Layered letters of credit (L/Cs) could be used to circumvent trade sanctions imposed on Russia intended to deny it to the goods, technologies and revenue necessary to pursue its military operations in Ukraine the UK government has warned.

In a notice aimed at preventing the undermining of trade sanctions, export controls, and other restrictive measures designed and implemented in response to Russia's invasion of Ukraine, the government says that direct trade between the UK to Russia has fallen significantly since sanctions were introduced. But it warns that Russia will seek to procure restricted goods via other routes.

Potential dangers

Layered L/Cs refer to complex arrangements, potentially involving a scenario where multiple banks are involved in the issuance and confirmation of separate L/Cs.

This could create a complex chain of obligations and relationships between the banks and the parties involved. However, such arrangements would be highly specific to individual trade transactions.

Complicate structures

As they are not part of standardised trade finance practices, layered L/Cs or any complex arrangements should be approached with caution.

The UK government's notice concludes that "complicated structures to conceal involvement - use of layered L/Cs, front companies, intermediaries and brokers" could be key risk factors in efforts to circumvent trade sanctions.

The UK government's notice, Russia sanctions - Trade sanctions circumvention, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.