Letters of credit and terrorist acts - what the rules say
 |
| Force majeur; who will foot the bill ? |
Paris, 2 November 2001 - The 11 September attacks on the United States have awakened interest in what happens to the parties under a letter of credit if, for reasons of events outside of a bank's control, such as a terrorist attack, it cannot honour a letter of credit that expired during the period of business interruption caused by an act of force majeure.
An article in the present issue of Documentary Credits Insight, the ICC's respected quarterly publication on letters of credit, argues that an act of terrorism should constitute force majeure under the ICC's universally used rules on letters of credit, UCP 500. Brooke Wunnicke, writing in Insight, points to Article 17 of UCP 500, which relieves institutions or individuals for liability resulting from "Acts of God, riots, civil commotions, insurrections, wars or any other causes beyond their control ". Terrorism, Ms Wunnicke says, is covered by this Article.
In her article, Ms Wunnicke says that "the applicant [under a letter of credit] should negotiate with his issuing bank to include force majeure protection in both the application agreement and in the letter of credit issued to the beneficiary". She then suggests wording that the parties should use to ensure that, notwithstanding Article 17 of the UCP 500, the letter of credit will be honoured after the bank resumes business following such an incident.
Some security experts believe that letters of credit could well have been a component in the financing mechanism that enabled the perpetrators of the 11 September attacks to carry out their crimes.
The present issue of Documentary Credits Insight also carries excerpts from the final working party draft of the eUCP, the proposed supplement to UCP 500 to be used when presentations of documents are made electronically or in part-electronic, part-paper form. This major addition to the UCP, a response to the growing use of electronic documents, is expected to be approved when the ICC Banking Commission meets in Frankfurt, Germany on 7-8 November.
For more information on terrorism, eUCP and other time
ly subjects, subscribe to Documentary Credits Insight. Click here to go to the ICC bookstore, then click on the Documentary Credits Insight icon.