Discover the main legal risks of letters of credit in Turkey, including documentary discrepancies, bank liability, fraud, sanctions, shipment problems, UCP 600 rules, payment disputes, and practical protections for international traders in 2026.

Letters of credit are widely used to reduce payment risk in international trade. They allow an exporter to rely on a bank’s payment undertaking rather than depending solely on the buyer’s willingness or financial ability to pay. However, an L/C does not eliminate commercial or legal risk. It replaces some risks with a highly technical documentary system in which even a minor error may result in delayed or refused payment.

In transactions involving a buyer, seller, issuing bank, confirming bank, carrier, insurer, or intermediary in Turkey, disputes often arise because the parties misunderstand the independent nature of the letter of credit, submit non-compliant documents, overlook sanctions restrictions, or assume that the bank is responsible for the actual condition of the goods.

As of 2026, documentary credits used by Turkish banks and international traders are generally structured under the contractual terms of the credit, Turkish law where applicable, and the Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600, commonly known as UCP 600, when expressly incorporated into the L/C. The majority of modern documentary credits internationally are issued subject to UCP 600.

This guide explains how letters of credit operate in Turkey, the most important legal risks for foreign traders, the responsibilities of banks, common grounds for payment refusal, and the practical steps businesses should take before shipping goods or presenting documents.

What Is a Letter of Credit?

A letter of credit, also known as a documentary credit or L/C, is an undertaking issued by a bank at the request of a buyer. The issuing bank agrees to honour a complying presentation made by the beneficiary, usually the exporter, provided that all documents required by the credit are submitted in accordance with its terms.

Under modern documentary credit practice, the issuing bank’s obligation is irrevocable once the credit is issued, unless the credit terms provide otherwise within the applicable legal framework. The bank’s obligation is based on the presentation of complying documents, not on the physical performance of the underlying sale contract.

The principal parties usually include:

• The applicant, normally the importer or buyer
• The beneficiary, normally the exporter or seller
• The issuing bank
• The advising bank
• The nominated bank
• The confirming bank, where confirmation is added
• Reimbursing banks or other intermediaries where applicable

How Does a Letter of Credit Transaction Work in Turkey?

A typical L/C transaction involving Turkey follows several stages.

First, the buyer and seller sign an international sales agreement and agree that payment will be made by letter of credit. The buyer then requests a Turkish or foreign bank to issue the credit in favour of the seller.

The issuing bank transmits the L/C, usually through a secure banking communication system, to an advising bank in the beneficiary’s country. The seller reviews the credit, ships the goods, and presents the required documents.

The relevant bank examines the documents. If they comply with the L/C terms and applicable UCP rules, payment, acceptance, negotiation, or deferred payment should occur according to the type of credit.

The bank does not ordinarily inspect the goods themselves. It examines the documents presented.

The Independence Principle

One of the most important legal principles governing letters of credit is independence.

The letter of credit is separate from:

• The international sales contract
• The transportation contract
• The insurance contract
• The inspection agreement
• Any dispute concerning the quality of the goods

This means that a bank may be required to honour a complying presentation even where the buyer alleges that the goods are defective. Conversely, an exporter may lose the right to payment under the L/C even after properly shipping the goods if the documents do not comply with the credit.

International traders should therefore avoid treating the letter of credit as a simple extension of the sales contract. It is an independent documentary undertaking with its own requirements.

The Documents, Not the Goods, Control Payment

Banks deal primarily with documents rather than goods, services, or contractual performance. This principle creates one of the greatest risks for exporters.

A seller may deliver the correct goods on time but still face non-payment because:

• The commercial invoice contains an incorrect description
• The bill of lading shows the wrong shipment date
• The insurance certificate provides insufficient coverage
• The certificate of origin is missing or inconsistent
• The packing list does not match the invoice
• The documents are presented after the deadline
• The shipment route differs from the L/C terms
• The document issuer is not the entity required by the credit

Accordingly, commercial performance alone does not guarantee payment.

Does UCP 600 Automatically Apply in Turkey?

No. UCP 600 generally applies when the credit expressly states that it is subject to UCP 600.

The parties should not assume that international banking rules automatically govern every documentary credit. The wording of the L/C must be reviewed carefully.

