Guidance on Paper on the use of Sanctions Clauses 2014

The use of clauses in relation to trade, economic or financial sanctions or embargos (“sanctions”) in trade finance-related instruments that are subject to the rules drafted by the ICC Banking Commission (“ICC rules”), stating banks’ intention to comply with sanctions regulations, has become a problematic issue for banks involved in trade finance transactions, including, particularly, irrevocable, independent documentary and standby letters of credit, demand guarantees and counter-guarantees.

Sanctions may restrict a bank’s ability to perform its role under ICC rules. International banks may be confronted with different sanctions regimes imposed in the multiple jurisdictions in which they operate. As a result, those banks may be subject to conflicting regulatory requirements, and consequently be amenable to formulating internal policies to mitigate the resulting legal risks. Some banks have chosen to control these legal risks by use of sanctions clauses.

Sanctions laws and regulations to which a bank engaged in a trade finance-related instrument is subject may include those of its country of operation, its country of incorporation or registration, the country of the currency or the place of payment, and any other jurisdiction whose laws govern the transaction. Where they are determined to be applicable to the instrument, sanctions laws and regulations are generally considered as being mandatory and thus may override the ICC rules applicable to that instrument and, more generally, the contractual terms of the instrument. If these are the only sanctions laws and regulations applicable to the parties, adding a clause in a trade finance-related instrument stating the bank’s commitment to respect such sanctions law or regulation applicable to it by law may be unnecessary and lead to confusion.

The purpose of this Guidance Paper is to highlight certain issues arising from the use of such clauses and recommend best practices in that respect.

Summary and highlights

• Impact of proliferation of sanctions clauses in trade finance-related instruments subject to ICC rules
• Specimen sanctions clauses encountered in practice
• Recommendations for best practices