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Transferable Letter of Credit Precautions

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Please explain the precautions which should be used when issuing a transferable letter of credit.

This LC product allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary payee (bene), provided partial draws are allowed. So long as the bank has this information in advance and has a Note/obligation which mirrors these terms it is doable, but there is an increase or work and potentially risk when the bank doesn't know the payee (bene) who could be on an OFAC list. Additionally, the Note needs to allow partial draws which increases the work required. Systems need to be able to handle this but if it is a popular request and the fee is sufficient to make it profitable, any risks could be managed.

First published on 10/18/2020

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