Where UCP 600 is incorporated, it operates as part of the contractual framework. Turkish mandatory legal rules, public policy considerations, sanctions requirements, fraud principles, and the governing law of relevant banking relationships may also affect the transaction.

Major Legal Risks of Letters of Credit in Turkey

Documentary Discrepancies

Documentary discrepancies are the most common source of disputes.

A presentation must comply with:

• The express terms of the credit
• UCP 600, where incorporated
• Applicable international standard banking practice
• The nature and function of each document

Common discrepancies include:

• Misspelled company names
• Conflicting quantities
• Inconsistent product descriptions
• Late shipment
• Late presentation
• Missing signatures
• Incorrect dates
• Unauthorised partial shipment
• Unauthorised transshipment
• Incorrect port details
• Inadequate insurance documents
• Missing originals
• Incorrect transport documents

Under UCP 600 practice, documents containing original transport documents generally must be presented within the period specified in the credit and, where applicable, no later than 21 calendar days after shipment, while always remaining within the credit’s expiry date.

A discrepancy that appears commercially insignificant may still justify refusal if it prevents the presentation from being treated as compliant.

Ambiguous L/C Wording

Poorly drafted credits create disputes before shipment even begins.

Risky wording may include:

• Unclear document descriptions
• Impossible certification requirements
• Contradictory shipment dates
• Conditions that depend on the applicant’s approval
• Documents that cannot be obtained in the exporting country
• Undefined quality standards
• Inconsistent Incoterms
• Unclear allocation of bank charges
• Uncertain governing rules

The beneficiary should review the credit immediately after receiving it. Any impossible, unclear, or commercially unacceptable condition should be corrected by amendment before production or shipment.

Failure to Obtain Confirmation

An exporter may incorrectly believe that the involvement of a second bank automatically guarantees payment.

An advising bank merely authenticates and advises the credit unless it separately adds its confirmation. Even where the issuing bank authorises or requests confirmation, the nominated bank does not become a confirming bank unless it actually agrees to add confirmation.

ICC guidance emphasises that a bank’s obligation as confirming bank begins only when confirmation is actually added. A SWIFT instruction allowing or requesting confirmation does not, by itself, mean that the credit has already been confirmed.

Without confirmation, the exporter may remain exposed to:

• Issuing-bank insolvency
• Country risk
• Transfer restrictions
• Political instability
• Sanctions
• Payment moratoriums
• Foreign exchange restrictions

Fraud and Forged Documents

Letters of credit may be targeted by sophisticated fraud schemes involving:

• Forged bills of lading
• False warehouse receipts
• Fictitious shipments
• Duplicate documents
• False inspection certificates
• Fraudulent invoices
• Identity theft
• Fake bank communications
• Altered SWIFT messages

The independence principle does not create an unlimited right to payment in cases of clear fraud. Turkish courts may consider interim measures where there is strong and credible evidence that a demand or presentation is fraudulent.

However, a buyer’s unsupported allegation that goods are defective is generally not equivalent to documentary fraud. The distinction between an ordinary contractual dispute and deliberate fraud is critical.

Sanctions and Compliance Risk

Banks operating in Turkey must consider applicable sanctions, anti-money laundering obligations, counter-terrorist financing rules, export controls, internal compliance policies, and correspondent-banking restrictions.

An L/C may be delayed, rejected, blocked, or terminated where a transaction involves:

• A sanctioned person or company
• A restricted country
• Dual-use goods
• Prohibited commodities
• A sanctioned vessel
• A restricted bank
• Unclear beneficial ownership
• Suspicious payment routes
• False customs documentation
• Circumvention of trade restrictions

Even where the transaction is lawful under Turkish law, a bank may face restrictions imposed by correspondent banks or foreign sanctions regimes connected to the currency, clearing system, or parties.

International traders should therefore conduct sanctions screening before signing the underlying sales contract, not after shipment.

Transport Document Risk

Transport documents are central to many L/C transactions.

