The spread of sanctions clauses in letters of credit

With sanctions regimes intensifying recently, particularly across the Middle East, the use of sanctions clauses is becoming more prevalent in banks’ letters of credit, and remains a difficult issue for transactions in international trade

Commercial letters of credit (L/C) are most commonly used in international trade transactions as a trusted vehicle to pay for goods. With an increase in international sanctions, particularly as a result of the continuing unrest in the Middle East, banks issuing financing documents have responded by inserting sanctions clauses into their L/Cs.

The sanctions clauses are designed principally to warn counterparties that sanctions may prohibit the bank from dealing with specific countries, persons or