No Paper Title Author Name Page No

MERICAN Journal of Public Diplomacy and International Studies
www.
 grnjournal.us 
 
In the form of a scheme, the interaction of participants in settlements under a letter of credit 
consists of four stages. The first is the payer's order to the issuing bank to open a letter of credit 
with payment instructions. In order to prevent unforeseen circumstances, a separate account is 
opened in the payer's bank to account for letters of credit received by the banking institution, and 
a balance account is opened under the number 22602 "Customer deposits on letters of credit". 
The second is the transfer of authority to make a payment from the issuing bank to the executing 
bank. In this case, in accordance with the Regulations, a separate deposit account under the letter 
of credit is opened in the executing bank. The third is the submission by the seller (beneficiary) 
of documents confirming the fulfillment of the obligation (for example, for the shipment of 
goods) specified in the letter of credit. The fourth (last) one is to make a payment on the basis of 
documents accepted by the executive bank. They usually include the number of the commercial 
account (invoice) for goods, documents related to the distribution of goods (waybill, waybill), 
transport and insurance documents. The executing bank verifies that the recipient of funds 
fulfills all the conditions stipulated in the letter of credit, affixing the appropriate signatures and 
seals of the recipient of funds and fulfilling other conditions. Failure to fulfill at least one of the 
conditions of the letter of credit entails non-payment of the letter of credit. Such verification is 
carried out by the executive bank only on formal grounds, without actual verification of the 
actual fulfillment by the recipient of the funds of the obligation confirmed by the submitted 
documents. In other words, the bank trusts its client and does not take responsibility for the 
forged documents submitted to them to receive funds. This type of liability should be provided 
for in the main contract concluded between the payer and the recipient of funds. If the payer's 
instructions fully comply with the submitted documents, the bank makes a payment to the 
beneficiary by transferring the corresponding amount of money to his account. It is at this time 
that the settlement of the letter of credit is considered completed. If the executing bank refuses to 
accept documents that do not comply with the terms of the letter of credit, on external grounds, it 
is obliged to immediately inform the borrower and the issuing bank about this, indicating the 
reasons. In this case, the payer or his bank may give a special permission to the executing bank, 
other than the original instructions, to accept the payment. If, after making a payment, the issuing 
bank finds that the documents received do not comply with the terms of the letter of credit, it has 
the right to refuse to accept them. In this case, all the negative consequences will fall on the 
shoulders of the executing bank, and it will have to pay the amount paid to the beneficiary in 
violation of the established procedure to the issuing bank. In some cases, settlements between 
counterparties under the contract can be made in the same bank (for example, when both parties 
to the contract have accounts in the same bank). In such cases, the rules of the executing bank 
apply to the issuing bank making the payment to the beneficiary, and the second stage of 
settlements under the letter of credit is not automatically applied. 
The Law provides for the following types of letters of credit: revocable and irrevocable letters of 
credit, covered (deposited) and uncovered, confirmed letters of credit (articles 796-799 of the 
CC). 
The current legislation allows the following combinations of names: 

revocable covered letter of credit; 

revocable unsecured letter of credit; 

irrevocable covered unconfirmed letter of credit; 

irrevocable covered confirmed letter of credit; 

irrevocable unsecured unconfirmed letter of credit; 

irrevocable unsecured confirmed letter of credit; 
The letter of credit form of settlements must be provided for in the contract between the payer 
and the recipient of funds and it must specify: the name of the issuing bank; the type of letter of 

---

147
A