
Source: Division of Foreign
Exchange in BRI Pattimura Semarang Branch, 2012
In this L/C BRI
immediately take over and if the documents are accordance with the requirements
in L/C, then the bank will make payment to the beneficiary directly. Sight
means when shipping documents are examined.
b)
Usance Letter of Credit
|
----------------------------------
Instance Type and Transmission -----
Copy
received from SWIFT
Priority : Normal
Message Output Reference: 1648 100810BRINIDJAA0834972627806
Correspondent
Input Reference: 1748 1008
10SCBLHKHHBXXX0846807149
---------------------------------------Message
Header -------------------
Swift
Output : FIN 700 Issue
of a Documentary Credit
Sender
:
SCBLHKHHXXX
STANDARD
CHARTERED BANK (HONGKONG) LIMITED HONG
KONG HK
Receiver :
BRINIDJA083
BANK RAKYAT INDONESIA
(PATTIMURA BRANCH) SEMARANG ID
|
Source:
Division of Foreign Exchange in BRI Pattimura Semarang Branch, 2012
Generally,
in this L/C the payment will be done by the issuing bank after 90 days of the
date of shipment of the goods. However, if the beneficiary needs the payment
done immediately, the bank will bail out the payment in advance. In this case,
the beneficiary will be charged interest rate of 5% up to 8%. BRI has its own
policy in giving interest rate. For the beneficiary who is conducting
transactions at BRI, the interest will be smaller.
c)
UPAS (Usance Payable at Sight) Letter of Credit
|
INSTANCE TYPE
AND TRANSMISSION
ORIGINAL RECEIVED FROM SWIFT
PRIORITY
: NORMAL
MESSAGE
OUTPUT REFERENCE: 1222 100917BRINIDJAA0035009679618
CORESSPONDENT INPUT REFERENCE: 1422
1009 17IINBNKRSEAXXX4581585699
MESSAGE READER
SWIFT
OUTPUT : FIN 700
SENDER :
HNBNKRSEXXX
HANNA BANK
HANNA BANK ANNEX
FLOOR 09-10, 2-KA, ELUJIRO,
CHUNG-KU
SEOUL
RECEIVER :
BRINDJA083
BANK RAKYAT INDONESIA
SEMARANG
|
Source:
Division of Foreign Exchange in BRI Pattimura Semarang Branch, 2012
The
payment in UPAS Letter of Credit is bailed out by Bank Rakyat Indonesia first.
However, the beneficiary can not receive the full of the nominal value
mentioned in the L/C, because 8% interest will be charged of the nominal value.
For instance the nominal mentioned in this L/C is USD103,638.53, so the
beneficiary will receive a payment USD95,347.4476. Way the calculation is
USD103,638.53 – (8%X USD103.638,53)= USD95,347.4476.
In
the Table 1 the result of compliance of
the documents with the Letter of Credit is shown.
TABLE 1
COMPLIANCE OF THE DOCUMENTS WITH THE LETTER OF CREDIT
|
No
|
L/C Number
|
Type
|
Sent via
|
Authenticity
|
Available
|
|
|
Yes
|
No
|
|||||
|
1
2
3
|
BBTIA400107222
579010260719-T
M12G9009RU00363
|
Irrevocable
Irrevocable
Irrevocable
|
SWIFT
SWIFT
SWIFT
|
Yes
Yes
Yes
|
-
-
-
|
By Payment
By Negotiation
By Negotiation
|
Source: Division of Foreign Exchange,
2012
Based on the
data above Bank Rakyat Indonesia receives Letter of Credit through SWIFT. It
means that Letter of Credit received by BRI Pattimura is authentic, so the bank
does not need checking on L/C by BRI head office Jakarta. SWIFT stands for Society
of Worldwide Interbankl Financial Telecommunication.
2) L/C received by mail
Letter
of Credit received by mail or facsimile may lead to fraud.
For instance the issuing bank is not bona fide and the requirement in
Letter of Credit is not in accordance with the provisions
of the UCP 600.
FIGURE 3
MECHANISM IN HANDLING L/C RECEIVED BY MAIL OR FACSIMILE
Source: Division of
Foreign Exchange, 2012
The procedures
done by Bank Rakyat Indonesia in handling Letter of Credit received by mail are
as follows:
a)
Letter
of Credit is issued by issuing bank in foreign country, and Advising bank or
BRI receives L/C by mail.
b)
Before
Bank Rakyat Indonesia Pattimura follows up the Letter of
Credit to the beneficiary, the bank proposes the copy of Letter of
Credit to head office in Jakarta about
L/C authenticity and contact the party of the head
office to give information that the bank has
sent via facsimile. Then, head office will
immediately check the authenticity of Letter of Credit, and
gives a reply to BRI Pattimura no later than one day.
c)
After
Letter of Credit is declared authentic by the head office in
Jakarta, BRI Pattimura follow up Letter of Credit to the
beneficiary.
d)
However, if not authentic,
then the bank will not process it.
b. Verification of the Documents Compliance with
the Goods
Before payment
done by Bank Rakyat Indonesia, the bank must verify the documents to be comply
with the goods. This is done by BRI in order to reduce the incidence of fraud
from the beneficiary and minimize the loss not expected by the bank. In the Tables
2 the result of synchronization documents with the Letter of Credit and the
documents with the goods is shown.
