Legal Analysis and Comparison of the Desirability of Using Transferable and Back-to-Back Letters of Credit in International Contracts

Document Type : Scientific research

Authors

Rasool Bahrampoori ¹

Samaneh Malaklou ²

¹ Assistant Professor, Department of Private Law, Faculty of Law, University of Science and Culture, Tehran, Iran.

² Ma. In Oil and Gas Law, Faculty of Law, University of Science and Culture, Tehran, Iran.

https://doi.org/10.22067/economlaw.2026.94154.1469

Abstract

Transferable Letters of Credit and Back-to-Back Letters of Credit each play a fundamental role in financing contracts where an intermediary acts between the main buyer (applicant) and the supplier. Depending on the circumstances and considerations, in some cases, back-to-back letters of credit, and in others, transferable letters of credit provide stronger protection for the rights of the parties involved in the letter of credit process (applicant, beneficiary, and issuing bank). Transferable letters of credit offer advantages, including lower costs and faster processing, but they also have drawbacks. For instance, they can only be transferred once, and the risk of disclosing information about the main suppliers constantly threatens the first beneficiary (seller). On the other hand, opening back-to-back letters of credit requires more time and expense. However, given its significant flexibility compared to transferable letters of credit and due to their effective role in maintaining the confidentiality of information regarding the main suppliers, they are considered more suitable for some players in international trade. In this article, using an analytical-descriptive method, the advantages, disadvantages, risks, and challenges associated with each of these letters of credit are analyzed and the points of divergence between the Iranian legal system and international regulations in this regard have been examined. It is concluded that, under the current economic conditions of Iran and the existing trade and banking restrictions on Iranian merchants, The use of back-to-back letters of credit is more desirable for expanding exchanges, ensuring commercial security, providing liquidity, and facilitating transactions.

Keywords

Principle of Strict Compliance

Beneficiary

Financing

Applicant

Intermediation

Subjects

• Letters of Credit

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