Research On The Clause Of Letter Of Credit

Documentary letter of credit as a main tool for international trade payment is now facing severe challenges imposed by international financial sanctions. In this context, sanction clauses start to appear on letters of credit. However, the unregulated usage of sanction clauses has been introducing even more troubles into letter of credit transactions. In order to assist international traders and bankers in sanction clauses issues, the thesis carries out a detailed analysis of the origins, nature and effects of various sanction clauses.As controversies regarding sanctions clauses go with their popularity, this paper intents to unveil the mysteries of sanction clauses by answering a series of questions. The first question is that what is the motivation for issuing banks to add this clause, or how the sanction obligations conflict with the performance letter of credit and whether there is any alternative exemption for banks in sanction scenarios. Then, the paper moves on to explore "Guidance Paper on the Use of Sanction Clauses for Trade Related Products (e.g. Letters of Credit, Documentary Collections and Guarantees) subject to ICC Rules" and ICC banking commission’s official opinion on inquiry case TA752, to find out what comments, ICC, the drafter of Uniform Code of Practice of Documentary Letter of Credit, has extend on different types of sanction clauses on letters of credit. After a close analysis of ICC’s comments and the omitted reasoning of these comments, the author obtained a preliminary conclusion about the nature of informative sanction clauses and the legal effect of disclaimer sanction clauses based on current framework of UCP600and applicable domestic law. In the end, the author offers several suggestions regarding China’s practice to play the value of sanction clauses in letter of credit transactions and prevent the abuse.