By Chris Lidberg email
| bio
My last
article covered transferable letters of credit (LC) and
how they may be a more acceptable alternative to a back-to-back
letter of credit. This article is going to cover another alternative:
an Assignment of Proceeds.
Again, let’s assume that we have a buyer,
a broker/middleman, and a supplier/manufacturer. At the request
of the broker, a buyer applies for a letter of credit, but this
time there is no mention of the letter of credit needing to
be transferable. The letter of credit is issued, sent to the
advising bank who in turn advises it to the beneficiary, also
known as the broker or middle man.
The beneficiary knows that their supplier wants
some type of assurance that they will be paid, but the beneficiary
wants to maintain a maximum amount of control over the transaction.
An Assignment of Proceeds might just be the answer.
Once the letter of credit is received, the
beneficiary would approach their bank with the original letter
of credit in hand and ask that a specific value of the original
letter of credit be assigned to the supplier. For example, if
the LC was issued for $45,000, the request for the assignment
might be $30,000.
The bank will require the original letter of
credit be presented along with the written request for the assignment.
The bank needs the original LC so it can endorse the backside
of the LC indicating that an assignment has been made to the
named party and the value of the assignment. Remember, most
letters of credit are freely negotiable, meaning that the beneficiary
could present documents to any bank. By endorsing the LC, any
bank that might receive documents will know that an assignment
has been made.
Once the endorsement is taken care of, the
bank will issue a document or letter titled Assignment of Proceeds
addressed, in this case, to the supplier. The content of this
document will indicate that an assignment of proceeds has been
made in their favor with a stated value. It will also indicate
that if and when payment is made under the letter of credit,
payment will automatically be made under the assignment.
Now that the supplier is holding the Assignment
of Proceeds they may feel confident that they will receive payment
and release the merchandise to the middleman/beneficiary. If
all goes according to plan, the beneficiary arranges shipment,
obtains the documents necessary to draw against the LC, presents
these documents to the bank, and the bank makes payment to both
the beneficiary and to the holder of the assignment of proceeds.
Again, this may sound like the perfect solution
for the buyer, broker/middleman and supplier, but could something
go wrong with this approach? Unfortunately, yes.
With the Assignment in place, once the supplier
turns over the merchandise to the broker/middleman, the supplier
does lose control of the transaction. Worst case scenario would
be that the supplier goes ahead and ships the merchandise to
the buyer but also contacts them proposing that they not use
the LC as the method of payment. They might even suggest that
instead of the LC, they would be happy to offer open account
terms. They may propose that after the buyer has received the
merchandise, they could wire transfer payment.
The buyer, not knowing that an assignment of
proceeds has been issued, may be thrilled at the prospect of
not having to pay their bank an examination fee under the LC
and embrace the open account proposal.
Meanwhile, we have the supplier sitting back
patiently waiting for payment. After two or three weeks, they
may contact the bank asking about the status of payment against
the assignment only to hear that documents have yet to be presented
against the letter of credit. The supplier will be referred
to the line in the assignment of proceeds that payment will
be made to them if and when payment under the letter of credit
is made.
The supplier then tries to contact the
broker/middleman, only to find out that the phone has been disconnected
and they appear to have left town. The supplier’s prospect
for payment at this point isn’t very good. For this very
reason, suppliers or manufacturers may shy away from this arrangement.
It’s never a perfect world!
A new report published this month by
the Bureau
of Industry & Security (BIS) lists nearly $15
million in criminal and civil penalties levied against
exporters for violating U.S. Export Administration Regulations
during the just completed 2005 fiscal year.
According
to the publication entitled Major
Cases List, BIS's Office of Export Enforcement
investigations successfully resulted in 31 criminal convictions
and criminal fines totaling $7.7 million, imposed $6.8
million in administrative penalties, and issued 31 export
denial orders and other sanctions. Some of the notable
penalties include:
BNC Corp. (formerly
Berkeley Nucleonics Corporation) of San Rafael, California,
received five years probation, a $300,000 criminal fine,
and a $150 administrative penalty for exporting pulse
generators to India without the required export license.
In addition, two employees received two years probation,
$1,000 fines, 1,000 hours of community service, and bans
from future exporting for their roles in the export transaction.
Fiber Materials of Maine;
its wholly owned subsidiary, Materials International of
Massachusetts; and the companies' two top officers were
sentenced for conspiracy and export vialtions related
to unlicensed exports to India. Fiber Materials and the
two officers were each fined $250,000, and the officers
were also sentenced to community confinement and/or home
detention.
Two employees of Azure Systems,
Inc., were sentenced to three years probation
for misclassifying products exported to China on their
export documents.
Wilden Pump and Engineering Co.,
LLC of Grand Terrace, California, paid a $700,000 civil
penalty for 26 shipments of diaphragm pumps to Iran, China,
Syria and UAE without the required export license and
for making false statements on its export control documents.
The sales director of United
Calibration Corporation of Huntington Beach,
California, pled guilty to attempting to illegally export
machinery and related software to Iran in violation of
the U.S. embargo. Sentencing is pending.
E.D. Bullard of Cynthiana,
Kentucky, paid a $330,000 civil penalty for exporting
and re-exporting thermal imaging cameras to Austria, the
Czech Republic, France, Germany, Israel, Spain, Switzerland
and Venezuela without the required export license and
for making false statements on the Shipper's Export Declaration.
Bass Pro, Inc. paid
a $510,000 administrative penalty for exporting unlicensed
gun sights to a range of destinations.
Top
of Page
By Catherine J. Petersen email
| bio
There has been quite a bit of discussion regarding
the revision of the Uniform Commercial Code (UCC) Articles 2 and
2A during the past year that would delete the use of the term
FOB in domestic transactions. The traditionally used term FOB
or Free on Board would be replaced with Incoterms 2000.
It appears that this may be an optimistic view
by some. The 2002 National Conference of Commissioners on Uniform
State Laws issued proposed
amendments to the UCC Articles 2 and 2A. However, it doesn't
appear that there is specific language in the proposed amendments
that would incorporates Incoterms, although the amendments propose
to delete current sections 2-319 to 2-324 "in light of commercial
practices."
No state has enacted the amendments. The two
states that have considered their adoption—Kansas and Nevada—have
not done so at this time. See the Nevada
Legislature website and the ContractsProf
Blog for more information.
For a more complete discussion of this topic,
you can read
my article in the October 2005 issue of this newsletter.
Top of Page
Thousands of successful exporters are using Shipping
Solutions to complete their export documents faster, easier and
less expensively than ever before. Why aren't you?
If you're too busy trying to complete your export
documents by hand to spend some time reviewing the Shipping Solutions
Professional export documentation and compliance software yourself,
let us do it for you! Sign
up for one of our free online
demos and let us give you a one-hour overview of the software.
We'll take you step-by-step through the process
of completing your export forms, filing your SEDs electronically
through AES, and checking your exports against the various government
restricted parties lists and export regulations to make sure your
shipments are in compliance, and you—and your company—stay
out of trouble.
These free online demos are available
on Tuesday's at 1:00 Central Time. All you need is an Internet
connection to watch the demo and a phone to listen in and ask
questions about the software. It's the perfect opportunity to
get your first view of Shipping Solutions or to convince your
coworkers and your boss that Shipping Solutions is the perfect
solution for your company.
See why Shipping Solutions is America's
#1 export software. Sign
up for the free online demo today!
Top
of Page
|