TABLE 2
VERIFICATION OF THE DOCUMENTS COMPLIANCE WITH THE GOODS
|
No.
|
L/C Number
|
Type
|
Synchronization
|
|
|
Documents
|
Goods
|
|||
|
1
2
3
|
BBTIA400107222
579010260719-T
M12G9009RU00363
|
Irrevocable
Irrevocable
Irrevocable
|
Not fake
Not fake
Not fake
|
On board
On board
On board
|
Source: Division of Foreign
Exchange, 2012
From
the data above it can be concluded that the documents comply with the goods. In
checking whether the documents comply with the goods or not, the bank only
makes Bill of Lading as a proof. This case fictitiousness can be happened,
because the bank does not have an informant to check the actual conditions at
the port. In anticipating fraud related to the goods will be send, the writer
has a suggestion that the bank should have an informant to check the actual
conditions at the port directly.
c.
The Way in Handling Red Clause Letter of Credit
In foreign
transactions, some buyers request red clause Letter of Credit to
be allowed under an L/C. Red clause Letter of Credit is
a payment in advance before the goods are shipped. Bank
Rakyat Indonesia never handles and accepts the red clause Letter
of Credit, because the risks in this type of Letter of Credit are high for
the advising bank and the buyer. However, if one day customers want to have
transaction using red clause Letter of Credit, the bank will help them to do
transaction. BRI is strict to anticipate the loss caused by red clause Letter
of Credit. The strictness is as follows:
1)
Collection
The
collection reserved to a new customer and buyer in a relationship with Bank
Rakyat Indonesia. In this case, the bank only has role to help the beneficiary
to charge the payment in Issuing Bank. The payment will be received by
beneficiary after the issuing bank pays to the Bank Rakyat Indonesia.
2)
Negotiating
Bank
Rakyat Indonesia will help customers have relationship with the bank early.
However, there are several requirements that must be met by the beneficiary,
those are:
a.
The
goods must be shipped by the beneficiary proven by Bill of Lading.
b.
The
beneficiary must present documents stipulated in the L/C.
c.
After
the documents are presented in accordance with the terms of Letter of Credit,
then the bank will pay to the beneficiary. Payment will be done by BRI as sight
L/C.
Application
of UCPDC 600 in Handling Letter of Credit at Bank Rakyat Indonesia
In dealing with shipping document related to Letter of Credit,
Bank Rakyat Indonesia uses Uniform Customs and Practice for Documentary credits
(UCPDC 600) to examine the documents. UCPDC is international standard banking
provision used in banking practice in relation to documentary credit. One of
the implementation of UCPDC 600 used by Bank Rakyat Indonesia is based on
article 5 that Bank deals with documents and not with goods, services or
performance to which the documents may relate. In practice when dealing
with Letter of Credit, the bank has no contact with the goods. It
just checks whether the documents presented by beneficiaries are comply
with the terms of the Letter of Credit.
Besides,
using UCP 600 as reference in handling Letter of Credit, Bank Rakyat
Indonesia also refers to ISBP (International Standard Banking Practice for the Examination of Documents Under Documentary
Credits) and URR (Uniform Rule for Bank to Bank Reimbursement). ISBP is an
additional guidance to banks. The ISBP is originally created to help reduce the
large percentage of documents refused for discrepancies on first presentation.
Anecdotal evidence suggests that this objective has been partially attained.
Though refusals remain a serious problem with letters of credit, their numbers
appear to be declining, in part because of the effectiveness of the checklist
contained in the ISBP. Practitioners are urged to refer to this publication
whenever doubts arise as to how to structure and check documents in Credits utilizing UCP 600. Whereas, according to article 1 application
of URR, the Uniform Rules for Bank to Bank Reimbursement under Documentary
Credits, ICC Publication No. 525, shall apply to all Bank to Bank Reimbursement
where they are incorporated into the text of the Reimbursement Authorization.
They are binding all parties thereto, unless otherwise expressly stipulated in
the Reimbursement Authorization. The issuing bank is responsible for indicating
in the Documentary Credit (“Credit”) that Reimbursement Claims are subject to
these Rules. In a Bank to Bank
Reimbursement subject to
these Rules, the Reimbursement bank acts on the
instructions and/ or under the authority of the Issuing Bank. These rules are
not intended to override or change the provisions of the Uniform Custom and Practices
for Documentary Credit.
