QUESTION
Dear Mr. Old Man
We have shipment of bulk liquid cargo. We got the charter party bill of lading with loading port as South Korea.We sent the documents to our bank our bank checked the documents and sent the complying documents to issuing bank. After five banking days passed, the issuing bank sent below swift message to our bank:
“AS PART OF OUR REGULATORY COMPLIANCE DUE DILIGENCE CHECKS, WE WERE GIVEN TO UNDERSTAND THAT THE CARRYING VESSEL MENTIONED ON BL DID NOT CALL AT ALL SOUTH KOREA BUT WERE SAILING AROUND NORTH KOREA PORT DURING THE DATE STIPULATED ON THE BL. WE WISH TO BRING TO YOUR ATTENTION THE FOLLOWING CLAUSE (FIELD 47A, ITEM 6) IN OUR LETTER OF CREDIT: ‘ALL PARTIES TO THIS DOCUMENTARY CREDIT ARE ADVISED THAT THERE ARE SPECIFIC SANCTIONS AND REGULATIONS IMPOSED BY THE U.S. AND OTHER GOVERNMENT AND/OR REGULATORY AUTHORITIES AGAINST CERTAIN COUNTRIES, ENTITIES AND INDIVIDUALS. UNDER THESE MEASURES, THE BANK MAY BE UNABLE TO PROCESS OR ENGAGE IN TRANSACTIONS THAT INVOLVES A BREACH OF SUCH SANCTIONS, AND AUTHORITIES MAY REQUIRE DISCLOSURE OF INFORMATION. THE BANK IS NOT LIABLE FOR REJECTING ANY PRESENTATION OF DOCUMENTS THAT MAY CAUSE A BREACH OF THOSE SANCTIONS, OR DISCLOSES INFORMATION AS A RESULT OF ACTUAL OR APPARENT BREACH OF SUCH SANCTIONS. THIS CLAUSE APPLIES NOTWITHSTANDING ANY INCONSISTENCY WITH THE CURRENT EDITION OF THE INTERNATIONAL CHAMBER OF COMMERCE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS.’ UNLESS YOU ARE ABLE TO PROVIDE US WITH CLEAR EVIDENCE IN TWO DAYS THAT WOULD NEGATE THE FINDINGS, WE WILL REJECT THE PRESENTATION AND RETURN THE DOCUMENTS TO OUR COMPLETE DISCHARGE”
Now I need your kind guidance on my below questions:
1) First of all, the vessel did not call at the north Korea port at all and may be bank has limited info or inaccurate info but since they are asking us to provide clear evidence that would negate their findings, so that means they are not 100% sure of the finding they have and that’s why still asking us to provide a conclusive evidence? Do you think since cargo has already arrived at POD, are we legally bound to answer their this query or legally liable to prove to them to validate our loading port evidence? The only evidence we have is that vessel owner issued us a charter party bill of lading showing loading port as one of south Korea port and not north Korea.
2) Given above notice of issuing bank, are they legally bound or not to effect payment as presentation is complying even though they raised doubts about the loading port?
3) Is there any way we can still force bank to make payment to us?
4) Can a bank reject an otherwise complying presentation just because of “an apparent breach” of the sanctions LC is talking about?
5) Kindly guide what do you think should be our defence reply in the light of UCP 600 and ISBP.
Thanks in advance.
Regards
Ramis
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ANSWER
Hi,
As noted by ICC, the use of sanctions clauses in trade finance-related instruments that are subject to ICC rules, stating banks’ intention to comply with sanctions regulations, has become a problematic issue for banks involved in trade finance transactions, including, particularly, irrevocable, independent documentary and standby letters of credit, demand guarantees and counter-guarantees as sanctions may restrict a bank’s ability to perform its role under ICC rules. International banks may be confronted with different sanctions regimes imposed in the multiple jurisdictions in which they operate.
