Guidance Paper on the use of Sanctions Clauses 2014

Guidance Paper on the use of Sanctions Clauses 2014

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

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.

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