Article 1 establishes the scope of UCP 600. The rules apply to any documentary credit, including, to the extent applicable, any Standby Letter of Credit, when the text of the credit expressly indicates that it is subject to these rules. UCP 600 is binding on all parties unless expressly modified or excluded by the credit itself.

This article makes clear that UCP 600 is not automatically applicable to every LC. It must be incorporated by express reference. Most LCs in international trade include a standard clause such as: "This documentary credit is subject to the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600."

Where a credit is issued subject to UCP 600, the rules govern all obligations and procedures unless the credit specifically modifies or excludes a particular article. Banks, applicants, and beneficiaries can therefore rely on a consistent framework when UCP 600 is incorporated.

Article 2 provides the key definitions used throughout UCP 600. Understanding these definitions is essential to interpreting every other article correctly.

• Advising Bank: The bank that advises the credit at the request of the issuing bank.
• Applicant: The party on whose request the credit is issued, typically the importer or buyer.
• Banking Day: A day on which a bank is regularly open at the place where an act subject to UCP 600 is to be performed.
• Beneficiary: The party in whose favour a credit is issued, typically the exporter or seller.
• Complying Presentation: A presentation that accords with the terms and conditions of the credit, the applicable provisions of UCP 600, and international standard banking practice.
• Confirmation: A definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.
• Confirming Bank: The bank that adds its confirmation to a credit upon the issuing bank's authorisation or request.
• Credit: Any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.
• Honour: To pay at sight if the credit is available by sight payment; to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment; or to accept a bill of exchange drawn by the beneficiary and pay at maturity.
• Issuing Bank: The bank that issues a credit at the request of an applicant or on its own behalf.
• Negotiation: The purchase by the nominated bank of drafts and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
• Nominated Bank: The bank with which the credit is available, or any bank in the case of a credit available with any bank.
• Presentation: Either the delivery of documents under a credit to the issuing bank or nominated bank, or the documents so delivered.
• Presenter: A beneficiary, bank, or other party that makes a presentation.

Article 3 provides interpretive rules for several terms that frequently appear in LC conditions. These interpretations apply automatically unless the credit modifies them.

• Where a credit is not stated to be revocable or irrevocable, it is deemed irrevocable.
• A document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol, or any other mechanical or electronic method of authentication.
• A requirement for a document to be legalised, visaed, certified, or similar will be satisfied by any signature, mark, stamp, or label on the document appearing to satisfy that requirement.
• Branches of a bank in different countries are considered to be separate banks.
• "On or about" means a date within five calendar days before or after the specified date, inclusive.
• Words such as "prompt," "immediately," and "as soon as possible" will be disregarded.
• "To," "until," "till," "from," and "between" when used to determine a period of shipment include the date mentioned.
• "Before" and "after" exclude the date mentioned.
• "First half" and "second half" of a month mean the 1st to 15th and 16th to last day inclusive.
• "Beginning," "middle," and "end" of a month mean the 1st to 10th, 11th to 20th, and 21st to last day inclusive.

Article 4 establishes the independence principle, one of the most fundamental concepts in LC law. A credit is by its nature a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contracts, even if any reference to them is included in the credit.

This means that an issuing or confirming bank's obligation to honour a complying presentation is entirely independent of any dispute between the applicant and the beneficiary regarding the underlying sale contract. If the documents comply with the LC terms, the bank must pay. The buyer cannot instruct the bank to withhold payment simply because the goods are defective or the seller has breached the contract.

The only recognised exception in international practice, and one not created by UCP 600 itself, is fraud. Courts in many jurisdictions will restrain payment under an LC where fraud on the part of the beneficiary is clearly established. However, banks themselves have no obligation under UCP 600 to investigate fraud allegations.

Article 5 reinforces the document principle: banks deal with documents and not with goods, services, or performance to which the documents may relate. This complements Article 4's independence principle.

A bank examining a presentation is not required or expected to verify whether the goods described in the documents actually exist, are of the quality described, or have been delivered. The bank's sole obligation is to examine the documents on their face to determine whether they constitute a complying presentation.

