Reflections on the case of letter of credit without trade background

I. Brief introduction of the case

During the period from 1997 to 1998, a branch of a bank in a coastal city of Guangdong (hereinafter referred to as branch A) opened 50 letters of credit without trade background for two enterprises in the city, namely D Group Co., Ltd. (hereinafter referred to as Company D) and Y Company (hereinafter referred to as Company Y). Among them, a letter of credit with 47 yuan trade background was issued for Company D; Open 103 l/c for y company with no trade background. According to statistics, the amount of L/C issued is * * * 330 million USD. By the end of 65,438+0,998, Branch A had made 65,438+09 advances on behalf of the above two enterprises, with the amount of advances exceeding USD 45 million.

Company D and Company Y used to be credit granting enterprises of Branch A, and the annual credit lines granted by Branch A to these two enterprises are above $25 million and/kloc-0.50 billion respectively. Before 1997, the letters of credit opened by both companies can be paid normally. However, since 1997, the operating conditions of these two enterprises began to decline, with poor benefits and frequent huge losses, and they were unable to pay the due amount under the letter of credit. In order to meet the amount due under the letter of credit, the two companies colluded with overseas beneficiaries to offset the old letter of credit by withdrawing funds from the new letter of credit. The specific operation is: after the bank opens the letter of credit, if the enterprise cannot repay the expired letter of credit, it applies to the bank for a new forward letter of credit for overseas financing, that is, the overseas beneficiary discounts the overseas bank and repays the amount due under the previous letter of credit, and the negotiating bank notifies the issuing bank after receiving the discounted amount repaid by the beneficiary. In fact, overseas beneficiaries have not really provided any goods to the applicant. Due to the payment of financing interest, the unpaid amount is getting bigger and bigger in the process of rolling L/C opening.

It was not until 1999, the head office of the bank, issued a notice to comprehensively inspect the business of letters of credit without trade background, that Branch A stopped opening new letters of credit without trade background for the above two companies, and made advances to the outstanding balance of accepted letters of credit, with the amount of advances of 19 being USD 45 million. After the illegal issuing bank was exposed, Branch A organized a transfer team to investigate the relevant enterprises and implement asset preservation procedures. However, due to the large amount of financing, it is difficult to track and verify the whereabouts of funds. It is understood that after financing by letter of credit, the funds obtained by enterprises are mainly used for purchasing real estate, production equipment, stock trading, futures, investment factories and other purposes. Due to the long-term occupation of short-term funds, the solvency of enterprises to letters of credit can not be guaranteed, which brings huge advances to banks.

Second, the characteristics and analysis of the case

1, no real trade background. In other words, the new long-term letters of credit are all based on the old to the new, the new to the old, the new to the old, and the end of the old business. Therefore, as long as a new letter of credit can be opened and financing funds can be obtained, the expired letter of credit can be repaid, and this is repeated, so it is concealed and difficult to expose. In the middle of the rolling L/C, enterprises don't need to make external payment, so they don't need to write off import payment, and the issuing bank doesn't need to advance funds for enterprises, which temporarily covers up the huge payment risk, but in the end, domestic enterprises still need to make external payment or advance to banks. From the perspective of foreign debt management and capital use, its essence is to borrow foreign debt in disguised form by using forward letters of credit, which is a violation of foreign debt management.

2. Use loopholes in foreign exchange management to evade supervision. It is understood that the amount of letters of credit issued by branch A is mostly below $3 million, and the term is mostly within 90 days. There is no need to open a letter of credit with the filing form of import payment of foreign exchange by the foreign exchange bureau to avoid the supervision of the foreign exchange administration department.

3. Take advantage of the loopholes in the opening management of Bank A.. The two enterprises applying for the L/C are both credit enterprises of the bank, and the L/C issued is the full credit guarantee of the credit department, and there is no need to pay a deposit, so the bank bears great financial risks.

In addition, the import contract, invoice, packing list, bill of lading or goods receipt on which the letter of credit is issued and accepted are all forged. However, due to the relative concentration of overseas beneficiaries and negotiating banks, and the outdated relationship, there is a certain interest relationship between them, which is often difficult to detect or ignore for a while, resulting in greater risks.

The reasons for the above-mentioned illegal cases mainly include the following aspects:

1, foreign exchange business practitioners have weak legal concepts and risk awareness. It is understood that the international business department of branch A has been illegally opening letters of credit for several years, and the amount is huge, which has not been discovered. At the same time, illegally issuing letters of credit also involves international settlement, foreign exchange credit, accounting and other departments. The managers of these departments blindly obey the leadership, which reflects that the foreign exchange practitioners of Branch A lack the due awareness of law-abiding operation and risk.

2. The laws and regulations on supervision of letters of credit are not perfect. Due to the need to write off the import payment under the letter of credit, the authenticity of trade import under the letter of credit can be effectively supervised and controlled, but it is difficult to effectively supervise the letter of credit that does not pay through the bank and does not need to be written off after the expiration of the letter of credit.

3. The management system of Branch A is imperfect, lacking mutual restriction and supervision mechanism, and failing to effectively supervise the usance letter of credit. This is mainly manifested in the following two points:

(l) The power of the manager of the international business department is too centralized and there is no mutual supervision mechanism. The foreign exchange credit department and the international settlement department of branch A belong to the international business department. The acquisition of enterprise credit line and the issuance of letter of credit are within the limit of $3 million, as long as it is approved by the general manager of international business department. In addition, the position of the head of foreign exchange business is relatively fixed. It is understood that the general manager of the international settlement business department of branch A has worked in the international department for nearly ten years, and it is difficult to find out his irregularities early.

