Decision of the Higher Regional Court of Frankfurt on the termination of bank accounts under the influence of foreign sanctions
In a judgment dated July 17, 2023 (Case No.: 10 U 137/23), the Higher Regional Court of Frankfurt am Main made a significant decision for the banking sector: A bank based in the European Union is, under EU law, generally not entitled to terminate a business relationship with a customer solely on the basis of U.S. sanction regulations, provided there is no equivalent European sanction rule in place. This ruling has far-reaching consequences for the drafting of bank contracts and underscores the autonomy of European sanctions law in relation to the extraterritorial effect of laws from other countries.
Background of the legal dispute
The proceedings were based on the termination of a checking account at a bank based in Germany. The termination was solely justified on the grounds that certain U.S. sanctions lists were directed against the account holder, even though, under the relevant EU regulations, no sanctions had been imposed against the same person or organization. The account holder filed a lawsuit against the unilateral closure of the account due to the alleged violation of duties.
Relevance and scope of U.S. sanctions in European banking business
Autonomy of European sanctions law
The Higher Regional Court expressly emphasized the sovereignty of the European sanctions framework. This means that measures of foreign legal systems—here, in particular, U.S. sanctions—are not automatically applied in the EU unless they are covered by a comparable or expressly recognized provision in Union law. This applies in particular to so-called extraterritorial sanctions of the U.S. that have not been legitimized by intergovernmental agreements with the EU or by secondary law implementation in European law.
Limits of contractual freedom for banks
Although banks are in principle entitled under the freedom of contract to terminate business relationships in accordance with the termination modalities of their general terms and conditions, they are subject to certain statutory restrictions. In the present case, the court made it clear that a termination based exclusively on sanction provisions not applicable in the EU must at least be regarded as invalid if there is no legal basis in Union law or German law for this. The unilateral consideration of foreign sanctions provisions without an EU legal basis contradicts the will of the European legislator to protect independent economic interests and to counteract extraterritorial effects.
Implications for banks and their customers
Risk management and sanctions compliance in light of the ruling
The decision of the Higher Regional Court of Frankfurt should prompt banks to closely review their compliance systems when it comes to applying foreign sanctions within the European Union. Contracts and general terms and conditions clauses that provide for comprehensive consideration of foreign sanctions systems may lose their effectiveness according to this case law, provided there is no legal basis under Union law. Banks must therefore carefully examine whether and to what extent foreign sanctions norms alone can serve as grounds for terminating contractual relationships.
Protection of business relationships of companies and individuals residing in the EU
For companies and high net worth individuals who rely on a stable banking relationship within the European Union, this ruling provides additional protection against the extraterritorial enforcement of foreign legal norms. The ruling emphasizes that business relationships cannot be terminated unilaterally and without Union law legitimation on the basis of foreign regulations. This reduces the risk of sudden termination of important business relationships solely based on U.S. lists, provided there are no corresponding EU requirements.
Interactions with the European Blocking Statute
It is also worth mentioning the so-called “Blocking Statute” of Regulation (EC) No. 2271/96, which is intended to protect against the extraterritorial application of sanctions laws of third countries. This regulatory framework also emphasizes that economic operators active in the EU must not be burdened by the application of sanctions from third countries without an adequate European legal basis. The decision of the Higher Regional Court is thus another building block in the protection of European economic actors against extraterritorial sanctions and their direct effects.
Classification and perspectives
The judgment of the Higher Regional Court of Frankfurt clearly positions itself on the primacy of European law over predominantly politically motivated extraterritorial regulatory claims of third parties. It also creates greater legal certainty for companies, investors, and individuals conducting business in the EU who must rely on the stability of contractual relationships. The decision emphasizes that, within the European single market, the principles of the European legal system are consistently applied even in the face of foreign influences.
For further legal questions regarding international sanctions, their implementation in banking, or the structuring of business relationships in the context of complex regulatory requirements, the lawyers at MTR Legal are happy to assist.
