UCP 600 Article 38: Transferable — Transfer Requires Express Statement

Introduction

Article 38 of UCP 600 builds on a foundational requirement established in Article 2: a documentary credit can be transferred only if it expressly states that it is transferable. This express statement requirement is the gateway to the entire transferable credit framework. Without it, no transfer can occur—regardless of the parties' commercial intentions, prior dealings, or industry practice.

The requirement is deliberately strict. The ICC designed it to prevent unauthorized transfers, protect the issuing bank and applicant from unexpected second beneficiaries, and ensure that all parties consent to the transfer mechanism before it is activated. This guide explains the express statement requirement, its practical implications, and the compliance strategies that banks and their clients should follow.

Failure Modes

1. Attempting to Transfer a Credit Without an Express Statement

The most basic failure is processing a transfer request for a credit that does not contain the required express statement. A nominated bank that does this is acting outside UCP 600's framework and may expose itself to liability.

2. Relying on the Applicant's Verbal Assurance of Transferability

The applicant's verbal or written assurance that the credit is transferable does not satisfy Article 38(a). The express statement must appear in the credit itself. A separate instruction from the applicant—even if documented—does not create transferability.

3. Using Ambiguous Language That Does Not Clearly Express Transferability

Credits containing language such as "payment rights may be assigned" or "credit is negotiable" do not satisfy the express statement requirement. Article 38(a) requires the word "transferable" or a clearly equivalent expression. Ambiguity is treated as non-compliance.

4. Assuming Transferability Based on Credit Type or Industry Practice

Some practitioners assume that certain credit types (e.g., standby credits, revolving credits, or credits for commodities) are inherently transferable. UCP 600 does not support this assumption. Transferability depends entirely on the express statement, not on the credit's type or the industry's customs.

5. Failing to Verify Express Statement at the Time of Transfer Request

When a transfer is requested, the transferring bank should verify that the credit contains the express statement before processing. Banks that skip this verification step risk processing unauthorized transfers.

Resolution Pathways

1. Make Express Statement Verification the First Step in Transfer Processing

Every transfer request should begin with verification that the credit contains the express transferability statement. This verification should be documented and retained as part of the transfer's compliance record.

2. Train Staff to Identify Compliant and Non-Compliant Language

Trade finance staff should be trained to distinguish between language that satisfies Article 38(a) and language that does not. Training materials should include specific examples of both compliant and non-compliant statements.

3. Include the Express Statement in Standard Credit Templates

Issuing banks that regularly issue transferable credits should include the express transferability statement as a standard field in their credit templates. This reduces the risk of accidentally omitting the statement.

4. Escalate Ambiguous Cases to Compliance or Legal

When the transferability language in a credit is ambiguous, the transferring bank should escalate to its compliance or legal department before processing the transfer. The cost of a compliance review is far less than the cost of an unauthorized transfer.

5. Document the Basis for Every Transfer Decision

Whether a transfer is processed or rejected, the transferring bank should document its reasoning. For processed transfers, the documentation should reference the specific language that satisfies Article 38(a). For rejected transfers, it should explain why the credit did not meet the requirement.

6. Reference ICC Opinions for Unusual Transferability Language

ICC opinions and DOCDEX decisions address specific scenarios where transferability language has been challenged. These opinions provide authoritative guidance on what constitutes an express statement under Article 38(a).

7. Confirm Transferability Intent with the Applicant Before Issuance

Issuing banks should confirm with the applicant whether the credit should be transferable before issuing it. This prevents situations where the applicant did not intend transferability but the credit inadvertently includes transferability language.

Conclusion

The express statement requirement under Article 38(a) is absolute, non-negotiable, and strictly interpreted. It is the single most important prerequisite for the transferable credit mechanism. Without the express statement, Article 38's provisions simply do not apply—no transfer can occur, regardless of the parties' commercial intentions.

The simplicity of the requirement—include the word "transferable"—belies its importance. It ensures consent, prevents unauthorized transfers, and maintains the integrity of the documentary credit system. Banks that enforce this requirement consistently protect themselves and their clients from the most fundamental category of transfer-related disputes.

Frequently Asked Questions

1. Can a credit be made transferable by amendment after issuance?

Yes. Under Article 10, a credit can be amended to add a transferability statement. However, the amendment must be accepted by all parties, and the express statement must be in the credit from the effective date of the amendment. Transfers cannot be processed based on a pending, unaccepted amendment.

2. Does "this credit is assignable" satisfy the express statement requirement?

ICC opinions have typically held that "assignable" is not equivalent to "transferable" under Article 38. Assignment and transfer are different legal concepts under UCP 600. A credit described as "assignable" but not "transferable" does not meet Article 38(a)'s requirement.

3. What if the word "transferable" appears in a document reference rather than the credit terms?

The word "transferable" must appear in the credit's terms, not in an unrelated clause or a reference to other documents. For example, a reference to "transferable bills of lading" in a cargo description does not make the credit itself transferable.

4. Can a bank accept a transfer if the express statement is in a language other than English?

UCP 600 does not mandate a specific language for the express statement. The statement can be in any language, provided it clearly conveys transferability. However, practitioners should exercise caution with non-English statements and may want to request clarification or translation.

5. Is an express statement required for assignment of proceeds under Article 39?

No. The assignment of proceeds under Article 39 is a different mechanism from the transfer of a credit under Article 38. Assignment of proceeds does not require the express transferability statement because it is governed by a separate article with different requirements.

Source Notes

Context only — the following sources informed the background understanding for this guide but were not directly reproduced or copied:

• ICC Incoterms 2020 publication (International Chamber of Commerce, 2020)
• ICC UCP 600 publication (International Chamber of Commerce, July 2007)
• ICC Academy: A guide to types of documentary credit, published October 2024
• ICC Academy: UCP 600 and ISP98: Key differences and applications, published October 2025
• ICC Academy: Transferable vs. back-to-back letters of credit (LCs): Key risks and mitigation strategies for banks, published May 2025