CurrencyCurrency Payment of money takes place in a certain currencyPayment of money takes place in a certain currency

A right to performance against the issuer of money (a purely nominal A right to performance against the issuer of money (a purely nominal claim) becomes money when the money is accepted in commerce as claim) becomes money when the money is accepted in commerce as means of payment (and thus as currency). means of payment (and thus as currency).

Money issued by a state - or the state indicated banks - has ‘legal tender’ Money issued by a state - or the state indicated banks - has ‘legal tender’ (i.e. creditors are obliged to accept is as money); (i.e. creditors are obliged to accept is as money);

><privately issued money may nevertheless become currency at least in a ><privately issued money may nevertheless become currency at least in a certain sphere – e.g. virtual currencies (such as Bitcoin)certain sphere – e.g. virtual currencies (such as Bitcoin)

Most states have also abolished the convertibility of the money/currency Most states have also abolished the convertibility of the money/currency they issue (in e.g. gold, as was traditionally the case)they issue (in e.g. gold, as was traditionally the case)

PaymentsPaymentscurrency exchange controlscurrency exchange controls

Various national restrictions on currency exchange for:Various national restrictions on currency exchange for:- the protection of the currency - the protection of the currency - statistical purposes- statistical purposes

- combat financing of crime (esp. CFT, to counter financing of terrorism) and - combat financing of crime (esp. CFT, to counter financing of terrorism) and money laundering (AML, anti-money laundering)money laundering (AML, anti-money laundering)

(apart from exchange restrictions, there may be other restrictions on money (apart from exchange restrictions, there may be other restrictions on money transfers, incl. freezing of assets as part of international sanctions)transfers, incl. freezing of assets as part of international sanctions)

IMF (188 countries, 2012)IMF (188 countries, 2012)Main purposes:Main purposes:

- Exchange rate stabilityExchange rate stability- Liberalization of payments and transfers for current transactionsLiberalization of payments and transfers for current transactions- ‘‘Surveillance’: oversee the international monetary and financial system and Surveillance’: oversee the international monetary and financial system and

monitor economic and financial policy of member states (incl. Standards for monitor economic and financial policy of member states (incl. Standards for dissemination of financial and economic data by member states)dissemination of financial and economic data by member states)

- Member states limit their monetary sovereignty in exchange for benefits of Member states limit their monetary sovereignty in exchange for benefits of membershipmembership

- Quota (subscription) of each member is based on its size in the world Quota (subscription) of each member is based on its size in the world economyeconomy

IMF Agreement &IMF Agreement &currency exchange controlscurrency exchange controls

art. VIII (2) (a) IMF-Agreement: art. VIII (2) (a) IMF-Agreement: in principle (i.e. unless approved by the IMF) prohibition of in principle (i.e. unless approved by the IMF) prohibition of

restrictions on international payments and transfers for restrictions on international payments and transfers for current transactions.current transactions.

This implies the following obligations for member states:This implies the following obligations for member states:- allow citizens to pay current transactions with national allow citizens to pay current transactions with national

currency or to purchase foreign currency for such paymentscurrency or to purchase foreign currency for such payments- allow non-citizens having received payment in national allow non-citizens having received payment in national

currency to use it for payment of current transactionscurrency to use it for payment of current transactions- where necessary for current transactions, exchange where necessary for current transactions, exchange

national currency held by another state for foreign currency national currency held by another state for foreign currency or SDRor SDR

Does not affect restrictions on capital movements (v. free movement Does not affect restrictions on capital movements (v. free movement of capital in the EU)of capital in the EU)

IMF-Agreement &IMF-Agreement &currency exchange controlscurrency exchange controls

Restrictions compatible with Art. VIII IMF:Restrictions compatible with Art. VIII IMF:

- No current transaction (transfers of capital); No current transaction (transfers of capital); - oror- Approval by the IMF (only if necessary and temporary) Approval by the IMF (only if necessary and temporary)

- art. VII (3)(b) scarcity;art. VII (3)(b) scarcity;- transitional rule for existing restrictions in XIV (2)).transitional rule for existing restrictions in XIV (2)).

