Moses & Singer LLP Banking Attorney Michael Evan Avidon Speaks on “Bank Payment Obligations – A New Era in International Trade Finance”

June 24, 2013

Companies and banks who regularly engage in finance and international trade need faster and more secure ways to process payments. Are Bank Payment Obl

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Michael Evan Avidon, a senior banking attorney at Moses & Singer LLP and Co-Chair of Moses & Singer’s Banking and Finance practice, addressed bankers and international trade experts on June 7, 2013 at the recent BAFT-IFSA Global Trade Workshop in New York. He alerted attendees that July 1, 2013 marks the date the International Chamber of Commerce's rules for Bank Payment Obligations (BPOs), a new payment device, become effective. Michael addressed the legal implications and potential of this new, automated payment device for companies and banks.

“To understand the new BPO, compare it to a Letter of Credit (LC),” noted Avidon, who has handled many LC transactions. An LC, issued by a bank on behalf of a buyer, provides a promise of payment to a seller — if it presents to the bank on a timely basis all the documents called for by the terms of the LC. These documents may evidence packing, shipment, inspection and invoicing. “The reliance on moving paper documents in traditional LC transactions slows the process and puts all players at risk if any of the paper documents are delayed, lost or destroyed.”

A BPO can offer a similar assurance of payment, but instead of paper documents, the new rules for BPOs rely on the electronic exchange of data, first to establish a baseline, and second, to trigger the obligation to pay when data (likely to be shipping and invoicing data) supplied by or on behalf of the seller matches the baseline. The business community expects the shift from paper-based systems to the electronic exchange of data will speed processing and reduce costs.

From a legal perspective, however, numerous questions remain. “A key issue is how the law in the relevant jurisdictions will treat and enforce a BPO.” For example, who has legal standing to sue to enforce a BPO? What damages are available from an obligor bank for its failure to pay its BPO? What is the applicable time period during which a legal action to enforce a BPO must be commenced against the obligor? What defenses (besides the failure of data to match the pre-established baseline) may be validly asserted by the obligor to its obligation to pay a BPO?

“BPOs have great potential to improve supply chain finance,” Avidon concluded, “but tread carefully.” The data required to be exchanged will need to be thought out with the same degree of care required to prescribe the paper documents for presentation under an LC. Contracts between buyers and sellers and the separate contracts entered into by the buyer with its bank and by the seller with its bank to provide for payment by BPO will necessarily differ somewhat from the contracts used to provide for payment by LC.

Please see Michael’s biography on the Moses & Singer website for additional materials on this and related subjects.


Michael Evan Avidon is one of the nation's leading letter of credit (LC) lawyers. He represents banks (including agent banks) in secured and unsecured loans, LC transactions, supply chain finance, and LC litigation. He participates actively in law and rule-making projects in this area, including serving on the ICC's Bank Payment Obligation (BPO) Consultative Group, whose work contributed to the drafting of the 2013 Uniform Rules for BPOs to facilitate world trade. Moses & Singer LLP, a law firm founded in 1919, serves the legal needs of prominent businesses and successful individuals in New York City and worldwide.