US sanctions and the right to use bank accounts in European banks for non-residents of the European Economic Area

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The Helsinki District Court dismissed Boris Rotenberg’s claim against Svenska Handelsbanken AB, Nordea Bank Abp, Danske Bank and OP Yrityspankki Oyj on January 13, 2020. The court recognized the financial risks of Scandinavian banks for a citizen of Russia and Finland who is under US sanctions and on the Specially Designated Nationals and Blocked Persons List (SDN). In 2017–2018, these banks refused to service private payments of Boris Rotenberg, who is under US sanctions.

Based on judicial precedent, European courts can now recognize the risks of secondary US sanctions against any European banks, not only in the case of Russians from the sanctions list, but also on any suspicion of money laundering. After the entry into force of the Antiterrorism Act in Finland on August 1, 20081, banks in Finland report more than 30,000 suspected money laundering cases to the Central Criminal Police every year. During the investigation, banks have the right to stop servicing and paying the client’s bank payments until the end of the investigation. The law does not define the duration of the case review period; only the definition of “acceptable terms of investigation” is given. For example, in the Helsinki court decision, those arrested by the court in August 2014 in the amount of more than 9.5 million euros are still currently incarcerated, although the court issued an acquittal on suspicion of laundering 135 million euros in the period from March 24 to August 7, 2014.2

In the case of Boris Rotenberg, the court recognized the legal basis of the Danish, Swedish, and Finnish banks not to serve the accounts of a client, a Finnish citizen from the sanctions list of the Office for Foreign Assets Control (OFAC). As a basis for the decision, the Helsinki County Court cited US sanctions imposed on a Finnish citizen included in the SDN list.

Handelsbanken’s defense team argued in court that the US Sanctions Act itself does not directly oblige Finnish banks in Finland to comply with OFAC requirements, but it does not eliminate the risk of imposing sanctions on banks. The bank argued that with the entry into force of the law on countering America through sanctions3 (CAATSA), the risk of Handelsbanken has increased.

The court, as well as the plaintiff, referred to the “Law on Credit Institutions”4, in particular, Chapter 15, Section 6, which went into effect on December 9, 2016. That is, Handelsbanken closed the accounts of Boris Rotenberg on April 10, 2014 even before the entry into force of this chapter and the law itself, which became valid on August 15, 2014.

The court also noted that after the closure of Rotenberg’s account in 2014, the Banking Council for Insurance and Financial Disputes indicated in its decision on August 22, 2017 that the closure of Rotenberg’s accounts is permissible only on good grounds not provided by the bank, and recommended that the bank cancel the closure of the account, which the bank reopened on October 4, 2017. That is, more than three and a half years later, when Rotenberg was already on the OFAC Specially Designated Nationals and Blocked Persons List (SND) starting on March 20, 2014, there was no risk of secondary sanctions or excessive risks to the financial situation for the continuation of its activities.

According to the Payment Service Act, “The bank (service provider) may refuse to execute a payment order only if the conditions for executing the payment order agreed in the contract are not fulfilled or otherwise not provided for by law”5.

The respondent bank, Handelsbanken, stated that Section 9 of Chapter 9 of the Credit Institutions Act provides, inter alia, that a credit institution must not conduct its activities in such a way as to entail a significant risk to the solvency or liquidity of the credit institution. Also, Section 4 of Chapter 18 of the Credit Institutions Act states that a foreign credit institution should not be exposed to such a risk in carrying out its activities in Finland that it jeopardizes the interests of the depositors of the branch.

Section 15 (1) (6) of the Credit Institutions Act states that a bank providing payment services must provide an account for principal payments in euros and make payment services to individuals legally residing in a country of the European Economic Area in compliance with sub-paragraphs 6a and 6b of this paragraph. When providing an account for basic payments and related payment services, the deposit bank must treat all customers equally and without discrimination. A client is defined in this paragraph and in Paragraphs 6a and 6b as an individual who acts primarily in a manner that does not relate to his or her business or professional activities. The court found that the above provision applied to an individual legally residing in a country of the European Economic Area, and that the plaintiff could not prove that he lived in the EEA and therefore could not be guaranteed to receive banking services from banks in Finland.