IMF-Agreement &IMF-Agreement &currency exchange controlscurrency exchange controls

Effects: art. VIII (2) (b):Effects: art. VIII (2) (b):where *the restriction is consistent with the IMF Agreement, where *the restriction is consistent with the IMF Agreement, *exchange contracts *involving the currency of a member *exchange contracts *involving the currency of a member state and *contrary to its excange control regulations are state and *contrary to its excange control regulations are *unenforceable in all IMF Member States. *unenforceable in all IMF Member States. > A priority rule irrespective of the applicable > A priority rule irrespective of the applicable lex lex contractuscontractus

Cfr. art. 9, 3 Rome-I-R.: “Effect may be given to the overriding Cfr. art. 9, 3 Rome-I-R.: “Effect may be given to the overriding mandatory provisions of the law of the country where the mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful.”render the performance of the contract unlawful.”

IMF-Agreement &IMF-Agreement &currency exchange controlscurrency exchange controls

art. VIII (b): where *the restriction is consistent with the IMF art. VIII (b): where *the restriction is consistent with the IMF Agreement, *exchange contracts *involving the currency of Agreement, *exchange contracts *involving the currency of a member state and *contrary to its regulations are a member state and *contrary to its regulations are *unenforceable in all IMF Member States. *unenforceable in all IMF Member States.

* Questions of interpretation of the terms:* Questions of interpretation of the terms: - exchange contract: restrictive interpretation in UK & US – - exchange contract: restrictive interpretation in UK & US –

only a monetary deal in currencies; other countries use a only a monetary deal in currencies; other countries use a wider interpretation. Countertrade is never an exchange wider interpretation. Countertrade is never an exchange contract. contract. - involving the currency: restrictive v. wide interpretation- involving the currency: restrictive v. wide interpretation- exchange control regulations: not regulations with a - exchange control regulations: not regulations with a different purposedifferent purpose- compatibility: opinion of the IMF should be asked- compatibility: opinion of the IMF should be asked- unenforceable; effect upon the contract depends on - unenforceable; effect upon the contract depends on contract law.contract law.

international law &international law &currency exchange controlscurrency exchange controls

Currency exchange restrictions imposed by international Currency exchange restrictions imposed by international law:law:

- in case of economic sanctions decided by the UN Security in case of economic sanctions decided by the UN Security CouncilCouncil

- including sanctions against terrorists and terrorist including sanctions against terrorists and terrorist organisations.organisations.

money of account/of money of account/of payment payment

Money of account Money of account = currency used to express the price= currency used to express the price> price goes up and down with the money of account, but > price goes up and down with the money of account, but

nominally unchanged – principle of « nominalism »nominally unchanged – principle of « nominalism »

According to contract law, debtor may always pay in the According to contract law, debtor may always pay in the currency of account currency of account

Several reasons why payment could be made in a different Several reasons why payment could be made in a different currency: next slidecurrency: next slide

Money of account/of Money of account/of payment payment

Several reasons why payment could be made in a different Several reasons why payment could be made in a different currency, i.e. the payment currency (being the currency of the currency, i.e. the payment currency (being the currency of the place of payment):place of payment):

- If payment in foreign currency is prohibited at that place If payment in foreign currency is prohibited at that place (exchange controls);(exchange controls);

- If according to local law the debtor is entitled to pay in local If according to local law the debtor is entitled to pay in local currency and prefers to do so (local payment rule); local currency and prefers to do so (local payment rule); local currency can be excluded by an « effectivo »-clause (see infra currency can be excluded by an « effectivo »-clause (see infra 6.1.9 (1) (b))6.1.9 (1) (b))

- Courts normally render judgments in local currency onlyCourts normally render judgments in local currency only

- Compare art. 6.1.9. Unidroit PICC:Compare art. 6.1.9. Unidroit PICC:- (1) If a monetary obligation is expressed in a currency other than that of the (1) If a monetary obligation is expressed in a currency other than that of the

place for payment, it may be paid by the obligor in the currency of the place for place for payment, it may be paid by the obligor in the currency of the place for payment unless (a) that currency is not freely convertible; or (b) the parties have payment unless (a) that currency is not freely convertible; or (b) the parties have agreed that payment should be made only in the currency in which the monetary agreed that payment should be made only in the currency in which the monetary obligation is expressed. obligation is expressed.

(2) If it is impossible for the obligor to make payment in the currency in which the (2) If it is impossible for the obligor to make payment in the currency in which the monetary obligation is expressed, the obligee may require payment in the monetary obligation is expressed, the obligee may require payment in the currency of the place for payment, even in the case referred to in paragraph (1)currency of the place for payment, even in the case referred to in paragraph (1)(b). (b).