Sanctions are imposed by the United Nations, the EU Council or individual countries to achieve political and economic ends. They may prohibit dealings with specific countries, persons or property. The need for sanctions is a political matter outside the realm of the ICC. The enforceability of sanctions is a question to be decided by courts, national regulators or administrative agencies; it is not an issue that can be addressed by rules of banking practice such as ICC rules. Accordingly, ICC rules do not address how sanctions should be interpreted or their impact on the trade finance-related instrument in which they are incorporated.
It is recommended by ICC that banks should refrain from issuing trade finance-related instruments that include sanctions clauses that purport to impose restrictions beyond, or conflict with, the applicable statutory or regulatory requirements. It is also advisable for practitioners to be aware of the risks posed by such clauses if included by other banks involved in their transactions.
So, my answers to your specific questions are as follows:
1) I agree with you that when the issuing bank rejects the presentation under the letter of credit with reference to sanctions clause, it should give sufficient proof to the presenter. It is not reasonable for the issuing bank to request the presenter to provide evidence to negate the findings.
2) The issuing bank should not refuse to honour its obligation based on its doubts that the vessel was sailing around North Korea port without providing sufficient proof.
3) Send the issuing bank a message arguing that it cannot refuse to honour its obligation under the letter of credit based on its proof less doubt and that the presenter is not liable to provide it with any evidence to negate the findings. Sue the issuing bank to court if no payment is made.
4) & 5) As above said, the enforceability of sanctions is a question to be decided by courts, national regulators or administrative agencies; it is not an issue that can be addressed by rules of banking practice such as ICC rules. Sanctions are legal requirements that override the UCP.
Good luck!
Kind regards,
Mr. Old Man
P/s:
By the way, for your reference, please find below examples of sanctions clauses sometimes seen in trade transactions (quoted from Guidance Paper On The Use Of Sanctions Clauses In Trade Finance-Related Instruments Subject To ICC Rules Document No.470/1238
ICC):
1) “Presentation of document(s) that are not in compliance with the applicable anti-boycott, anti-money laundering, anti-terrorism, anti-drug trafficking and economic sanctions laws and regulations is not acceptable. Applicable laws vary depending on the transaction and may include United Nations, United States and/or local laws.”
…
2) “[Bank] complies with the international sanction laws and regulations issued by the United States of America, the European Union and the United Nations (as well as local laws and regulations applicable to the issuing branch) and in furtherance of those laws and regulations, [Bank] has adopted policies which in some cases go beyond the requirements of applicable laws and regulations. Therefore [Bank] undertakes no obligation to make any payment under, or otherwise to implement, this letter of credit (including but not limited to processing documents or advising the letter of credit), if there is involvement by any person (natural, corporate or governmental) listed in the USA, EU, UN or local sanctions lists, or any involvement by or nexus with Cuba, Sudan, Iran or Myanmar, or any of their governmental agencies.”
…
3) “Trade and economic sanctions (‘sanctions’) imposed by governments, government agencies or departments, regulators, central banks and/or transnational organizations (including the United Nations and European Union) impact upon transactions involving countries, or persons resident within countries currently including Balkans, Belarus, Cote d’Ivoire (Ivory Coast), Lebanon, Liberia, Rwanda, Sierra Leone, Somalia, Syria, the Democratic Republic of Congo, Uzbekistan, Afghanistan, Iran, Iraq, Myanmar ( Burma), North Korea, Cuba, Zimbabwe and Sudan. Issuing bank and all of its related bodies corporate might be subject to and affected by, sanctions, with which it will comply. Please contact issuing bank for clarification before presenting documents to issuing bank for negotiation or undertaking any dealings regarding this credit involving countries or persons affected by sanctions. Issuing bank is not and will not be liable for any loss or damage whatsoever associated directly or indirectly with the application of sanctions to a transaction or financial service involving issuing bank. Issuing bank is not required to perform any obligation under this credit which it determines in its discretion will, or would be likely to, contravene or breach any sanction. This clause applies notwithstanding any inconsistency with the current edition of the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits.”
