Back-to-back letter of credit definition

Back-to-back letter of credit

Two linked letters of credit for the same goods, one on each side of an intermediary, so the buyer's and the supplier's credits are separate instruments.

also known as

back-to-back credit

reviewed

2026-10-02

Cite this page

APA 7

Sanctions Evasion Reference. (2026, October 2). Back-to-back letter of credit. https://sanctionsevasion.org/reference/glossary/back-to-back-letter-of-credit/

Chicago

Sanctions Evasion Reference. “Back-to-back letter of credit.” Last reviewed October 2, 2026. https://sanctionsevasion.org/reference/glossary/back-to-back-letter-of-credit/.

BibTeX

@misc{ser-reference-glossary-back-to-back-letter-of-credit,
  author = {{Sanctions Evasion Reference}},
  title  = {Back-to-back letter of credit},
  year   = {2026},
  note   = {Last reviewed 2026-10-02},
  url    = {https://sanctionsevasion.org/reference/glossary/back-to-back-letter-of-credit/}
}

The date is when this page was last reviewed, not when it was first published.

The structure itself is ordinary trade finance. It becomes a sanctions issue when one of the two credits belongs to a sanctioned party and the other is where the dollars move.

OFAC’s 2021 release on the French bank UBAF describes it exactly: a sanctioned Syrian entity was the beneficiary of an export credit or the applicant for an import credit that did not involve dollar clearing, “but the intermediary entered into or received one or more corresponding USD letters of credit to purchase or sell the same goods.” The sanctioned party’s side stayed outside the US financial system. The matching dollar credit did not. See the UBAF case.

Where this term is used

How is correspondent banking used to evade sanctions? — Using a chain of banks that each know only their own customer, so that a payment for a restricted party reaches a currency it could not access directly, without any bank in the chain seeing the whole transaction.
What are third-country bank accounts and how are they used? — Holding accounts in a jurisdiction unconnected to the restricted party, the goods or the contract, so that payments reach and leave the restricted economy without ever appearing to touch it.

Related terms

Letter of credit — A bank undertaking to pay a seller against presentation of specified documents, substituting the bank's credit for the buyer's.
Correspondent banking — An arrangement in which one bank holds an account for another and provides payment and other services on its behalf, usually to give it access to a foreign currency.
Wire stripping — Removing or altering originator, beneficiary or reference information from a payment message so that screening at an intermediary bank does not identify a restricted party.

Where this term is used

Related terms

Sources