Supervening illegality in letters of credit: autonomy, containment and risk allocation under English law

This article examines English law on supervening illegality in letters of credit. With UniCredit as its central analytical context, it addresses a previously unresolved doctrinal question: how subsequent statutory prohibitions operate within letters of credit structures, and how regulatory risk should be allocated between banks, beneficiaries, courts and licensing authorities. It advances three claims. First, sanctions grounded in parliamentary sovereignty may override autonomy where payment is factually connected to a prohibited arrangement. Secondly, that displacement requires principled containment: the operation of supervening illegality must be mediated through the bank’s objectively assessed reasonable belief, absent any duty to investigate. Thirdly, a narrow construction of section 44 SAMLA excluding interest and costs is inconsistent with purposive interpretation and commercial reality. Autonomy is a functional norm, not an absolute rule; where it yields, residual regulatory uncertainty should shift to courts or licensing authorities, not remain with banks operating under temporal constraints.