When Two Lcs Hide One trade: The Growing Risk Of Fragmented Screening

Introduction

The relevance of back-to-back LCs becomes clearer when viewed against the scale of international trade.

Global trade reached $35 trillion in 2025, an increase of approximately $2.5 trillion, or 7.5%, in one year. Goods trade alone grew by roughly 7%, adding around $1.8 trillion. UN Trade and Development's latest data also puts global merchandise exports at $26.4 trillion in 2025.

At the same time, trade finance remains a constrained market. The Asian Development Bank's latest Global Trade Finance Gap Survey estimates the global trade-finance gap at $2.5 trillion in 2025, equivalent to approximately 10% of global trade. The survey incorporated responses from more than 110 trade-finance providers.

For compliance teams, the implication is not that back-to-back LCs are inherently risky. It is that more complex trade structures are operating inside an increasingly fragmented global trading environment.

When The LC Structure Becomes A Sanctions Problem

An oil producer in Country A, subject to sanctions, sells 200,000 barrels of crude to a broker in Country B. The broker routes the commodity through Country B and subsequently sells it to a buyer in Country C.

The first LC links the broker to the sanctioned-origin supplier.

The second LC links the broker to the final buyer.

If the second LC identifies Country B as the origin, the buyer and its bank may never see the original connection to Country A.

This is not merely a documentation issue. It demonstrates why screening only the parties appearing on the immediate LC can produce an incomplete risk picture.

A recent case shows why the intermediary cannot be treated as a blind spot

• In May 2026, OFAC announced a $275 million settlement with Adani Enterprises relating to 32 apparent violations of Iran sanctions. According to OFAC, between November 2023 and June 2025, Adani purchased LPG shipments from a Dubai-based trader that purported to supply Omani and Iraqi gas, while OFAC determined that red flags indicated the LPG actually originated in Iran.