This creates an important risk allocation: the LC is not a guarantee of contract performance. It is a guarantee of payment against specified documents. The applicant must ensure the LC terms are drafted sufficiently precisely to require documents that provide adequate evidence of performance, because the bank will not look beyond the documents themselves.

Article 6 sets out the core mechanics of how and where an LC can be used. A credit must state the bank with which it is available and whether it is available by sight payment, deferred payment, acceptance, or negotiation.

A credit available with any bank is also available with the issuing bank. A credit must not be issued available by a draft drawn on the applicant.

Expiry: A credit must state an expiry date for presentation. An expiry date for honour or negotiation will be construed as an expiry date for presentation. The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank.

Expiry at the issuing bank: Except where a credit is available with the issuing bank, a credit must also stipulate a place for presentation at the issuing bank in addition to the place of the nominated bank.

Article 7 defines the issuing bank's primary obligation. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and they constitute a complying presentation, the issuing bank must honour.

If the credit is available by sight payment with the issuing bank, it must honour at sight. If by deferred payment, it must incur a deferred payment undertaking and pay at maturity. If by acceptance, it must accept a draft drawn on it and pay at maturity. If by negotiation, it must reimburse a nominated bank that has honoured or negotiated a complying presentation.

An issuing bank is irrevocably bound to honour from the time it issues the credit. This is the source of the LC's commercial value: the issuing bank's undertaking is independent and unconditional, provided documents comply.

Article 8 defines the confirming bank's obligation, which mirrors that of the issuing bank under Article 7. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and they constitute a complying presentation, the confirming bank must honour or negotiate.

A confirming bank is irrevocably bound to honour or negotiate from the time it adds its confirmation. The confirming bank undertakes to the beneficiary independently of the issuing bank. This is commercially significant: if the issuing bank fails or is unable to pay, the confirming bank remains obligated.

Where a bank is authorised or requested to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.

Article 9 governs the advising bank's role. An advising bank advises the credit and any amendment at the request of the issuing bank. By advising, the bank signifies that it is satisfied as to the apparent authenticity of the credit and that the advice accurately reflects the terms of the credit received.

Critically, advising does not constitute any undertaking to honour or negotiate. An advising bank takes no payment obligation; it simply communicates the credit to the beneficiary. This distinguishes an advising bank from a confirming bank.

If a bank is requested to advise a credit but elects not to do so, it must inform the issuing bank without delay. If a bank uses the services of an advising bank, it must use the same bank to advise any amendments.

Article 10 governs the amendment of LCs. A credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any), and the beneficiary.

An issuing bank is irrevocably bound by an amendment from the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound from the time it advises the amendment. A confirming bank may choose to advise an amendment without extending its confirmation, in which case it must inform the issuing bank without delay and inform the beneficiary.

The beneficiary must notify acceptance or rejection of the amendment. Partial acceptance is not allowed. If the beneficiary does not give notification, a presentation that complies with the credit as amended will be treated as notification of acceptance.

Article 11 addresses the effect of LCs transmitted by authenticated teletransmission (e.g., authenticated SWIFT messages). An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or amendment, and any subsequent mail confirmation will be disregarded.

If a teletransmission states "full details to follow" or similar, it is deemed to be a pre-advice and is not operative until the operative credit is received. Banks must not act on the pre-advice alone.

In practice, nearly all international LCs are issued via SWIFT MT700 messages. The authenticated SWIFT message constitutes the operative credit and the paper original is not required.

Article 12 addresses the nomination of banks and their obligations. Unless a nominated bank is the confirming bank, an authorisation to honour or negotiate does not impose any obligation on that bank to do so.

By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorises that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank.

Receipt or examination and forwarding of documents by a nominated bank does not make that bank liable to honour or negotiate. The nominated bank's only obligation arises if it has added confirmation or if it elects to act on its nomination.

Article 13 governs reimbursement arrangements between banks. If a credit states that reimbursement is to be obtained by a nominated bank claiming on another party (a reimbursing bank), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issue of the credit.

If a credit does not indicate that reimbursement is subject to the ICC reimbursement rules, the issuing bank is required to provide a reimbursement undertaking to the reimbursing bank and the reimbursing bank's charges are for the account of the issuing bank.

