Sanctions Confirmations In Facility Agreements – Is There A Market Standard?

Author:Mr Adam Pierce
Profession:Dentons (United Kingdom)

In the European loan markets, it is increasingly common for lenders to require their borrowers (and other "Obligors") to provide sanctions-related representations and undertakings (sanctions confirmations) in their facility agreements.  Adam Pierce considers whether any pattern is emerging on their nature and scope.

What are sanctions confirmations for?

The primary purpose of sanctions confirmations is to help lenders avoid incurring liability under sanctions as a result of providing the facilities in question. 

Many European lenders are as concerned, or even more concerned, about liability under US sanctions than under their own domestic sanctions regimes.

Although US sanctions are notoriously extra-territorial in scope, most will not directly bind lenders incorporated and acting outside the US.  However:

certain US sanctions (currently those relating to Cuba and Iran) also apply to non-US subsidiaries of US entities; parts of the current US sanctions regime on Iran are entirely extra-territorial; US staff who are US citizens will need to comply with US sanctions; and for US dollar lending, New York clearing of dollar payments is likely to bring any lender, wherever they are based, within the US sanctions regime. Given the above, sanctions confirmations will usually incorporate a definition of "Sanctions" covering US sanctions and any domestic sanctions to which the lenders may be subject.

Which deals?

Sanctions confirmations have become standard on almost all US dollar denominated loans. The arguments for including these provisions in non-US dollar transactions are often not as strong. However, our experience is that many lenders' policies require the same kind of sanctions confirmations in at least some non-US dollar transactions too.

What are the standard confirmations?

The following are reasonably standard:

Sanctions status. That no Obligor nor anyone controlling an Obligor is a targeted person, or located in a targeted jurisdiction under any of the relevant sanctions regimes (a Sanctions Target). Some lenders ask for these confirmations to apply to directors, affiliates or even all employees of Obligors. Where they do, there is often negotiation on whether this should be based on the Obligors' awareness. Use of funds. That the borrower will not use the loans to do business with a Sanctions Target. The risk here is lender liability for facilitating that business. Compliance with sanctions to which Obligors are subject. Many...

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