Money of account /of Money of account /of payment payment

When payment currency ≠ account currency > issue of When payment currency ≠ account currency > issue of (date and place of) conversion(date and place of) conversion

- Contract may contain rules for conversion (determine date Contract may contain rules for conversion (determine date and place)and place)

- National law varies in respect of date of conversion: National law varies in respect of date of conversion: payment date v. breach date v. conversion at breach date payment date v. breach date v. conversion at breach date plus additional damage for depreciationplus additional damage for depreciation

- UPICC 6.1.9.:UPICC 6.1.9.:

(3) Payment in the currency of the place for payment is to (3) Payment in the currency of the place for payment is to be made according to the applicable rate of exchange be made according to the applicable rate of exchange prevailing there when payment is due. prevailing there when payment is due.

(4) However, if the obligor has not paid at the time when (4) However, if the obligor has not paid at the time when payment is due, the obligee may require payment according payment is due, the obligee may require payment according to the applicable rate of exchange prevailing either when to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment. payment is due or at the time of actual payment.

Protection against currency Protection against currency exchange risksexchange risks

Three techniques of protection against exchange risks Three techniques of protection against exchange risks 1° Maintenance of value clauses; different forms:1° Maintenance of value clauses; different forms:-- Relating the price to (the value of) a foreign currency: Relating the price to (the value of) a foreign currency:

Traditionally often gold (gold value clause) – no longer important Traditionally often gold (gold value clause) – no longer important and in Treaties now usually replaced by SDR (special drawing and in Treaties now usually replaced by SDR (special drawing rights, standard created by IMF in 1969), a monetary « basket » of rights, standard created by IMF in 1969), a monetary « basket » of 4 (5) currencies 4 (5) currencies

- since 1 January 2011: 41,9 % US $, 37,4 % EU €, 9,4 % JP ¥ and 11,3% UK - since 1 January 2011: 41,9 % US $, 37,4 % EU €, 9,4 % JP ¥ and 11,3% UK £). 1 SDR = on 1-1-2011: 0,423 Eu, 0,66 US $, 0,111 UK £, 12,1 JP ¥ £). 1 SDR = on 1-1-2011: 0,423 Eu, 0,66 US $, 0,111 UK £, 12,1 JP ¥

- From 1 October 2016 it will be: 41,73 % US $, 30,93 % EU €, 10,92 % - From 1 October 2016 it will be: 41,73 % US $, 30,93 % EU €, 10,92 % Chinese renminbi, 8,33 % JP ¥ and 8,09 % UK £Chinese renminbi, 8,33 % JP ¥ and 8,09 % UK £

-- Currency option clauses (unilateral option) Currency option clauses (unilateral option) - Relating the price to a specific index (esp. domestic contracts) Relating the price to a specific index (esp. domestic contracts) - Price revision clausesPrice revision clauses 2° Exchange rate insurance: in most countries only available with 2° Exchange rate insurance: in most countries only available with

public agenciespublic agencies

Protection against currency Protection against currency exchange risksexchange risks

3° Hedging transactions: cover the risk with a countertransaction 3° Hedging transactions: cover the risk with a countertransaction - within the company or group by within the company or group by matching matching (balancing income and (balancing income and

expenditure in the same currency) expenditure in the same currency) - Forward exchange contractForward exchange contract: creditor sells to a bank an amount of the : creditor sells to a bank an amount of the

foreign currency (corresponding to the debt) for a sum in its own foreign currency (corresponding to the debt) for a sum in its own currency at a forward exchange rate (or vice-versa for a debtor). currency at a forward exchange rate (or vice-versa for a debtor).

- Cross-currency swapsCross-currency swaps between two creditors (exchange of currency between two creditors (exchange of currency with a period of time at an agreed interest rate) with a period of time at an agreed interest rate)

- Bank accounts in foreign currency Bank accounts in foreign currency - Loan by a creditor of foreign currency which is immediately converted Loan by a creditor of foreign currency which is immediately converted

into domestic currency (or vice versa: a foreign currency deposit by a into domestic currency (or vice versa: a foreign currency deposit by a debtor) debtor)

- Currency futuresCurrency futures (contract to sell & buy a given currency at a fixed (contract to sell & buy a given currency at a fixed price at a specified future date)price at a specified future date)

- Currency optionsCurrency options contracts ( contracts (call optionscall options: right to buy; : right to buy; put option: put option: right right to sellto sellll); the option itself is bought at a price (« premium « )); the option itself is bought at a price (« premium « )