An issuing bank is not relieved of any of its obligations by a reimbursing bank's failure to reimburse a nominated bank. The issuing bank ultimately bears the obligation to reimburse, regardless of whether its reimbursing bank performs.

Article 14 is one of the most operationally significant articles in UCP 600. It establishes the standard by which banks examine documents.

A nominated bank acting on its nomination, a confirming bank (if any), and the issuing bank must each examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation. The maximum period for examination is five banking days following the day of presentation.

A document presented but not required by the credit will be disregarded and may be returned to the presenter. Data in a document, when read in context with the credit, the document itself, and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document, or the credit.

Important interpretive rules in Article 14:

• A document may be dated prior to the issuance date of the credit but not later than its date of presentation.
• The description of the goods in the commercial invoice must correspond with that in the credit. In all other documents, goods may be described in general terms not inconsistent with the credit.
• If a credit requires presentation of a transport document, an insurance document, or a commercial invoice, but does not specify the issuer, any document will be accepted if it appears on its face to satisfy the credit terms.
• A document not required by the credit need not bear a date or a signature.
• An address on a document need not be the same as that stated in the credit, but must be in the same country. Contact details need not be related to those stated in the credit.

Article 15 states the payment obligation in its simplest form. When an issuing bank determines that a presentation is complying, it must honour. When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank. When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.

This article establishes the chain of obligation: once compliance is determined, payment is mandatory. There is no discretion for the bank once it has determined that documents comply.

Article 16 is the most operationally critical article for exporters and their banks. When a nominated bank, confirming bank, or issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

A bank that decides to refuse must give a single notice to that effect to the presenter. The notice must state each discrepancy in respect of which the bank refuses to honour or negotiate, and state that the bank is either holding the documents pending further instructions from the presenter, or returning the documents, or acting in accordance with instructions previously received from the presenter.

The notice of refusal must be given by telecommunication or, if not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation. If a bank fails to give notice of refusal within the five banking day period, it loses the right to claim that the documents do not constitute a complying presentation.

If the issuing bank or confirming bank refuses to honour and the applicant wishes to waive the discrepancies, the bank may, but is not obligated to, approach the applicant for a waiver. A waiver by the applicant does not bind the bank. The bank must make its own decision whether to honour notwithstanding discrepancies.

Article 17 addresses what constitutes an "original" document, a question that caused significant disputes under UCP 500.

At least one original of each document stipulated in the credit must be presented. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original.

Unless a document indicates otherwise, a bank will also accept a document as original if it appears to be written, typed, perforated, or stamped by the document issuer's hand; appears to be on the issuer's original stationery; or states that it is original.

If a credit requires presentation of copies of documents, presentation of originals satisfies the requirement. If a credit requires multiple copies (e.g., "3 copies of the packing list"), one original and additional copies satisfies the requirement unless the credit specifically requires multiple originals.

Article 18 sets out the requirements for the commercial invoice. A commercial invoice must appear to have been issued by the beneficiary (except in transferable credits). It must be made out in the name of the applicant (except in transferable credits). It must be made out in the same currency as the credit. It need not be signed.

The description of the goods, services, or performance in the commercial invoice must correspond with that appearing in the credit. This is the strictest document requirement in UCP 600; the invoice description must match the credit precisely, whereas other documents need only be consistent with the credit in general terms.

If the credit states a unit price, the invoice must reflect that price. If the credit specifies a quantity, the invoice must reflect the quantity shipped (subject to tolerance rules in Article 30). If the credit permits partial shipments, the invoice may reflect the partial quantity and amount.

Article 19 applies where the credit calls for a multimodal transport document (also called a combined transport document) covering at least two different modes of transport. Such a document must indicate the name of the carrier and be signed by the carrier, a named agent, or the master.

The document must indicate that the goods have been dispatched, taken in charge, or shipped on board at the place stated in the credit. The date of dispatch, taking in charge, or on board is deemed to be the date of shipment. If the document contains the notation "intended vessel" or similar, an on-board notation indicating the vessel and the date of shipment is required.

