When a Confirming Bank Adds Its Own Sanctions Clause — Is It Allowed?

Introduction

Sanctions clauses continue to create operational challenges in documentary credit practice, especially when multiple banks apply different compliance standards. A common problem arises when the confirming bank adds its own sanctions requirement, even though the issuing bank has already inserted a sanctions clause in the LC.

 In this Q&A, we look at a real case involving an LC issued to Commerzbank for confirmation, where an additional sanctions declaration led to processing delays and ultimately caused the applicant to cancel the LC. The discussion clarifies whether a confirming bank is allowed to do this and what issuing banks and applicants can do to avoid similar delays in the future.

 Question

Dear Mr. Old Man,

Hope you are doing well and thank you for your continuous guidance on LCs.

Here is my case:

We issued an LC to Commerzbank, requesting their confirmation, with further advising through MUFG Bank. Our LC already contained a detailed sanctions clause.

When Commerzbank advised the LC to MUFG, they added an additional sanctions declaration requirement:

“We will not examine, take up and/or forward the documents and pay under our confirmation unless the presenting bank provides the following declaration together with the documents:

‘Based on customers’ information, we confirm to the best of our knowledge and belief that the transaction does not violate any sanctions laws applicable to it, including US sanctions applicable due to the USD currency / a US nexus, and does not allow any transshipment of goods to or through Iran.’ ”

MUFG informed the beneficiary that after they receive the documents, they need 7 working days to issue this declaration before forwarding documents to Commerzbank.

Our client feels this causes delay and increases the risk of late presentation discrepancy.

We requested Commerzbank to remove their added declaration since our LC already had a sanctions clause, but they refused, stating it is their internal policy.

As a result, our client chose to cancel the LC and send the payment as a transfer instead.

My question:

Does Commerzbank have the right to do this? And how can we avoid such delays in future transactions?

Thank you for your patience.

Best regards,

Muna Najjar

_______

Answer

Dear Muna,

Thank you for your question. Here is my reply:

1. Does Commerzbank have the right to add this requirement?

Yes. Commerzbank is within its rights to impose an additional sanctions-related declaration as a condition for adding confirmation.

Under UCP 600, a confirming bank is never obligated to confirm an LC. Before taking on confirmation risk, it may apply its own compliance checks and internal sanctions policies, even if the issuing bank has already inserted a sanctions clause. Sanctions exposure is a sensitive area, so confirming banks often apply stricter requirements.

The 7-working-day delay results from MUFG’s internal due-diligence process to issue such a declaration. This naturally slows processing and increases the risk of late presentation, but it reflects differing sanctions policies across the banks involved.

2. How to avoid this problem in future LCs

To prevent similar issues:

• Agree in advance on the confirming bank and its sanctions policy before issuing the LC; or
• Select a confirming bank whose compliance requirements align with the applicant’s expectations.

This aligns with ICC guidance.

The ICC Addendum on the Use of Sanctions Clauses (Global Banking Commission, 2020; revised 2024) emphasizes:

Sanctions clauses should not be used routinely.

They should be considered only for specific transactions and only after consulting with the customer and counterparties involved.

Clarifying the confirming bank’s sanctions requirements upfront is the most effective way to avoid delays and potential discrepancies.

I hope this clarifies your question.

Best regards,

Mr. Old Man