Sanctions imposed on countries worldwide, particularly in the Middle East, are causing new clauses to be written into letter of credit (L/C) documents according to a lawyer who specialises in issues concerning sanctions.

Partner and head of the UK and EU sanctions practice at law firm Fulbright and Jaworski, Lista Cannon, says the use of such sanctions clauses have had several impacts.

Bank flexibility

Sanctions clauses primarily warn counterparties that sanctions may prohibit banks from dealing with specific countries, persons or assets, according to Cannon.

She says forms of wording used may give banks additional flexibility as to whether they are required to honour obligations set out in an L/C.

Wider scope

Cannon reckons that sellers in international trade transactions are experiencing a widening in the intended scope of sanctions clauses in L/Cs, including consideration of a bank's internal policies on sanctions.

In an article published on Risk.net, the lawyer reckons that some clauses call into question the independent and irrevocable nature of L/Cs while others have given banks a contractual discretion not to honour contractual obligations.

Disputes arising

Sanctions imposed by the US and the EU on Middle Eastern countries, such as Iran and Syria in particular, have given rise to disputes over the validity of L/Cs, according to Cannon.

A full copy of Cannon's article can be found here: http://www.risk.net/operational-risk-and-regulation/feature/2180408/spread-sanctions-clauses-letters-credit

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.