Earlier this year, we mentioned that the ICC Banking Commission was re-addressing the ICC Guidance Paper on the use of Sanctions Clauses, published in an updated version in 2014. The paper deals with the use of clauses in relation to trade, economic or financial sanctions or embargos in trade finance instruments (documentary and standby letters of credit, demand guarantees and counter-guarantees) that are subject to the rules drafted by the ICC Banking Commission.
The issue of sanctions being applied upon a documentary credit transaction has surfaced on a number of occasions over the years. As stated in the paper, the use of sanction clauses had become a problematic issue in that they lead to uncertainty as to their application and could potentially defeat the independent nature of such instruments. The purpose of the Guidance Paper was to highlight this issue and recommend best practices in that respect.
However, due to recent resurgence in the use of sanctions clauses in documentary credits, the ICC decided to again address this issue.
As a result, an Addendum to the Guidance Paper was released recently and can be found at https://iccwbo.org/publication/addendum-to-guidance-paper-on-the-use-of-sanctions-clauses-2014/
The key messages are stated as:
The ICC re-states the recommendation that sanctions clauses should not be used under normal circumstances. However, if one is to be used, then such a clause should be drafted in clear terms, restrictively, to limit the reference only to mandatory law applicable to the bank, as according to the following sample clause:
"[notwithstanding anything to the contrary in the applicable ICC Rules or in this undertaking,] We disclaim liability for delay, non-return of documents, non-payment, or other action or inaction compelled by restrictive measures, counter-measures or sanctions laws or regulations mandatorily applicable to us or to [our correspondent banks in] the relevant transaction."
It is recommended that practitioners download the Addendum in order to fully understand the implications.