Problems frequently arise where:

• The bill of lading is not clean
• The carrier is incorrectly identified
• The document is signed by an unauthorised party
• The shipment date is unclear
• The port of loading or discharge is incorrect
• The goods description is inconsistent
• The bill of lading is issued “to order” incorrectly
• The number of originals is incomplete
• Freight status does not match the credit
• Transshipment is shown despite being prohibited

The sales team, freight forwarder, carrier, customs adviser, and banking team must coordinate before shipment. Waiting until the documents are issued may make correction impossible.

Insurance Document Risk

Where the credit requires an insurance policy or certificate, the document must satisfy the required:

• Coverage amount
• Currency
• Risk scope
• Effective date
• Claims location
• Endorsement
• Issuing entity
• Number of originals

A certificate providing insufficient coverage or taking effect after shipment may lead to refusal.

Foreign Exchange and Transfer Risk

Cross-border payments may be affected by currency volatility, correspondent-banking restrictions, exchange controls, bank liquidity issues, and changes in payment channels.

The L/C should clearly specify:

• Payment currency
• Exchange-rate mechanism
• Bank charges
• Reimbursement method
• Payment date
• Interest for deferred payment
• Allocation of transfer expenses

A commercially successful transaction may still become unprofitable where currency risk is not separately managed.

Applicant Insolvency

The issuing bank’s undertaking is independent from the applicant’s payment obligation. Nevertheless, applicant insolvency can still create operational and litigation risks, particularly where:

• The L/C has not yet been issued
• The credit is subject to cancellation conditions
• Required amendments are refused
• Fraud allegations are raised
• Interim injunctions are sought
• The issuing bank has not assumed an effective obligation

Exporters should never ship goods merely because the buyer promises that an L/C will be opened later.

Issuing-Bank or Confirming-Bank Insolvency

A letter of credit transfers credit risk from the buyer to the bank, but the beneficiary then assumes bank risk.

Before accepting an L/C, the exporter should examine:

• The issuing bank’s creditworthiness
• The country where the bank is located
• The availability of confirmation
• The confirming bank’s rating
• The payment currency
• The reimbursement structure
• Correspondent-banking arrangements

For high-risk jurisdictions or unfamiliar issuing banks, confirmation by a financially reliable bank may be essential.

Governing Law and Jurisdiction Risk

A single L/C transaction may involve several legal relationships governed by different laws.

These include:

• The sales contract
• The application agreement between buyer and issuing bank
• The issuing bank’s undertaking
• The advising relationship
• The confirmation undertaking
• The reimbursement arrangement
• The transport contract
• The insurance contract

The sales contract’s governing law clause does not necessarily govern every banking relationship.

International parties should also determine whether disputes will be resolved by:

• Turkish courts
• Foreign courts
• Commercial arbitration
• Banking-sector dispute mechanisms

Poorly coordinated jurisdiction clauses may lead to parallel proceedings.

Sight and Deferred-Payment Letters of Credit

A sight L/C provides for payment after a complying presentation and completion of the relevant examination process.

A deferred-payment or usance L/C provides for payment at a future date.

Deferred-payment structures create additional risks, including:

• Bank insolvency before maturity
• Currency fluctuation
• Discounting costs
• Interest disputes
• Maturity calculation errors
• Sanctions changes before payment
• Transfer restrictions
• Assignment disputes

The beneficiary should evaluate both documentary compliance and the credit risk applicable throughout the deferral period.

Transferable and Back-to-Back Letters of Credit

Transferable and back-to-back structures are often used where a trader acts as an intermediary between the buyer and the actual supplier.

A transferable credit permits the first beneficiary to transfer all or part of the credit to a second beneficiary where the credit expressly states that it is transferable.

A back-to-back arrangement usually involves a second L/C issued on the strength of the first.

These structures carry additional legal and operational risks:

• Mismatched expiry dates
• Incompatible document requirements
• Insufficient profit margins
• Disclosure of the supplier or buyer
• Failure of the first credit
• Document substitution errors
• Financing gaps
• Fraud risk

ICC guidance recommends detailed verification of invoices, bills of lading, and other documents to minimise discrepancies and fraud in transferable and back-to-back transactions.

Standby Letters of Credit

A standby letter of credit operates more like a secondary payment mechanism. It is usually called upon when the applicant fails to perform an obligation.