- NB. Such contracts traditionally made « OTC » – but see Reg. 648/2012 NB. Such contracts traditionally made « OTC » – but see Reg. 648/2012 on OTC derivatives, central counterparties and trade repositorieson OTC derivatives, central counterparties and trade repositories

Payment instrumentsPayment instruments Payment instruments:Payment instruments:- Negotiable instrument with abstract obligation: bills of Negotiable instrument with abstract obligation: bills of

exchange and promissory notes exchange and promissory notes - Negotiable instrument without acceptance: chequeNegotiable instrument without acceptance: cheque- No negotiable instrument: credit card, money transfer No negotiable instrument: credit card, money transfer

(giro), documentary letter of credit, digital wallet, etc.(giro), documentary letter of credit, digital wallet, etc.- Transfer of virtual currencies (best known: bitcoin)Transfer of virtual currencies (best known: bitcoin)

Often variations on Often variations on delegatio solvendidelegatio solvendi. General . General characteristics:characteristics:

- Creditor who accepts such instrument (as its beneficiary), Creditor who accepts such instrument (as its beneficiary), must first use the instrument (original right to payment must first use the instrument (original right to payment suspended)suspended)

- Payor who delegates payment to the delegated debtor Payor who delegates payment to the delegated debtor (issuer of instrument) disposes of its right against the (issuer of instrument) disposes of its right against the delegated debtor (its right is also suspended)delegated debtor (its right is also suspended)

Negotiable instruments in Negotiable instruments in generalgeneral

Negotiable instruments - Mainly 2 functions:Negotiable instruments - Mainly 2 functions:

1° For all negotiable instruments: transfer of the right by 1° For all negotiable instruments: transfer of the right by transfer of the document (« Das Recht aus dem Papier folgt transfer of the document (« Das Recht aus dem Papier folgt das Recht am Papier »), thus:das Recht am Papier »), thus:- NI incorporating right to performance: no notification of the NI incorporating right to performance: no notification of the debitor cessusdebitor cessus necessary necessary- NI incorporating property in a thing: no notification to bailee NI incorporating property in a thing: no notification to bailee necessarynecessary

2° Possible additional function of NI incorporating a right to 2° Possible additional function of NI incorporating a right to payment: abstraction of the obligationpayment: abstraction of the obligation- at least formal abstraction (reversal burden of proof), even at least formal abstraction (reversal burden of proof), even between original partiesbetween original parties- substantive abstraction (in relation to third party)substantive abstraction (in relation to third party)

Bills of exchange & Bills of exchange & promissory notespromissory notes

Promissory note: Promissory note: - Unconditional promise to pay a sum of money (direct Unconditional promise to pay a sum of money (direct

promise (« recta »), not drawn) promise (« recta »), not drawn) - In a document: to bearer or to order In a document: to bearer or to order - Transferable (without limits) (if to order, transfer requires Transferable (without limits) (if to order, transfer requires

an endorsement) an endorsement) - « Abstract »: after transfer of the note, the promisor cannot « Abstract »: after transfer of the note, the promisor cannot

raise any defence from the underlying relationship raise any defence from the underlying relationship (provision relationship) against the holder of the note (provision relationship) against the holder of the note

- See art. 75 and ff. Geneva Convention (= 75 ff. Belgian See art. 75 and ff. Geneva Convention (= 75 ff. Belgian Statute on Bills of Exchange and promissory notes)Statute on Bills of Exchange and promissory notes)

Bills of exchangeBills of exchange Bills of exchange:Bills of exchange:- « Draft », i.e. drawn instrument: the drawer draws a bill « Draft », i.e. drawn instrument: the drawer draws a bill

(draft) on a drawee which he delivers to a payee (first (draft) on a drawee which he delivers to a payee (first beneficiary of the bill)beneficiary of the bill)

- The bill is a document which:The bill is a document which:- - is explicitly named bill of exchange (or draft) and - is explicitly named bill of exchange (or draft) and - - mentions the sum to be paid (unconditionally) and- mentions the sum to be paid (unconditionally) and- - the date of maturity (form requirements) (art. 1 & 2 - the date of maturity (form requirements) (art. 1 & 2

Geneva Law)Geneva Law)- The bill implies an order to pay given by drawer to drawee - The bill implies an order to pay given by drawer to drawee -

to pay the holder a certain sum at a future fixed time.to pay the holder a certain sum at a future fixed time.- When the drawee accepts* the instruction to pay When the drawee accepts* the instruction to pay

