Author: Yuxin Dai、Liang Chen
Due to current economic downturn, financial pressure of export-oriented enterprises has become increasingly prominent, and more and more export-oriented enterprises alleviate their liquidity pressure by way of export financing. Banks who provide such loans often require effective guarantees on export financing, and export credit insurance is a common way of guarantee. However, connected transaction and delivery of the goods can not be identified in advance for export credit insurance, which often arouse great controversy.
Identification of connected transaction. Connected transactions are always specifically excluded in the insurance coverage under export credit insurance contracts. However, it's more difficult to identify connected transactions in export process than in domestic trade. It's hard to identify connected transaction with existing means of verification. Now the most common way of verification is to determine its relevance with domestic export enterprises through investigation of the investment and equity situations of the intended trading companies by lawyers of the country where the transaction is taken place.
However, false transactions can’t be fully and effectively avoided by this method. Although lawyers of the country where the transaction is taken place may investigate the intended transaction company, parties of the transaction who ultimately enter into contract with export enterprises may be enterprises locating in other countries and bearing the same name of the company under investigation.
The author once handled an export credit insurance case, of which the trading company under investigation by the insurance company and the bank providing loans was a Singapore company named ABC Limited. The name of the enterprise who executed the trade contract was also ABC Ltd, and upon subsequent investigation, we found that the company was an enterprise registered in Hongkong and their shareholder was the same with the export enterprise. This constitutes a kind of connected transaction.
In Singapore, Hong Kong and other free port zones, foreign corporations may complete clearance of the cargos there, which means Hongkong companies are able to complete clearance of imported goods in Singapore. Therefore, in practice, such malicious connected transaction may not affect the logistics as well as the delivery and clearance of the goods, thereby concealing the real situation of the transaction.
Thus, the risk of connected transaction arising from the maliciously establishment of enterprise bearing the same name in other countries by the insurant cannot be fully prevented by the traditional ways of investigation in advance. Therefore, it is necessary to take further measures to protect against connected transactions. According to our experience, contact information of the original intended transaction counterparty can be obtained through independent investigation, and each transaction shall be verified by ways of Request for Confirmation. Once the transaction cannot be verified or is denied by the company under investigation, the underwriting for the export trade of the enterprise shall be suspended immediately. The aforesaid measures shall be specified in the insurance contract to better protect the interests of the parties.
Identification of the delivery of the goods. The insurer will not assume insurance liabilities under the export credit insurance contract if the export enterprises fail to deliver goods. But it's difficult to identify whether the goods are delivered or not due to the logistics in export is always complex and diverse.
From the perspective of trade contract, delivering goods to carrier can be deemed as completion of the delivery of goods, but the type of shipping document issued by the carrier may affect the finding of facts of "goods delivery". For example, the consignee on the named bill of lading or sea waybill is possibly not the buyer in the trade contract, and the designated consignee under surrendered bill of lading may also not be the buyer in the trade contract, and the items on the copies of the documents submitted by the insurant may not match the facts. In these circumstances, it’s hard to conclude that the goods have been delivered.
In another dispute that the author handled, shipping documents under dozens of transaction show different types. The consignee on sea waybill and straight bill of lading is a party to the transaction contract, but upon investigation during the proceedings, the court found that the consignee on the sea waybill or straight bill of lading issued by the carrier is another company. Under circumstances of using order bill of lading, it even happened that endorsement of insurant was the counterparty of the trade, while the endorsement on the bill of lading submitted by the carrier upon switch bill of lading was another enterprise. Apparently, it’s hard to make accurate judgment about the real situation of logistics merely with the documents themselves.
Since shipping documents that can be obtained by the insurer are usually copies which are often not from the carriers who deal with the shipping documents, thus resulting loopholes in operation. The insurant may take advantage of aforesaid operation loopholes and provide copies of shipping documents that do not show the real trade records. Therefore, it's necessary for the insurer to take steps to verify the delivery of the goods. For each shipment, the insurer shall verify with the carrier the authenticity of the shipping documents, including the information on the front of the documents and endorsement, upon delivery of the goods at the port of destination. Once any flaws or problems are find, the underwriting for the export trade of the enterprise shall be suspended immediately. However, it shall specify in the insurance contract that how to obtain the true information confirmed by the carrier, and make feasible arrangements in practice.