Bank Criminal Act: Case of Fraud Using Letter of Credit-Bank as a Victim

Leng, Pwee and Hugan, Handjaya Andrew (2018) Bank Criminal Act: Case of Fraud Using Letter of Credit-Bank as a Victim. Chinese Business Review, Volume (Number). pp. 105-154. ISSN 1537-1506

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Abstract

Letter of Credit (L/C) is a payment method offered by bank for settling the foreign trade. The existence of L/C is a means capable of providing guarantee for the interests of the sellers and buyers. In the event of default by either party, either the seller or the buyer, the bank as the L/C issuer will provide payment guarantee for the seller or the waiver of payment for the buyer. The bank�s risk in issuing the L/C is regarding with the weakness of L/C. In Article 5 of UCP 600, it is emphasized that in transactions using L/C, banks deal only with documents, not dealing with goods, or other implementation. In Article 14a of UCP 600 it is affirmed that the L/C payments are based on the suitability between the L/C requirements and the submitted documents viewed under �on their face�. The bank authority as the guarantor which only deals with the documents in making payments causing the L/C instrument is often used in fraud against the bank. Many banking fraud cases that occur in Indonesia take advantage of L/C weakness. This paper will discuss the occurrence of criminal acts in the banking by exploiting weaknesses in the L/C that makes the bank as a victim. In addition, this paper aims to explain the effort to overcome the criminal acts that occurred at the issuing bank as a victim by using L/C. The discussion in this paper emphasized the application of laws and regulations applicable to indict the perpetrators of criminal acts in the banking sector by exploiting weaknesses of L/C. Aspects of the discussion of a criminal offense are based on the Act No. 10 of 1998 concerning banking, and under the provisions of the Criminal Code.

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