(acceptance of the draft), he is unconditionally obliged to (acceptance of the draft), he is unconditionally obliged to pay the sum at maturity (value maintenance clause thus pay the sum at maturity (value maintenance clause thus impossible) (*on acceptance, see art. 21-29 Geneva Law)impossible) (*on acceptance, see art. 21-29 Geneva Law)

Bills of exchangeBills of exchange Bills of exchange:Bills of exchange:- NB. Drawer can be bearer (art. 3 Geneva Law)NB. Drawer can be bearer (art. 3 Geneva Law)- Drawer is also liable towards bearer (in case of acceptance, Drawer is also liable towards bearer (in case of acceptance,

liability is subsidiary to that of the drawee); as long as bill liability is subsidiary to that of the drawee); as long as bill not accepted, drawer is liable for (non-)acceptance (art. 9 not accepted, drawer is liable for (non-)acceptance (art. 9 Geneva law). As to this right of recourse against the Geneva law). As to this right of recourse against the drawer, see art. 43 Geneva law drawer, see art. 43 Geneva law

- Transferable (without limits) (if to order: by endorsement) Transferable (without limits) (if to order: by endorsement) (art. 11 Geneva law)(art. 11 Geneva law)

- Every endorser guarantees (acceptance and) payment (art. Every endorser guarantees (acceptance and) payment (art. 15 Geneva law)15 Geneva law)

- « Abstract » (see infra)« Abstract » (see infra)

Bill of exchange (accepted)Bill of exchange (accepted)B

ill of e

xch

an

ge

Bill o

f exch

an

ge

Bills of exchangeBills of exchange Abstraction / autonomy:Abstraction / autonomy: - independent from provision relationship drawer/drawee - independent from provision relationship drawer/drawee

(« abstraction ») : acceptor cannot raise defences out of (« abstraction ») : acceptor cannot raise defences out of that relationship (against drawer abstraction is merely that relationship (against drawer abstraction is merely formal)formal)- independent from valuta relationship drawer/payee: - independent from valuta relationship drawer/payee: acceptor cannot raise defences out of that relationship acceptor cannot raise defences out of that relationship

Bill can be « domiciled » on a bank account in order to Bill can be « domiciled » on a bank account in order to simplify collection (in Belgium, this collection is since 1999 simplify collection (in Belgium, this collection is since 1999 centralised by the banks in the hands of the National Bank)centralised by the banks in the hands of the National Bank)

Prescription (art. 70 Geneva law)Prescription (art. 70 Geneva law)- Against the acceptor: 3 years from the date of maturityAgainst the acceptor: 3 years from the date of maturity- Holder against endorsers and drawer: one year from the Holder against endorsers and drawer: one year from the

date of protest of of maturitydate of protest of of maturity- Endorsers against each other: 6 months reckoned from the Endorsers against each other: 6 months reckoned from the

day when the endorser paid of was himself suedday when the endorser paid of was himself sued

Bills of exchangeBills of exchange Used in various contexts – examples already mentioned:Used in various contexts – examples already mentioned:- mode of honouring of a letter of credit (by accepting a draft mode of honouring of a letter of credit (by accepting a draft

or by drawing a draft on a third party) or by drawing a draft on a third party) - client discount credit (bank purchases bills drawn by client of client discount credit (bank purchases bills drawn by client of

the bank on its buyers)the bank on its buyers)- endorsement to forfeiter of a bill drawn on a buyer (with endorsement to forfeiter of a bill drawn on a buyer (with

forfeiter waivering recourse against the drawer, « Isabel forfeiter waivering recourse against the drawer, « Isabel clause ») clause »)

Comparative law & harmonisation:Comparative law & harmonisation:- Mainly 2 systems: common law countries v. Geneva Uniform Mainly 2 systems: common law countries v. Geneva Uniform

Law (26 ratifications) Law (26 ratifications) - UNCITRAL Convention 1987 on International Bills of Exchange UNCITRAL Convention 1987 on International Bills of Exchange

and Promissory Notes (if the document explicitly refer to the and Promissory Notes (if the document explicitly refer to the Convention) – but not in force (only 5 ratifications, 10 Convention) – but not in force (only 5 ratifications, 10 required) required)

