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Letters of Credit
The following constructions are available to intermediaries, amongst others.
Special Constructions for Letters of Credit
An intermediary may wish to transfer his claim based on a letter of credit to a supplier, even if the terms of the letter of credit do not allow a transfer, or if a transfer would contravene article 38 of the UCP (Uniform Customs and Practice for Documentary Credits).
He then has two available options, neither of which necessarily provides the same security as the transferred credit, and which banks will only carry out under certain circumstances.
The intermediary's bank issues a back-to-back letter of credit in favor of the supplier, based only on the security of an existing letter of credit in its own favor.
The UCP (Uniform Customs and Practice for Documentary Credits) contain no specific rules on back-to-back credits. This type of documentary credit consists of two independent letters of credit, which constitute a unit only in a commercial, but not a legal sense.
Assignment of Proceeds from Letters of Credit (Cession)
The beneficiary of the letter of credit can assign (cede) the credit proceeds entirely or in part to a third party. The beneficiary of the assignment then receives a declaration from the bank by order of the letter of credit beneficiary, authorizing the payment of a specified sum from an amount made available under the terms of the letter of credit, provided that the documents complying with the letter of credit have been submitted. Unlike a transferable letter of credit, the responsibility for submitting the documents rests solely on the beneficiary of the letter of credit.
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