The Bank Payment Obligation 'Catch 22'
A Bank Payment Obligation (BPO) is an irrevocable and independent undertaking given by an obligor bank - typically the buyer's bank - to a recipient bank - the seller's bank - to pay a specified amount on an agreed date. It carries the condition of a successful electronic matching of data according to the Uniform Rules for Bank Payment Obligations (URBPO) in publication 750 of the International Chamber of Commerce,or ICC.
A BPO is a bank-to-bank arrangement that involves an undertaking by the obligor bank,which is often the buyer's bank,to another bank - the recipient bank - which is often the seller's bank.
The URBPO is by nature different from other ICC practice rules,such as UCP 600 (Uniform Customs and Practice for Documentary Credits) and URDG 758 (Uniform Rules for Demand Guarantees). For example,the UCP 600 acknowledges the beneficiary - often the seller - as the presenter. Under the URBPO the term "beneficiary" has a different meaning. For example "recipient bank" is defined as the bank that is the beneficiary of a BPO. This offers some challenges to the URBPO and its usage. This article aims to examine those challenges.
The ICC Banking Commission offers official opinions on the interpretation of its rules; including the URBPO 750. Only one official opinion has been issued for that,namely ICC Opinion TA847rev.
This ICC opinion touches upon issues that relate to the fact that the BPO is limited to being a bank-to-bank arrangement where the interaction between a bank and its clients is outside the scope of the URBPO.
ICC Opinion TA847rev
ICC Opinion TA847rev addresses the following issues:
¡¤ One bank is acting as both obligor bank and recipient bank,that is the transaction is a three-cornered transaction with buyer,seller and one bank with two branches (one acting as obligor bank,the other acting as recipient bank).
¡¤ In other words,there aren't two separate banks as the obligor bank and the recipient bank are different branches of the same bank in the same country.
¡¤ The question is if the obligor bank that provides an irrevocable undertaking to the recipient bank can it be the same bank as the recipient bank. In practice,this can certainly be the case.
¡¤ The party making the query to the ICC suggested solving the problem by amending the definition of the role of the recipient bank by adding a special clause into the BPO transaction as follows: "For the sake of this transaction please read Seller as Beneficiary and Recipient Bank as an agent acting on behalf of the Seller."
The response from the ICC included the following statements:
¡¤ For the purpose of the URBPO,branches of an involved bank in different countries are considered separate banks. Branches of a bank in the same country are considered to be the same bank.
¡¤ Under the URBPO and the ISO 20022 messages the seller is not the beneficiary of a BPO.
¡¤ URBPO is drafted on the assumption that the recipient bank will always be a bank. This stance is supported by the ISO 20022 messages in which such modification of the