Bills of exchangeBills of exchange Common law countries (UCC Art. 3 < 1896 Uniform Negotiable Common law countries (UCC Art. 3 < 1896 Uniform Negotiable

Instruments Act; UK 1882 Bills of Exchange Act): less strict system Instruments Act; UK 1882 Bills of Exchange Act): less strict system - Bearer is protected against all defences only if he acquired the bill Bearer is protected against all defences only if he acquired the bill

« in due course », i.e. without knowledge of any claim to or « in due course », i.e. without knowledge of any claim to or defence upon the instrument defence upon the instrument

- In principle no protection of a holder who acquired in good faith In principle no protection of a holder who acquired in good faith from a holder without authority to dispose (unauthorised agent)from a holder without authority to dispose (unauthorised agent)

- « Aval » (i.e. guarantee for a bill of exchange) is qualified as a « Aval » (i.e. guarantee for a bill of exchange) is qualified as a suretyship (dependent personal security) suretyship (dependent personal security)

Geneva Law: stricter system (higher abstraction)Geneva Law: stricter system (higher abstraction)- Defences can only be invoked against a bearer who acquired in Defences can only be invoked against a bearer who acquired in

bad faith (fraudulently) (art. 17 Geneva law)bad faith (fraudulently) (art. 17 Geneva law)- Acquirer of possession in good faith is the owner of the billAcquirer of possession in good faith is the owner of the bill- « Aval » is a surety largely abstracted from the obligation of the « Aval » is a surety largely abstracted from the obligation of the

person for whom given (either drawer or drawee): the only person for whom given (either drawer or drawee): the only defences the aval can raise relate to the formal invalidity of the defences the aval can raise relate to the formal invalidity of the bill of exchange (see art. 30 – 32 Geneva Law)bill of exchange (see art. 30 – 32 Geneva Law)

Modalities of payment Modalities of payment The contract (sale, service, ...) will - apart from price and The contract (sale, service, ...) will - apart from price and

currency - normally also indicate the modalities of currency - normally also indicate the modalities of payment :payment :

If nothing else agreed: concomitant performance (cash on If nothing else agreed: concomitant performance (cash on delivery). Comp. 6.1.4 UPICCdelivery). Comp. 6.1.4 UPICC

Often specific agreements:Often specific agreements:- Advance payment (in whole or part), e.g. CWO: Cash with Advance payment (in whole or part), e.g. CWO: Cash with

order, CIA Cash in advance); (« cash » includes money order, CIA Cash in advance); (« cash » includes money transfer, now usually an e-transfer)transfer, now usually an e-transfer)

- Sometimes combined with a repayùent guarantee (see e.g. Sometimes combined with a repayùent guarantee (see e.g. infrainfra Paypal) Paypal)

- CAD: Cash against documents; D/P: Documents against CAD: Cash against documents; D/P: Documents against payment: possible when goods are represented by payment: possible when goods are represented by documents (see documentary credit, l/c is honoured when documents (see documentary credit, l/c is honoured when conforming documents are delivered). conforming documents are delivered).

Modalities of payment Modalities of payment - Payment by means of instruments implying a delegation - Payment by means of instruments implying a delegation to pay (eg buyer paying with a bill of exchange drawn on its to pay (eg buyer paying with a bill of exchange drawn on its debtor; paying with a cheque drawn on its bank, paying by debtor; paying with a cheque drawn on its bank, paying by credit card, ...). See 6.1.7 UPICCcredit card, ...). See 6.1.7 UPICC

- Creditor gives payment facilities, i.e. credit. E.g. payment Creditor gives payment facilities, i.e. credit. E.g. payment after delivery and inspection, possibly with an extra period after delivery and inspection, possibly with an extra period for payment (eg 1 month, 90 d.) for payment (eg 1 month, 90 d.)

- « Pay if paid »: debtor only has to pay when he is paid « Pay if paid »: debtor only has to pay when he is paid himself by the next in the chainhimself by the next in the chain

- Credit is often granted only if the debtor accepts (as Credit is often granted only if the debtor accepts (as drawee) a bill of exhange (D/A: documents against drawee) a bill of exhange (D/A: documents against acceptance) or signs a promissory note, or gives a bank acceptance) or signs a promissory note, or gives a bank guarantee on demandguarantee on demand

- Where on the contrary no payment instrument is delivered, Where on the contrary no payment instrument is delivered, but only a receipt for the goods, this is called « payment but only a receipt for the goods, this is called « payment on open account »on open account »

