ICC Tribunal to Decide Sanctions Defence in AACC Letter of Credit Dispute

An international arbitration panel convened under the ICC Rules is set to tackle novel questions at the intersection of trade finance, economic sanctions, and force majeure. The dispute arises from a USD 45 million letter of credit that bankroller Meridian Trade Finance Bank (MTF) refused to honour after Gamma imposed sweeping sanctions against Alpha—the home state of beneficiary Aurelia Agri-Chemicals Corporation (AACC).

The Facts Behind the Fight

In January 2025, AACC agreed to supply 500,000 metric tonnes of urea to the GreenFields Procurement Consortium (GPC) in Delta, with payment exclusively in USD via an irrevocable documentary credit. Delta Commercial Bank issued the credit, and MTF added its confirmation unconditionally. The credit expressly stated it was subject to UCP 600 and included a detailed sanctions clause (clause 12): “A bank may delay processing while undertaking a sanctions review… A bank may refuse honour only to the extent that honour is prohibited by such mandatory law. Exposure to secondary sanctions, reputational risk, an internal policy, or refusal by a particular correspondent shall not, without more, constitute legal prohibition.”

After armed conflict erupted between Alpha and Gamma in December 2025, Gamma enacted sanctions pari materia with U.S. measures against Iran. Although agricultural commodities carried a general humanitarian licence, Gotham National Bank—the designated USD correspondent—refused any Alpha-related payments as a matter of internal policy. When AACC presented compliant documents on 12 February 2026, MTF neither honoured nor sent a timely refusal notice. On the sixth banking day, it claimed the transaction was “sanctions-restricted and operationally unverifiable”.

The Core Legal Questions

The tribunal has directed the parties to address three main issues:

  • Jurisdiction and Applicable Law – Does the arbitration clause in the credit bind MTF, Delta Commercial Bank, and AACC? What law governs the credit and each bank’s obligations, and is UCP 600 incorporated as contractual rules or merely as guidelines?
  • Complying Presentation and Preclusion – Did AACC make a complying presentation? Are the discrepancies in cargo descriptions and the inaccessible certificate-of-origin verification portal fatal? And critically, does MTF’s failure to issue a single refusal notice within five banking days preclude it from relying on any documentary discrepancies (UCP 600 Article 16), while still allowing it to raise a sanctions defence?
  • Sanctions, Illegality, and Alternative Performance – Were the Gamma sanctions a legal prohibition or merely commercial risk? Does the sanctions clause in the credit qualify MTF’s independent undertaking? Was MTF required to explore lawful alternative USD routes, such as using a correspondent in Epsilon or purchasing USD offshore? Could payment in EUR or GBP discharge the obligation?

Arguments in Play

AACC insists that it made a valid complying presentation, that MTF is precluded from raising discrepancies, and that the sanctions clause does not excuse honour because Gamma law does not prohibit the payment—it merely exposes MTF to secondary sanctions risk. It points to force majeure clause 13, which states that “loss of a correspondent relationship or inability to use a preferred clearing channel does not of itself discharge an obligation to honour” , and notes that the credit expressly allows alternative reimbursement routes.

MTF counters that the Gamma Designation of Alpha’s sovereign development fund—which holds 49% of AACC—effectively blocks the transaction, and that any USD payment would inevitably pass through Gamma clearing. It argues that the sanctions clause permits refusal when honour is “prohibited by mandatory law”, and that secondary sanctions constitute a real legal impediment for a Beta-based bank. MTF also says force majeure, frustration, and international public policy excuse performance.

Delta Commercial Bank, the issuing bank, challenges the tribunal’s jurisdiction over it, contending that it never signed the confirmation and that UCP 600 does not create an arbitration agreement. It further argues that its reimbursement obligation is conditional on MTF’s lawful honour.

Key Observations from the Credit Terms

The sanctions clause carefully distinguishes between mandatory legal prohibition and mere exposure to risk: “Exposure to secondary sanctions, reputational risk, an internal policy, or refusal by a particular correspondent shall not, without more, constitute legal prohibition.” This language could prove decisive if the tribunal finds that Gamma law does not directly prohibit the payment but only threatens secondary consequences.

The force majeure clause reinforces the independent nature of the credit: “Increased cost, loss of a correspondent relationship, or inability to use a preferred clearing channel does not of itself discharge an obligation to honour a presentation made before expiry.”

What Comes Next

The ICC Tribunal, seated in Beta City, will now hear full submissions on these issues. Its ruling could clarify the boundaries of sanctions clauses in documentary credits, the interplay between UCP 600 preclusion rules and sanctions defences, and the extent to which a confirming bank must explore alternative payment routes. For banks, traders, and sanctions lawyers worldwide, this arbitral award will be closely watched.