Back-to-Back Letters of Credit are used in international and domestic trade.  The parties to a Back-to-Back Letter of Credit are:
1.       the buyer and his bank as the issuer of the original LETTER OF CREDIT,
2.       the seller/manufacturer and his bank,
3.       the manufacturer's subcontractor and his bank.
This type of credit transaction is used when a seller/manufacturer has to purchase a component or farm out part of the manufacture of a product, but may not have the cash flow to do so. 
In this case, the seller/manufacturer applies to his bank for a letter of credit, identical to the original Letter of Credit he received from the Buyer, except that it is for a lesser value.  This second letter of credit, called a Back-to-Back, is sent to the subcontractor's bank and therefore the subcontractor knows that he will be paid and can proceed with his part of the transaction - supplying components or service to the manufacturer.
In the UNDERGROUND NETWORK, requests for Back-to-Back Letters of Credit are very common.   They are requested as a means of guaranteeing commissions to INTERMEDIARIES.  The commission is supposed to be the difference between the asking price of the commodity and the selling price. 
In fact, a Back-to-Back Letter of Credit can be used in this manner - to guarantee the payment of commissions to an importer or exporter acting as agent for the Buyer or Seller.  The agent can request his bank to make arrangements with the seller's bank to issue the credit, however the agent must be on excellent terms with his banker in order for the request to honored.