Payment Collection Payment Collection proceduresprocedures

Collection procedures: creditor engages one or more intermediaries Collection procedures: creditor engages one or more intermediaries (esp. banks) as agent to collect the debt (esp. banks) as agent to collect the debt

Most commonly when :Most commonly when :- a) collecting payment instruments (a) collecting payment instruments (financial documentsfinancial documents) delivered by ) delivered by

the debtor to the creditor, such as bills of exchange, cheques, ... the debtor to the creditor, such as bills of exchange, cheques, ... and/or and/or

- b) documents have to be delivered to the debtor in exchange for b) documents have to be delivered to the debtor in exchange for payment (payment (documents of titledocuments of title, transport documents, etc.)., transport documents, etc.).

- a) only = « a) only = « clean » collectionclean » collection; b) (or b + a) = « ; b) (or b + a) = « documentary documentary collectioncollection » »

Parties involved:Parties involved:- Principal Principal (who mandates a bank as agent)(who mandates a bank as agent)- Remitting bankRemitting bank (receiving the documents from the principal), agent of (receiving the documents from the principal), agent of

the principalthe principal- Collecting bankCollecting bank, agent of the remitting bank in the country of payment, agent of the remitting bank in the country of payment- Presenting bankPresenting bank: bank of the payor, who pays in return for the : bank of the payor, who pays in return for the

required documents required documents - And/or the And/or the debtor debtor from whom the money is collectedfrom whom the money is collected

Payment collection Payment collection proceduresprocedures

Collection procedures (cont.)Collection procedures (cont.) Rights and obligations concerning this intervention: Rights and obligations concerning this intervention: - customs are codified by the ICC in the customs are codified by the ICC in the Uniform Rules for Uniform Rules for

CollectionsCollections (1956), now version URC 522 (1995, in force 1 (1956), now version URC 522 (1995, in force 1 Jan 199§) Jan 199§)

- they deal with the way banks have to handle documents in they deal with the way banks have to handle documents in collection procedures:collection procedures:Rights and obligations concerning the intervention of Rights and obligations concerning the intervention of intermediaries (information duties, duty of care, calculation intermediaries (information duties, duty of care, calculation of costs and interest, ...) of costs and interest, ...)

Money transfer (giro)Money transfer (giro) A bank can be involved as delegated debtor for a money A bank can be involved as delegated debtor for a money

transfer (giro): transfer (giro): - instruction to pay given (on paper, or electronically, ...) instruction to pay given (on paper, or electronically, ...) - by a payor by a payor - in favour of a payee in favour of a payee - results (when accepted by the bank) in a credit for the results (when accepted by the bank) in a credit for the

beneficiary (on its bank account) as mode of paymentbeneficiary (on its bank account) as mode of payment

Money transfer with intervention of a single bank: see Money transfer with intervention of a single bank: see figure (order, acceptance, performance by crediting figure (order, acceptance, performance by crediting account beneficiary)account beneficiary)

Often more than 1 bank involved : sending bank, receiving Often more than 1 bank involved : sending bank, receiving bankbank

Transfer of moneyTransfer of moneyM

oney tra

nsfe

rM

oney tra

nsfe

r

Money transfer (giro)Money transfer (giro)- Harmonisation ?Harmonisation ?

- UNCITRAL model law 1992 on international credit transfers. UNCITRAL model law 1992 on international credit transfers. Contains:Contains:

- - a conflict of law rule- a conflict of law rule- - rules concerning the rights and obligations of the parties - rules concerning the rights and obligations of the parties

involved (time for performance, liability, interest for late involved (time for performance, liability, interest for late performance, etc.) performance, etc.)

- Model law has inspired EC-Directive 1997/5 on cross-border Model law has inspired EC-Directive 1997/5 on cross-border transfers (transparency of contract conditions; duties transfers (transparency of contract conditions; duties concerning time of performance, effects of instructions, ...)concerning time of performance, effects of instructions, ...)

- Now replaced by the SEPA-Directive 2007/64 (next slide)Now replaced by the SEPA-Directive 2007/64 (next slide)

- In the US: Electronic Funds Transfer Act 1978.In the US: Electronic Funds Transfer Act 1978.

