Letters of Credit

Letters of credit (L/Cs) are normally used to ensure that an exporter gets paid for the goods they are exporting. The buyer of the goods will purchase a letter of credit from their bank, and forward it to exporter, who lodges it at their bank. Payments will be released by the buyers bank when the conditions of the L/C are fulfilled – these are sometimes stage payments such as when goods are loaded onto a shipping carrier, when they arrive in the country, and when they are cleared by customs.

L/Cs facilitate money laundering by allowing funds to move country when they don’t relate to an actual shipment, which is achieved in countries with lax export controls. L/Cs can be used when import and export prices are manipulated for money laundering or tax evasion purposes.

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