American Bankers Association CRCM Exam - Topic 1 Question 25 Discussion

Question

Issuing Bank, a foreign bank, maintains an account with First National Bank, a U.S. bank. Issuing Bank issues a letter of credit in favor of ABC, Inc., a U.S. corporation. The letter of credit contains a boycott provision. The letter of credit provides that any negotiating bank may obtain reimbursement from Issuing Bank's account at First National Bank by certifying that the conditions of the letter of credit have been met. Issuing Bank does not send First National Bank a copy of the letter of credit. May First National Bank reimburse negotiating banks for the letter of credit when it contains a boycott provision?

Raina · Accepted Answer

A) Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.

Raina · Answer

B) No. First National Bank is under a duty to determine the underlying conditions of any letter of credit it pays.

Raina · Answer

C) No. First National Bank should request a copy of the letter of credit at the time of its payment and then refuse to pay once it is aware of the provision.

Raina · Answer

D) Yes, provided ABC Company is not a participant in the boycott.