A standby L/C may be subject to UCP 600 or the International Standby Practices, ISP98, depending on its wording. ICC guidance notes that either UCP 600 or ISP98 may govern a standby credit when incorporated into the instrument.

Parties should not assume that commercial documentary-credit rules and standby-credit rules produce identical outcomes.

Can a Turkish Bank Refuse Payment?

A bank may refuse payment where the presentation is not compliant.

The refusal should identify the discrepancies and follow the procedure required by the applicable credit rules. The bank cannot ordinarily reject a complying presentation merely because the applicant does not wish to pay.

Potentially lawful grounds for non-payment may include:

• Documentary non-compliance
• Expired credit
• Late presentation
• Missing required documents
• Fraud
• Court-ordered interim measures
• Sanctions restrictions
• Illegality
• Failure of a condition permitted under the governing framework

Whether a refusal is lawful depends on the wording of the credit, the documents, the applicable ICC rules, the governing law, and the bank’s conduct.

Can the Buyer Stop Payment Because the Goods Are Defective?

Usually, an ordinary dispute concerning quality, quantity, or contractual performance does not automatically permit the buyer to stop payment under a complying L/C.

The buyer may pursue separate contractual remedies against the seller, such as:

• Damages
• Price reduction
• Replacement
• Termination
• Arbitration
• Court proceedings

A court application to stop payment generally requires a stronger legal basis, such as clear fraud or abuse, rather than a routine commercial disagreement.

Bank Liability in L/C Disputes

A bank may face liability where it:

• Wrongfully rejects compliant documents
• Honours clearly non-compliant documents
• Fails to follow refusal procedures
• Misrepresents that confirmation was added
• Acts contrary to its undertaking
• Mishandles documents
• Delays payment without lawful grounds
• Breaches confidentiality or compliance duties
• Negligently processes an amendment

The scope of liability depends on the bank’s role. An advising bank, nominated bank, confirming bank, and issuing bank do not have identical obligations.

Dispute Resolution in Turkey

Letter-of-credit disputes in Turkey may involve:

• Commercial courts
• Interim injunction applications
• Debt collection proceedings
• Compensation claims
• Declaratory actions
• Arbitration proceedings
• Claims against banks
• Claims under the underlying sales agreement

Commercial mediation may be mandatory before filing certain monetary commercial lawsuits under Turkish law. Whether mediation is required depends on the nature and remedy of the claim.

Urgent applications for interim protection may require immediate court action, particularly where fraudulent presentation, dissipation of assets, or imminent payment is alleged.

2026 Legal and Commercial Developments

As of 2026, UCP 600 remains the principal international rule set for documentary credits where incorporated into the instrument. ICC materials published in 2025 and 2026 continue to emphasise documentary accuracy, confirmation wording, sanctions compliance, digital processing, and the distinction between documentary credits and standby instruments.

No universal rule makes every letter of credit involving Turkey subject to UCP 600. Traders must continue to review the actual credit text, Turkish mandatory law, banking terms, sanctions exposure, and the law governing each contractual relationship.

Digital presentation, electronic records, automated document checking, electronic bills of lading, and fraud-prevention technology are becoming increasingly important. However, technology does not eliminate the need to ensure that the credit expressly permits the relevant electronic documents and identifies the applicable rules.

Practical Checklist for Exporters

Before accepting an L/C, the exporter should:

1. Verify the issuing bank.
2. Check whether confirmation is necessary.
3. Confirm that UCP 600 is incorporated.
4. Review every documentary condition.
5. Compare shipment dates and expiry dates.
6. Confirm that required documents can be obtained.
7. Check ports, Incoterms, quantities, and currency.
8. Review sanctions and export-control risks.
9. Coordinate with the carrier and insurer.
10. Request amendments before shipment.
11. Prepare draft documents in advance.
12. Present documents before all deadlines.

Practical Checklist for Importers

Importers should:

1. Align the L/C with the sales contract.
2. Avoid vague or subjective conditions.
3. Require commercially relevant documents.
4. Conduct supplier due diligence.
5. Verify shipping and insurance requirements.
6. Review sanctions exposure.
7. Avoid conditions that banks cannot examine objectively.
8. Monitor shipment and presentation deadlines.
9. Review discrepancy waiver requests carefully.
10. Preserve contractual remedies outside the L/C.

