Semetex and Eaton sued to enforce payment on a letter of credit issued by Iraq's central bank and confirmed by UBAF Arab American Bank. When Iraq invaded Kuwait, the U.S. froze Iraqi assets, and UBAF refused to pay despite valid shipping documents. The court ruled that a confirming bank must honor its letter of credit obligations even during sanctions, as long as the creditor obtains proper government authorization. This matters to subcontractors because it protects your right to payment on letters of credit regardless of external political or economic disruptions.
Letters of credit create independent payment obligations that exist separately from the underlying construction or supply contract—the bank cannot refuse payment based on contract disputes or external events.