(2) There is no maximum approved foreign exchange credit line for a single customer. According to reports, in recent years, the task of the foreign exchange credit department is mainly to collect overdue loans and rarely issue new foreign exchange loans. The scale of foreign exchange credit for individual enterprises has not been controlled. Because there is no quantitative index to control the total amount, the unpaid amount under the letter of credit of branch A is huge, far exceeding the bank's tolerance.

Third, the impact and lessons of the case

First of all, due to poor management, insufficient solvency and imperfect guarantee procedures for opening letters of credit, it has caused great advance risks to banks. In this case, the branch made an advance of $45 million, which directly triggered its own foreign debt risk and caused operational difficulties.

Secondly, by opening a letter of credit with no trade background, the raised funds will be used for real estate, investment factories, stock trading, futures and other investment hotspots, which is extremely risky. These practices are actually using forward letters of credit to borrow money in disguise. According to the provisions of the People's Bank of China: "Commercial banks open forward letters of credit with a term of 1 year or more, which belong to capital projects; /kloc-The balance of forward letters of credit less than 0/year and more than 3 months is included in the foreign debt statistics, but it does not occupy the foreign exchange short-term loan index. " In this case, Branch A bypassed the regulations of the People's Bank of China, opened a forward letter of credit within 90 days for the enterprise to carry out short-term capital financing, and extended the overseas financing of the enterprise by using bank credit, thus repeatedly circulating, short-term financing and long-term occupation to achieve the purpose of long-term use of short-term debt. This kind of behavior violates China's policy of utilizing foreign capital, and is not conducive to China's foreign exchange management.

In addition, opening letters of credit without trade background also facilitates illegal arbitrage and arbitrage, which seriously disrupts the virtuous circle of China's economy. The occurrence of the above cases has taught us a profound lesson. In recent years, similar violations have occurred in other domestic banks, which fully shows that there are still weak links in the construction of internal control mechanism in China's banking system, and it is urgent to strengthen the risk management of forward letters of credit.

First of all, banks should strengthen the risk management of forward letters of credit and strengthen the standardized management of forward letters of credit. The author puts forward the following suggestions:

(1) Control the opening scale of forward letters of credit. According to the asset-liability ratio, financial strength and credit rating of banks at all levels, the total scale and authority of opening forward letters of credit should be determined, that is, the maximum amount of a single letter of credit and the longest period of opening letters of credit. Because according to international trade practice, normal international trade settlement is usually completed within 60 days. If it exceeds 90 days or 180 days, and the amount is large, many people tend to raise funds in the name of trade. Therefore, banks at all levels should strictly control the opening of forward letters of credit and establish corresponding grading examination and approval system to avoid financing under the background of meta-trade.

(2) Strict internal management and unified credit system. Each head office shall establish and improve its internal management and system, especially the credit system. Clarify the risk balance of branches at all levels, and require all branches to truthfully and timely report the statistical statements of forward letter of credit business in order to strengthen internal supervision. At the same time, each issuing bank must strictly examine the applicant's recent operation, credit standing, asset quality, debt status and solvency. , and refer to the credit management review procedures and systems to verify the maximum credit limit of each customer. When establishing the authorization system, we should consider the factors of mutual restriction and mutual supervision to form an effective supervision mechanism. The authorization system should be matched with the relevant management system, and the authorization of the supervisor should be combined with his management ability and talent, and his responsibilities should be clarified at the same time.

(3) Strictly apply for issuing L/C and strengthen the management of deposit. For usance letters of credit, full deposit must be implemented or guarantee measures with the same effect must be taken. The margin collection ratio is closely related to the importer's credit status, business style, financial strength and market conditions. For those with greater risks, a deposit of more than 100% must be implemented. The deposit must be managed in a special account and used for special purposes, and shall not be withdrawn in advance or used for other purposes. If witnesses and beneficiaries are associated with the same legal person or parent company, and letters of credit are frequently opened, and overseas beneficiaries are relatively fixed, their authenticity should be carefully and strictly examined. When opening a letter of credit, we should increase the margin ratio, implement effective guarantee and mortgage procedures, and pay attention to the legality, operating status, credit standing, asset flow and liquidity of the guarantor's guarantee mortgage. If the enterprise is unable to pay, it is strictly forbidden to issue a new certificate with the old one, and turn the actual advance into a hidden advance.

(4) Strengthen the training and management of bank employees and supervisors. Banks should strengthen the training of letter of credit practitioners and supervisors in conjunction with foreign exchange bureaus, customs and other departments, and make them understand and strictly implement the national foreign exchange, foreign trade, customs and banking policies through case analysis, seminars, lectures and other forms, be familiar with the relevant provisions of the International Chamber of Commerce, and overcome blind competition and arbitrariness in implementing policies. In addition, we should strengthen professional ethics education, intensify internal inspection, and implement a rotation system for foreign exchange business executives to prevent violations. Secondly, improve the laws and regulations on the supervision of forward letters of credit. Standardize the letter of credit business behavior through laws and regulations.

(1) Further strengthen the management of verification of import payment of foreign exchange under letters of credit. For those who use letters of credit with no trade background to finance overseas and repay overseas through extraordinary channels without verification, computerized management should be realized and the tracking management mechanism of import foreign exchange payment filing form under letters of credit should be improved.

(2) Strengthen off-site supervision of letter of credit business. At present, due to the imperfect management of long-term letters of credit by the foreign exchange bureau, there are still loopholes in the business statements of long-term letters of credit used for off-site supervision. From the statements, it is difficult to find that banks only open letters of credit without payment, and open letters of credit in a rolling way. Therefore, we should improve the various systems of letter of credit management as soon as possible, improve the current supervision report of forward letter of credit business, increase and refine the contents of the report, so that the off-site supervision of letter of credit business can also play its due role and find potential risks as soon as possible.