Fraud in letter of credit transactions: The experience of Malaysian bankers |
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| Institution: | 1. Faculty of Business and Accountancy, Department of Policy and Business Strategy, University of Malaya, 50603 Kuala Lumpur, Malaysia;2. Faculty of Business and Accountancy, Department of Finance and Banking, University of Malaya, 50603 Kuala Lumpur, Malaysia;1. Department of Economics, University of Warwick, Coventry, CV4 7AL, UK;2. CAGE, UK;3. CESifo, Germany;4. CEPR, UK;5. International Monetary Fund, USA;1. Swarthmore College, United States;2. Peterson Institute for International Economics, United States;3. University of Chicago, United States;1. University of Toulouse 3, LGCO – EA 7416, 31077 Toulouse, France;2. University of Rennes, CNRS, CREM – UMR 6211, F-35000 Rennes, France;3. University of Paris 6, 75005 Paris, France;1. Socio-economic Evaluation and Technology Transfer Division, ICAR-Central Marine Fisheries Research Institute, Post Box No. 1603, Ernakulam North P.O., Kochi, 682 018, India;2. Ring Seine Fisherman Based at Alappuzha, Kerala, India;1. Department of Finance, National Taichung University of Science and Technology, Address: 129, Sec.3, Sanmin Road, North District, Taichung City, 404, Taiwan;2. Department of Finance and CooperativeManagement, National Taipei University, Address: 151, University Road, San Shia District, New Taipei City, 237, Taiwan;3. Department of Finance, National Taichung University of Science and Technology, Address: 129, Sec.3, Sanmin Road, North District, Taichung City, 404, Taiwan |
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| Abstract: | This paper explores the issue of fraud in letter of credit (LC) transactions in Malaysia. We explore the common modus operandi used by fraudsters in LC transactions and highlight the various actions taken by banks when dealing with forged LC documents and fraudulent goods. We find that although the phenomenon of fraud in LC arrangements in Malaysia is marginal, banks have indeed experienced fraud in LC dealings. Banks actions are firmly guided by the Uniform Customs and Practice (UCP) for Documentary Credits, which clearly affirms that banks must honour payment to the seller upon full compliance of the LC requirements. Findings reveal that banks adhere to the UCP guidelines despite being presented with falsified documents that cannot be fully proven or even when there is a possibility that substandard goods are being transacted. Finally, recommendations on how banks can mitigate these problems are offered. |
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| Keywords: | Letter of credit Fraud Malaysian banks |
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