bank-to-bank reimbursement

“Article 1. Application of URR”

The Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits (“rules”), ICC Publication No. 725, shall apply to any bank-to-bank reimbursement when the text of the reimbursement authorization expressly indicates that it is subject to these rules. They are binding on all parties thereto, unless expressly modified or excluded by the reimbursement authorization. The issuing bank is responsible for indicating in the documentary credit (“credit”) that reimbursement is subject to these rules. In a bank-to-bank reimbursement subject to these rules, the reimbursing bank acts on the instructions and under the authority of the issuing bank. These rules are not intended to override or change the provisions of the Uniform Customs and Practice for Documentary Credits.

Clause-by-Clause Explanation and Examples

1. “The Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits (“rules”), ICC Publication No. 725, shall apply to any bank-to-bank reimbursement when the text of the reimbursement authorization expressly indicates that it is subject to these rules.”

Explanation:
This clause specifies that the Uniform Rules for Bank-to-Bank Reimbursements (URR725) apply only when the reimbursement authorization explicitly states that it is subject to these rules. In other words, the rules are not automatically applied; they must be clearly mentioned in the reimbursement authorization for them to be effective.

Example:
If a reimbursement authorization issued by an issuing bank to a reimbursing bank includes the statement, “This reimbursement is subject to URR725,” then the URR725 rules will govern the transaction.

2. “They are binding on all parties thereto, unless expressly modified or excluded by the reimbursement authorization.”

Explanation:
Once the reimbursement authorization specifies that it is subject to URR725, all parties involved in the reimbursement process must adhere to these rules. However, the rules can be modified or excluded if such changes are explicitly stated in the reimbursement authorization.

Example:
If the reimbursement authorization includes a clause that states, “URR725 applies, but Clause X is excluded,” then all parties must follow URR725 except for the specific clause that has been excluded.

3. “The issuing bank is responsible for indicating in the documentary credit (“credit”) that reimbursement is subject to these rules.”

Explanation:
It is the issuing bank’s duty to ensure that the documentary credit mentions that the reimbursement is subject to URR725. This helps clarify the terms under which the reimbursement will be made, ensuring all parties are aware of the applicable rules.

Example:
When an issuing bank issues a letter of credit, it should include a statement like, “Reimbursement under this credit is subject to URR725,” to inform all parties involved that the reimbursement will be governed by these rules.

4. “In a bank-to-bank reimbursement subject to these rules, the reimbursing bank acts on the instructions and under the authority of the issuing bank.”

Explanation:
When the reimbursement is subject to URR725, the reimbursing bank must follow the instructions provided by the issuing bank. The reimbursing bank acts on behalf of the issuing bank and is not authorized to deviate from the issuing bank’s instructions.

Example:
If the issuing bank instructs the reimbursing bank to pay the beneficiary upon receipt of certain documents, the reimbursing bank must follow these instructions exactly and cannot impose additional conditions or requirements.

5. “These rules are not intended to override or change the provisions of the Uniform Customs and Practice for Documentary Credits.”

Explanation:
URR725 is designed to complement, not replace, the Uniform Customs and Practice for Documentary Credits (UCP600). The rules under URR725 apply specifically to bank-to-bank reimbursements, while UCP600 governs the overall documentary credit process. Both sets of rules work together, with URR725 focusing on the reimbursement aspect.

Example:
If there is a situation where UCP600 governs the issuance of a letter of credit and URR725 governs the reimbursement process, both rules must be followed accordingly. URR725 will not change any obligations or rights under UCP600.

Clause 13(a):

Clause: “If a credit states that reimbursement is to be obtained by a nominated bank (“claiming bank”) claiming on another party (“reimbursing bank”), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issuance of the credit.”

Explanation: This clause mandates that if a letter of credit specifies that a nominated bank will claim reimbursement from a reimbursing bank, it must also specify whether this reimbursement follows the ICC rules for bank-to-bank reimbursements effective at the time of the credit issuance.

Example: A letter of credit issued on January 1, 2024, instructs Bank A (nominated bank) to claim reimbursement from Bank B (reimbursing bank). The credit must state that reimbursement is subject to ICC rules for bank-to-bank reimbursements effective on January 1, 2024.

Clause 13(b)(i):

Clause: “If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply: i. An issuing bank must provide a reimbursing bank with a reimbursement authorization that conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date.”

Explanation: If the credit does not refer that the reimbursement is subject to ICC rules, then mentioned rules will be applicable like- the issuing bank must issue a reimbursement authorization to the reimbursing bank that matches the terms of the credit’s availability. This authorization should not expire.

Example: If a credit is available by sight payment and does not mention ICC rules for reimbursement, the issuing bank must provide a reimbursement authorization to the reimbursing bank that allows sight payment and does not have an expiry date.

Clause 13(b)(ii):

Clause: “A claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit.”

Explanation: The claiming bank is not obliged to provide the reimbursing bank with a certificate proving compliance with the credit’s terms and conditions.

Example: Bank A, the claiming bank, does not need to submit a certificate to Bank B, the reimbursing bank, verifying that all terms and conditions of the letter of credit have been met.

Clause 13(b)(iii):

Clause: “An issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit.”

Explanation: If the reimbursing bank fails to reimburse on the first demand as per the credit’s terms, the issuing bank is liable for any resulting loss of interest and expenses.

Example: If Bank B fails to reimburse Bank A on the first demand, and Bank A incurs additional interest and expenses, the issuing bank must cover these costs.

Clause 13(b)(iv):

Clause: “A reimbursing bank’s charges are for the account of the issuing bank. However, if the charges are for the account of the beneficiary, it is the responsibility of an issuing bank to so indicate in the credit and in the reimbursement authorization. If a reimbursing bank’s charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. If no reimbursement is made, the reimbursing bank’s charges remain the obligation of the issuing bank.”

Explanation: The issuing bank generally bears the reimbursing bank’s charges unless the credit specifies they are for the beneficiary’s account. If the beneficiary is responsible, this must be stated in the credit and reimbursement authorization, and charges will be deducted from the claiming bank’s reimbursement. If reimbursement is not made, the issuing bank must still cover the charges.

Example: If Bank A’s charges are to be borne by the beneficiary, this must be indicated in the credit. When Bank B reimburses Bank A, it deducts its charges from the amount. If Bank B does not reimburse, the issuing bank must pay Bank B’s charges.

Clause 13(c):

Clause: “An issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand.”

Explanation: The issuing bank remains responsible for reimbursement even if the reimbursing bank fails to reimburse on the first demand.

Example: If Bank B fails to reimburse Bank A on first demand, the issuing bank will be responsible to make reimbursement to Bank A .

URR 725 Article 1: Application of Uniform Rules for Bank-to-Bank Reimbursements – CDCS Guide