What Are We Supposed to Do? A Practical Approach to Sanctions Clauses

As bankers, we are more than happy that the ICC Banking Commission took the opportunity to reiterate its position against insertion of sanctions clauses in trade finance instruments such as documentary credits and demand guarantees governed by the relevant ICC rules. The position of a banker in the trade finance environment includes trying to reconcile opposite demands of a buyer and a seller supported by the well-balanced provisions of the UCP600, ISBP745, URDG758, ISDGP, and various ICC Opinions, Decisions, and Guidance Papers. As a matter of fact, the entire trade finance community knows that these provisions are commercial practices internationally agreed upon and recognized. However, we also all know that law ultimately prevails. Consequently, a banker may have to find the right balance in order not only to abide by applicable law but also to respect the spirit of its cherished trade finance instruments and rules.

When I am questioned on the acceptability of a sanctions clause, I will first ask the requester if there is an opportunity to delete such a clause. As it concerns a non-documentary condition and as we all have to abide by the law, why do we have to keep it? What is the added value of such a clause? The three main characteristics of a documentary credit are its irrevocable, independent, and … documentary nature! But, then, I can understand the delicate position of my fellow banker in adding such a clause in its import LC text. Our day-to-day job is mitigating risks and the number of sanctions and embargo policies has increased tremendously in recent years to such an extent that it is better to be safe than sorry. Consequently, I suggest my colleague request the issuing bank to convert the wording of a problematic clause into an acceptable, informative one. This is where interpretation comes into play.