A multimodal transport document need not contain a reference to the condition of the goods or packaging unless the credit specifically calls for "clean" transport documents, in which case the document must not bear any notation indicating damage or defect.

Article 20 is the most frequently applied transport article. It governs bills of lading covering port-to-port shipment. A bill of lading must indicate the name of the carrier and be signed by the carrier or a named agent of the carrier, or by the master or a named agent of the master. Any signature by a carrier, master, or agent must be identified as that of the carrier, master, or agent, as the case may be.

The bill of lading must indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit. This is accomplished either by preprinted wording on the B/L indicating that the goods have been shipped on board a named vessel, or by an on-board notation indicating the date on which the goods have been shipped on board.

The bill of lading must indicate the port of loading and port of discharge stated in the credit. It must be the sole original B/L, or if issued in more than one original, the full set as indicated on the B/L. It must contain the terms and conditions of carriage or make reference to another source containing the terms and conditions.

A bill of lading may contain reference to a charter party. If so, it falls under Article 22 rather than Article 20.

Article 21 applies where the credit calls for a non-negotiable sea waybill. The requirements mirror those for a bill of lading under Article 20, with the key difference that a sea waybill is non-negotiable and does not confer title to goods and cannot be transferred by endorsement.

A sea waybill must indicate the carrier's name and be appropriately signed. It must show that goods have been shipped on board at the port of loading stated in the credit. It must indicate the port of loading and port of discharge and must contain the terms and conditions of carriage.

Sea waybills are commonly used in trade between affiliated parties or where the buyer does not require a title document because payment has already been made or the goods are being shipped to the buyer's own subsidiary.

Article 22 applies where the credit calls for or permits a charter party bill of lading. A charter party B/L must be signed by the master, named agent, or charterer, and the signer must be identified. Any signature of an agent must indicate whether it is acting on behalf of the master or charterer.

The date of shipment on a charter party B/L is determined in the same manner as under Article 20, either by preprinted wording or on-board notation. Banks do not examine the underlying charter party, even if the charter party is stipulated in the credit. The terms of the charter party are invisible to the bank.

Article 23 governs air waybills and similar air transport documents. An air transport document must indicate the name of the carrier and be signed by the carrier or a named agent of the carrier. It must indicate that the goods have been accepted for carriage.

The date of issuance of the air transport document is deemed to be the date of shipment unless the document contains a specific notation of the actual date of dispatch, in which case the date stated in that notation is the shipment date. This is an important distinction from ocean transport.

An air transport document must indicate the airport of departure and destination stated in the credit. Where the credit calls for an "original" air waybill, the document marked "original for shipper" or similar will be accepted.

Article 24 applies to road, rail, and inland waterway transport documents (such as CMR consignment notes, CIM rail waybills, or river waybills). These documents must indicate the name of the carrier and be signed by the carrier or a named agent, or bear a stamp or notation of receipt by the carrier or named agent.

The date of shipment is the date of dispatch, taking in charge, or receipt of goods as indicated on the document. If the document bears a stamp or notation of receipt, that date is the shipment date. In the absence of any date, the document's issue date is the shipment date.

An original road transport document is the original for the consignor. However, banks will accept a document marked as the original for the shipper or consignor as well as copies if the credit does not require originals.

Article 25 applies to courier receipts, post receipts, and certificates of posting. A courier receipt must indicate the name of the courier service, be stamped or signed by the named courier service, and indicate the date of pickup or receipt. The date of pickup or receipt is the date of shipment.

A credit requiring a post receipt or certificate of posting is satisfied by a document that is stamped or signed by the postal service showing the date of acceptance. No signature or stamp is required on a post receipt where the credit calls only for evidence of mailing.

Article 26 addresses specific transport document notations. A transport document must not indicate that the goods are or will be loaded on deck. A clause stating that the goods may be loaded on deck is acceptable.

A statement on a transport document such as "shipper's load and count" or "said by shipper to contain" is acceptable. This means that the carrier is not verifying the contents of containers packed by the shipper. Such notations do not constitute a discrepancy.