Common Mistakes International Traders Make

The most frequent mistakes include:

• Shipping before reviewing the final L/C
• Assuming the bank checks the goods
• Using inconsistent company names
• Copying contractual terms into the credit without adaptation
• Requiring impossible documents
• Missing amendment deadlines
• Failing to obtain confirmation
• Ignoring sanctions risk
• Depending entirely on freight forwarders
• Presenting documents at the last moment
• Waiving discrepancies without legal review
• Confusing a standby L/C with a commercial documentary credit

Why Legal Review Is Important

A lawyer experienced in international trade and banking law can review:

• The underlying sales agreement
• The L/C application
• Documentary conditions
• Confirmation clauses
• Governing law
• Jurisdiction or arbitration clauses
• Sanctions exposure
• Fraud risks
• Bank refusal notices
• Interim-measure options
• Claims against the buyer, seller, or bank

Legal review before shipment is usually more effective and less expensive than litigation after payment has been refused.

Frequently Asked Questions

1. Are letters of credit legally recognised in Turkey?

Yes. Letters of credit are commonly used in international transactions involving Turkish banks and companies. Their legal effect depends on the credit terms, incorporated international rules, contractual arrangements, and applicable Turkish law.

2. Does UCP 600 automatically apply to every Turkish L/C?

No. UCP 600 should be expressly incorporated into the letter of credit. Traders must check the wording of the instrument.

3. Can a bank refuse payment for a minor spelling error?

Potentially, yes. The legal significance of the error depends on whether it creates a documentary inconsistency or prevents the presentation from complying with the credit and applicable banking practice.

4. Can an exporter receive payment when the buyer claims the goods are defective?

A complying documentary presentation may still require payment because the L/C is separate from the underlying sales dispute. Fraud or a binding court order may create exceptional circumstances.

5. Is an advising bank responsible for payment?

Not merely because it advises the credit. Payment responsibility depends on whether the bank has added confirmation, nominated itself to honour or negotiate, or assumed another binding obligation.

6. What is the advantage of a confirmed L/C?

Confirmation adds an independent undertaking from the confirming bank. It can reduce issuing-bank and country risk, provided that confirmation has actually been added.

7. What happens when documents contain discrepancies?

The bank may refuse the presentation, seek a waiver from the applicant, or process the documents according to the applicable rules. The beneficiary should not assume that the applicant will waive the discrepancies.

8. Can a Turkish court stop payment under an L/C?

In exceptional cases, a Turkish court may consider interim relief, particularly where strong evidence of fraud, illegality, or abuse exists. Ordinary contractual disputes are generally insufficient by themselves.

9. Are sanctions clauses enforceable in letters of credit?

Their effect depends on their wording, applicable law, mandatory compliance obligations, and the bank’s regulatory exposure. Broad sanctions clauses should be reviewed carefully before the L/C is accepted.

10. Should international traders obtain legal advice before shipment?

Yes. Legal and documentary review before shipment can prevent discrepancies, reduce fraud and sanctions risks, and protect the right to payment.

Legal Support for International Letter of Credit Transactions

Letters of credit can provide strong payment protection, but only when the sales contract, banking terms, shipping documents, insurance requirements, and compliance procedures are properly coordinated.

Fırat Fesih Kaya Law Office advises foreign exporters, importers, manufacturers, distributors, banks, and international trading companies on documentary credit transactions, payment disputes, bank liability, commercial contracts, sanctions compliance, and cross-border litigation in Turkey.

Working with an experienced lawyer before shipment can prevent documentary discrepancies, preserve payment rights, and reduce the risk of costly international disputes. You may contact our office for a legal assessment tailored to your transaction.

Phone: +90 312 434 22 22
Mobile Phone: +90 532 769 22 22
Email Address: info@firatfesihkaya.av.tr
Office Address: Mevlana Boulevard No: 221, Yıldırım Tower, Office No: 148, 06520 Balgat, Çankaya, Ankara, Turkey

Disclaimer: This article provides general legal information and does not constitute legal advice. Each letter of credit transaction should be assessed according to its wording, governing law, incorporated rules, participating banks, sanctions exposure, and underlying commercial agreement.