The Obligation of PT Bank Rakyat Indonesia Pattimura
Semarang Branch
In dealing with export Letter of Credit Bank
Rakyat Indonesia Semarang Pattimura
Branch has a role as advising bank and negotiating bank. Its obligation is to
advise or forward Letter of Credit to beneficiaries. Bank Rakyat Indonesia has
strict rules in negotiating a Letter of Credit so that frauds and errors can be
minimized. As an advising bank, Bank Rakyat Indonesia will verify the test key
if the L/C is notified by Telex/Fax and checking signatures on the L/C if the
L/C is opened by mail. Besides, BRI also ask the company profile and annual
report of the importer if necessary.
The procedures
implemented by the Bank Rakyat Indonesia as negotiating bank are:
a.
Beneficiary presents the
required documents first to the bank.
b.
Bank verifies
Letter of Credit in vertical and horizontal. Vertical checking is to check
the compliance of documents with Letter of Credit. Whereas,
horizontal checking is the bank checking for the suitability of
the document with other documents.
c.
If beneficiary
meets the terms and conditions stipulated in Letter of Credit, the
bank directly negotiates.
d.
Bank
has to be sure that the issuing bank is bona fide, in order that negotiation
documents will be paid. Bank Rakyat Indonesia has a rule to ensure the bona
fide of Issuing bank that is the issuing bank must already have commercial line
or often refers to as correspondent bank.
e.
Subsequently,
Bank Rakyat Indonesia examines the shipping documents which have been submitted
by the beneficiary and ensure that all documents are in accordance with the
terms and conditions of Letter of Credit.
f.
The
negotiating bank should ask acceptance from the issuing bank, if the submitted
documents are agains usance Letter of credit. Acceptance is a statement from
the issuing bank that they accept draft and promise to pay at maturity date,
for example 180 days after the date of Bill of Lading.
Types of Letter
of Credit which are handled by Bank Rakyat Indonesia are sight L/C, usance L/C,
and Upas L/C. Sight is cash payment and usance is payment at maturity date.
Whereas, Upas is combination between sight and usance, where in sight there is
in exporter and in usance there is in importer.
All Letters of
Credit advised by Bank Rakyat Indonesia Semarang Pattimura Branch will be
examined by BRI head office in Jakarta, and then submitted again to the branch
office as the giver of negotiation facility.
CONCLUSION
To
anticipate any fraudulence related to letter of credit which may cause
potential financial loss, Bank Rakyat
Indonesia Semarang Pattimura Branch has several strategies as follows:
Firstly,
checking the authenticity of the L/C received. There are two ways used by Bank
Rakyat Indonesia to check Letter of Credit based on L/C received:
1.
When
an L/C is received through SWIFT, Bank Rakyat Indonesia Semarang
Pattimura Branch trusts that issuing bank in foreign country sends a definitely
authentic Letter of Credit.
2.
When
an L/C is received via email, the bank applies several procedures in handling
the Letter of Credit received as follows:
a.
Letter
of Credit is issued by issuing bank in foreign country, and Advising bank or
BRI receives L/C by mail.
b.
Before
Bank Rakyat Indonesia Pattimura
follows up the Letter of Credit to the beneficiary, the bank
proposes the copy of Letter of Credit to
head office in Jakarta about L/C authenticity and contact the party of
the head office to give information that the bank has
sent via facsimile. Then, head office will immediately check
the authenticity of Letter of Credit, and gives a reply to BRI
Pattimura no later than one day.
c.
After
Letter of Credit is declared authentic by the head office in
Jakarta, BRI Pattimura follow up Letter of Credit to the
beneficiary.
d.
However, if
the L/C is not authentic, then the bank will not process
it.
3.
During
the shipment of goods to destination port, the BRI Bank conducts a verification
of the documents which have been decided to comply with the goods before payment is given to beneficiary. This is
done by BRI in order to reduce the incidence of fraud from the beneficiary and
minimize the loss not expected by the bank.
4.
In dealing with shipping document related to Letter of Credit,
Bank Rakyat Indonesia uses Uniform Customs and Practice for Documentary credits
(UCPDC 600) to examine the documents. UCPDC is international standard banking
provision used in banking practice in relation to documentary credit. One of
the implementation of UCPDC 600 used by Bank Rakyat Indonesia is based on
article 5 that Bank deals with documents and not with goods, services or
performance to which the documents may relate. In practice when dealing
with Letter of Credit, the bank has no contact with the goods. It
just checks whether the documents presented by beneficiaries are comply
with the terms of the Letter of Credit
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