A transport document may bear reference to charges additional to freight, such as cost or expenses relating to loading, unloading, or similar operations. If a credit prohibits additional charges, the transport document must not show any such charges.

Article 27 defines a "clean" transport document. A bank will only accept a clean transport document. A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging.

The word "clean" need not appear on the transport document even if the credit has a requirement for a "clean on board" document.

Clauses or notations such as "packaging insufficient," "goods damaged prior to loading," or "one package damaged" are examples of unclean notations that will render a transport document discrepant. A notation stating "not responsible for rust" without reference to damaged goods is generally not considered unclean.

Article 28 sets out requirements for insurance documents presented under LCs. An insurance document must appear to be issued and signed by an insurance company, underwriter, or their agents or proxies.

If the credit requires an insurance policy, a cover note or broker's certificate is not acceptable. The insurance document must be dated no later than the date of shipment unless the document indicates that cover is effective from a date no later than the date of shipment.

The insurance document must be in the same currency as the credit. If no minimum coverage percentage is stated, the insurance must be for at least 110% of the CIF or CIP value of the goods. If the CIF or CIP value cannot be determined from the documents, the coverage must be at least 110% of the amount for which honour or negotiation is requested.

A credit may require all risks coverage, which means the document must include coverage for "all risks", either by that specific wording or by the standard Institute Cargo Clauses (A). A credit requiring "usual risks" or "customary risks" will be satisfied by an insurance document without regard to any exclusions.

Article 29 provides an automatic extension rule. If the expiry date of a credit or the last day for presentation falls on a day when the bank to which presentation is to be made is closed for reasons other than those referred to in Article 36 (force majeure), the expiry date or the last day for presentation will be extended to the first following banking day.

A nominated bank to which presentation is made on such an extended banking day must provide the issuing bank or confirming bank with a statement that the presentation was made within the time limits extended in accordance with this article.

This article does not extend the latest shipment date. If the last day for shipment falls on a non-banking day or a bank holiday, the shipment deadline is not extended, and only the presentation deadline benefits from the extension.

Article 30 provides important tolerance rules for quantity and amount.

Amount tolerance: The words "about" or "approximately" used in connection with the amount, quantity, or unit price of the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, quantity, or unit price to which they refer.

Quantity tolerance: A tolerance not to exceed 5% more or 5% less than the quantity of goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of drawings does not exceed the amount of the credit.

Reduced drawing: Even when partial shipments are not permitted, a tolerance of 5% less than the credit amount is allowed, provided that the quantity of goods shown on the transport documents is shipped in full and a unit price is not stipulated in the credit or, if the credit does stipulate a unit price, that unit price is not reduced.

Article 31 governs partial drawings and shipments. Partial drawings or shipments are allowed unless the credit prohibits them. Presentations of more than one set of transport documents covering shipment from the same port on the same vessel on the same voyage will not be regarded as partial shipments, even if the documents indicate different dates of shipment or different ports of loading, discharge, or final destination, provided the documents indicate the same destination.

Shipment on more than one conveyance within the same mode of transport is a partial shipment, even if the conveyances leave on the same day for the same destination.

The same rule applies in reverse to partial drawings: partial drawings are permitted under a credit unless expressly prohibited. Many LCs in practice permit partial shipments to give the seller operational flexibility.

Article 32 creates a strict rule for instalment credits. If a credit calls for drawing or shipment by instalments within given periods and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalment.

This is an automatic and unforgiving rule. If the seller misses one instalment window, even by one day, not only that instalment but all remaining instalments become unavailable for drawing. No bank discretion is involved. The credit simply ceases to be available.

Article 33 states that a bank has no obligation to accept a presentation outside of its banking hours. Banks are not required to remain open beyond their normal business hours to accept presentations.

Where a credit specifies a place of expiry and the place is the bank's counters, the bank is entitled to refuse a presentation made after its normal closing time, even if made before midnight on the expiry date. Beneficiaries must plan to present documents during banking hours, not merely before midnight.

