URR 725 Article 3: Explanation and Examples
Clause: “A reimbursement authorization is separate from the credit to which it refers, and a reimbursing bank is not concerned with or bound by the terms and conditions of the credit, even if any reference whatsoever to it is included in the reimbursement authorization.”
Explanation:
This clause establishes the independence of a reimbursement authorization from the credit (such as a Letter of Credit) that it is associated with. A reimbursement authorization is a directive given by the issuing bank to the reimbursing bank, instructing the latter to pay a certain amount to the claiming bank (e.g., the negotiating bank) on behalf of the issuing bank.
The key point here is that the reimbursing bank is not obligated to adhere to or be influenced by the terms and conditions of the underlying credit (e.g., the Letter of Credit) when making the payment. Even if the reimbursement authorization document includes references to the credit, the reimbursing bank’s role and responsibilities are limited to the specific instructions provided in the reimbursement authorization alone.
Example:
Suppose Bank A (the issuing bank) issues a Letter of Credit (LC) in favor of Exporter X, with Bank B (the reimbursing bank) authorized to reimburse Bank C (the negotiating bank) for documents presented under the LC.
- The LC may have terms such as requiring specific documents or compliance with certain shipment dates. However, when Bank A sends a reimbursement authorization to Bank B, it instructs Bank B to pay Bank C a specific amount once a claim is made.
- Even if the reimbursement authorization mentions the LC and its terms, Bank B (the reimbursing bank) does not need to verify whether the terms of the LC have been met. Bank B is only responsible for paying the amount mentioned in the reimbursement authorization when Bank C presents a valid claim.
This separation ensures that the reimbursing bank’s role is streamlined and not burdened by the complexities of the underlying credit, making the payment process more efficient and straightforward.