A Study on the Sources and Prevention of Trade Fraud in the Validity of a Bill of Lading and Letter of Credit

Purpose – This paper identiies the source of trade fraud and provide solutions to prevent trade fraud by examining the legal and issuance requirements of a Switch Bill of Lading, the legal characteristics of a Bill of Lading that do not meet these legal requirements, and the relationship between the L/C payment method and liability of bonded area operator. Design/Methodology/Approach – This study performed a literature review and analysis of Seoul Court Decision 2012GaHap516056 decided on August 23, 2013. Findings – The results of this study are as follows. First, a Bill of Lading that does not meet the legal and issuance requirements of a Switch Bill of Lading is a validity of bill of lading, not a Switch of Bill of Lading. Second, when these two independent L/C payment methods are applied, source of trade fraud arises. Third, if the validity of bill of lading is linked to the two independent L/C payment methods and the liability of bonded area operator, imported cargo can be legally taken out of the bonded area. Fourth, the issuing bank and the negotiating bank can be victims of trade fraud if the validity of a bill of lading and two independent L/C payment methods are linked to the liability of bonded area operator. Research Implications – In the case that validity of bill of lading and the two independent L/C payment methods are linked to the liability of a bonded area operator, the risk of an L/C payment at the issuing bank or the negotiating bank can be prevented if the issuing bank or the negotiating bank use a cargo item code number to access the national customs network and shipping port logistics information system.