Article 34 provides that a bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification, or legal effect of any document. Banks are similarly not responsible for the general or particular conditions stipulated in documents, or for the description, quantity, weight, quality, condition, packing, delivery, value, or existence of goods, services, or other performance represented by any document.

This article reinforces the document principle of Articles 4 and 5. Banks examine documents on their face only. They are not investigators. If a document is fraudulent on its face but appears genuine, the bank's payment obligation under a complying presentation is not affected by the fraud.

The practical consequence is that applicants bear the risk of document fraud. The LC mechanism provides payment certainty for the beneficiary against complying documents, but does not protect the applicant against fraudulent documents that appear compliant.

Article 35 provides that a bank assumes no liability or responsibility for consequences arising out of delay, loss in transit, mutilation, or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters, or documents are transmitted or sent according to the requirements stated in the credit.

A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit credit terms without translating them. Banks that forward documents to another bank do so on behalf of the presenter, and the forwarding bank assumes no liability if the documents are lost in transit.

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, the nominated bank is entitled to reimbursement regardless of whether documents are lost in transit between banks.

Article 36 provides that a bank assumes no liability or responsibility for consequences arising out of the interruption of its business by acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, cybersecurity attacks, or any other causes beyond its control, or by strikes or lockouts.

A bank will not, upon resumption of business, honour or negotiate under a credit that expired during such interruption. This is a firm rule: if the LC expires while the bank is closed due to force majeure, the credit expires. There is no automatic extension for force majeure, unlike for routine bank closures under Article 29.

This distinction is important: a routine bank holiday triggers the Article 29 extension; a force majeure closure does not. Beneficiaries should ensure presentation well in advance of expiry to avoid this risk.

Article 37 addresses the liability of a bank for the instructions it transmits to another bank. A bank that uses the services of another bank to give effect to the applicant's instructions does so for the account and at the risk of the applicant.

An issuing bank or advising bank assumes no liability or responsibility for the failure of instructions given by it to other banks to be carried out, even if the issuing bank itself selected those banks. Charges of nominated banks, confirming banks, advising banks, and reimbursing banks are for the account of the applicant unless the credit states otherwise. If the credit states that charges are for the beneficiary's account and they cannot be collected, they remain for the applicant's account.

The issuing bank is only responsible for paying the fees of the nominated or confirming bank if the credit has specified that the issuing bank will cover those charges.

Article 38 is the most detailed article in UCP 600, addressing the mechanics of transferable LCs, a common structure in commodity trading and middleman transactions.

A credit can be transferred only if it is expressly designated as "transferable" by the issuing bank. A transferable credit may be made available in whole or in part to one or more second beneficiaries at the request of the first beneficiary. A bank transferring the credit is called the "transferring bank." A transferring bank is not obligated to transfer a credit except to the extent and in the manner expressly consented to by that bank.

Key rules for transferable credits:

• A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered a second beneficiary.
• The transferred credit must accurately reflect the terms and conditions of the original credit, except that the amount and unit price may be reduced, the expiry date may be brought forward, the last date for presentation may be brought forward, the period for shipment may be reduced, and the name of the applicant may be substituted for that of the first beneficiary.
• The first beneficiary has the right to substitute its own invoice and draft (if any) for those of a second beneficiary for an amount not in excess of that stipulated in the original credit and for the original unit price if stipulated in the original credit.
• If the first beneficiary is to present its own invoice but fails to do so on first demand, the transferring bank has the right to present the received documents to the issuing bank without further responsibility to the first beneficiary.

Article 39 addresses the assignment of LC proceeds. The fact that a credit is not stated to be transferable does not affect the right of the beneficiary to assign any proceeds to which it is or may become entitled under the credit, in accordance with the provisions of applicable law.

Assignment of proceeds is fundamentally different from a transfer of credit. A transfer conveys the right to draw under the LC to the second beneficiary. An assignment of proceeds conveys only the right to receive the payment proceeds; the original beneficiary remains the only party with the right to present documents and draw under the LC.

Assignment of proceeds is commonly used in financing arrangements where the beneficiary assigns its expected LC proceeds to its bank or another financier as security for a credit facility. The LC itself remains with the original beneficiary; only the right to receive the money is assigned.