ICC Urges Banks to Refrain From Using Sanctions Clauses

The International Chamber of Commerce recently issued an addendum to its guidance on the use of sanctions clauses, urging banks to refrain from using or accepting sanctions clauses that impose extra restrictions on a deal. Broad sanctions clauses “defeat the independence principle in letters of credit and demand guarantees, the exclusively documentary nature of the instrument, and create uncertainty,” the ICC said in the May addendum.

The ICC said sanctions clauses may be necessary in certain instances but stressed they “should not be used generally.” If the clause is used, banks should draft them in “clear terms, restrictively, to limit the reference only to mandatory law applicable to the bank.” Although there has been a “resurgence” in the use of sanctions clauses, the chamber said they should be used only in “specific transactions, and only after consulting with the customer and counterparties in the relevant transaction.” The addendum provides a template for sanctions clauses.