Other payment proceduresOther payment procedures

Banks may also be involved as issuer of a documentary l/c Banks may also be involved as issuer of a documentary l/c (supra)(supra)

A credit card company can be involved as delegated debtorA credit card company can be involved as delegated debtor

In the EU rights and obligations of parties to a payment In the EU rights and obligations of parties to a payment service have been harmonised by the SEPA-Directive service have been harmonised by the SEPA-Directive 2007/64 (in force since November 2009). In 2013 2007/64 (in force since November 2009). In 2013 Commission Proposal for a recast, Recast adopted by EP on Commission Proposal for a recast, Recast adopted by EP on Oct 8, 2015, now discussed by Council.Oct 8, 2015, now discussed by Council.

EU law has introduced a uniform account number: IBAN (+ EU law has introduced a uniform account number: IBAN (+ BIC to identify the bank)BIC to identify the bank)

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Private payment regimesPrivate payment regimes

E.g. Paypal has developed its own global rules and its own E.g. Paypal has developed its own global rules and its own dispute resolution system. However, standard conditions of dispute resolution system. However, standard conditions of contract vary according to requirements of national contract vary according to requirements of national mandatory law.mandatory law.

Cross-border payments traditionally required 2 banks; now Cross-border payments traditionally required 2 banks; now there are global players, i.a. Playpal. (both payor and payee there are global players, i.a. Playpal. (both payor and payee need also a bank account to use Paypal, but for the payment need also a bank account to use Paypal, but for the payment itself there is only 1 intermediary)itself there is only 1 intermediary)

Additional features of Paypal: Paypal buyer protection: Additional features of Paypal: Paypal buyer protection: - Paypal will reimburse itself the payer in certain casesPaypal will reimburse itself the payer in certain cases- The payee must reimburse Paypal if these conditions are metThe payee must reimburse Paypal if these conditions are met- Thus 2 semi-autonomous obligationsThus 2 semi-autonomous obligations

Payments restrictionsPayments restrictions Not only currency exchange but also modes of payment Not only currency exchange but also modes of payment

can be restricted by regulations to combat financing of can be restricted by regulations to combat financing of crime and money launderingcrime and money laundering

In 1989, an intergovernmental organisation was founded, In 1989, an intergovernmental organisation was founded, the FATF (Financial Action task Force (on Money the FATF (Financial Action task Force (on Money Laundering)), since 2001 also on combating terrorism Laundering)), since 2001 also on combating terrorism financing.financing.

It issues:It issues:- Recommendations, recognised as anti-money laundering Recommendations, recognised as anti-money laundering

(AML) and counter-terrorist financing (CTF) standards. (AML) and counter-terrorist financing (CTF) standards. - A Blacklist of "Non-Cooperative Countries or Territories" A Blacklist of "Non-Cooperative Countries or Territories"

(NCCTs)(NCCTs)

National offices, e.g. OFAC (Office on Foreign Assets Control National offices, e.g. OFAC (Office on Foreign Assets Control of the US Dept. of Finance)of the US Dept. of Finance)

Counter-tradeCounter-trade Counter-trade or compensatory trade: payment of goods Counter-trade or compensatory trade: payment of goods

(or services) with other goods (or services), directly (barter) (or services) with other goods (or services), directly (barter) or indirectly (linked contracts, such as reciprocal contracts or indirectly (linked contracts, such as reciprocal contracts of sale, or buy-back contracts, offset arrangements (eg of sale, or buy-back contracts, offset arrangements (eg military equipment or aircraft)military equipment or aircraft)

The « counter-trade agreement » is a framework contract The « counter-trade agreement » is a framework contract setting out matters such assetting out matters such as- which goods are suitable for counter-trade- which goods are suitable for counter-trade- valuation of the goods (determination of price) - valuation of the goods (determination of price) - modalities of payment of the balance (time, currency) - modalities of payment of the balance (time, currency) (often through a clearing account)(often through a clearing account)- restriction on further sale- restriction on further sale- credit security, etc. - credit security, etc.

Counter-tradeCounter-trade Uncitral Guide on countertradeUncitral Guide on countertrade

Under GATT ?Under GATT ?- Impose counter-trade is a quantitative restriction, thus in Impose counter-trade is a quantitative restriction, thus in

principle prohibited principle prohibited - Maybe allowed by virtue of a) exceptions for developing Maybe allowed by virtue of a) exceptions for developing

countries, b) exception of balance of payments , ...countries, b) exception of balance of payments , ...- Obligatory counter-trade prohibited in the Government Obligatory counter-trade prohibited in the Government

Procurement Agreement.Procurement Agreement.