Confirmation Concerns and Considerations Arising from Strange LC Requirements

Issuing banks are installing more impediments and hurdles in their letters of credit which potential confirming banks are having to struggle with when deciding whether to confirm the LCs. One of the hot trends was presented by Khalil Matar in the June 2024 DCW edition and involved the unpredictable impact of sanctions clauses in trade finance credits. Despite ICC guidance on sanctions clauses, issuing banks frequently incorporate sanctions clauses in LCs which blur the lines of whether an LC is truly “irrevocable”, making it difficult for banks to confirm such LCs. As a result, and perceived safeguard, rather than seeking an amendment to adjust the clause and remove its ambiguous wording, a confirming bank may insert the issuer’s clause or edit its standard sanction clause, leaving a potential complication at the time of a presentation and/or at reimbursement.