Legal Issues in International Banking Transactions :

Legal issues associated with international banking transactions arise due to involvement of more than one law/ s of different countries. Due to various reasons, even in a simple two party loan agreement a number of different legal systems may be involved, for example an independent currency may be used for the transaction, but the loan is guaranteed by a third party based in another country. Under such circumstances, more than one law would be used.

In such a situation, the court would consider such cases, which contains a foreign element, principles of private international law, or conflict of laws, come into operation. The objects of private international law are:

1. to ascertain whether a court has jurisdiction to determine the case

2. to identify which system of law the court will apply to the determine fact of the case

3. to determine whether the court will recognize or enforce a judgment obtained in a foreign court

It is of the utmost importance that the legal aspects of any international banking transactions are made as predictable as possible. This question of predictability does not normally pose a significant problem in purely domestic banking transactions, since the rights and obligations of the various parties will normally be determined by the local systems of law under which they contract. However, this will not necessarily be the case in international banking and it will therefore be crucial to structure the transaction documentation within a competent legal framework. The most effective way in which this can be achieved is by selecting both (i) the system of law which governs the substantive aspects of the transaction, and (ii) the court which will have jurisdiction to resolve any dispute that may arise.

In view of the above, the international banks sometimes, face difficulties while handling the syndicated loans, depending upon the number of banks and countries involved.