The county court also cited the Credit Institutions Act, which prohibits local banks from taking excessive risks that threaten their financial situation. According to the court, the possible disconnection of the bank from the US financial system and the dollar market as a punishment for Boris Rotenberg’s transactions is such a risk.

In assessing the evidence, the court noted: “It is highly likely that OFCA will not define these payment transactions as significant in this case, as payments may be considered relatively small, and some of them may be characterized as ordinary payments for current expenses.” At the same time, the court stated that “the problem is that it is not possible to predict with any certainty how OFCA will interpret these factors, since they are formed with the aim of giving OFCA the greatest discretion to establish secondary sanctions.”6

Such wording in the district court’s decision, especially “very likely” and “it is not possible to predict with any certainty” is reminiscent of the sanctions imposed by the United States and European states, based on statements “with a high degree of probability” and on the evidence of Russia’s involvement in the Salisbury incident, which has not yet been provided. It should be noted that, according to the British Ambassador to Russia Deborah Bronnert, “the ex-GRU employee and his daughter are alive, but their location will not be disclosed”7.

Chapter 16 of the Law on Credit Institutions, which came into force on December 9, 2016, contains provisions on the client’s right to basic banking services. The bank may refuse to open a payment account with basic functions only for reasons arising from the Law on the Prevention of Money Laundering and the Financing of Terrorism (444/2017) or the Law on the Fulfillment of Certain Obligations of Finland as a Member of the United Nations and the European Union (659/1967).

According to the Law on the Implementation of Certain Obligations of Finland as a Member of the United Nations signed in 1967 (Section 1), in order to fulfill the obligations arising from Finland’s membership in the United Nations and based on binding decisions of the Security Council, the economic measures necessary for it can be determined within the framework of a regulatory decree. No obligations or temporary injunctions made in violation of this law or any provision based on or circumventing it are enforceable8.

International law provides sufficient grounds for recognizing unilateral measures as unlawful. Finland, as a UN member state, must comply with and support only those sanctions that are provided for by a decision of the UN Security Council in accordance with Chapter VII of the UN Charter9.

The expert appointed by Nordea Bank, John Smith, was a former head of the US sanctions regulator OFAC, and was in a senior position during the period when banks refused to make payments to Boris Rotenberg in 2017–2018. Smith stated that even before the adoption of CAATSA statements in 201710 on secondary sanctions, the US administration already had a legal instrument that could punish foreign individuals and legal entities for interacting with Russians on the sanctions list. Since Rotenberg is on the OFAC list, all of his “property and interests in property” that fall or will fall under United States law are frozen and cannot be transferred, paid for, exported, seized, or otherwise used. According to Smith, these are so-called “freeze sanctions.”

The court also referred to the decree No. 13661 of former President Barack Obama, which allowed to impose sanctions against any persons who “provided substantial assistance/support” to Russian persons on the SDN sanctions list. According to Smith, Nordea could theoretically be included in the same sanctions list if OFAC wanted to qualify transfers in the interests of Boris Rotenberg as “substantial assistance.”

We also recall that according to Article 235 of the US Sanctions Act H. R. 3364,11 the President of the United States may recommend not to conduct or prohibit all credit or payment transfers between financial institutions, if these transfers are within the jurisdiction of the United States and if they involve a sanctioned person.

However, the most destructive effect can be the freezing of the gold and foreign exchange reserves of a rogue country, and the content of this concept is also determined by the United States12. That is, the president of a UN member state can recommend and cancel the application of sanctions to a person if it falls within the zone of the most important national security interests of the United States, without taking a decision of the Security Council in accordance with Chapter VII of the UN Charter13. And even against the background of the spread of the COVID-19 pandemic and despite the UN Secretary-General’s call to lift sanctions in order to more effectively combat the spread of coronavirus, the United States refuses to make an exception for the supply of medicines, medical equipment, and personal protection equipment to Syria, Iran, and the DPRK.

The court found that the US Treasury’s OFAC determines, in rare cases, a person’s liability under secondary sanctions. Non-US banks in particular, as a rule, comply punctually with secondary US sanctions, because the consequences for their violation are very serious: for example, the complete deprivation of the opportunity to use the services of correspondent banks of the United States with payment in US dollars in the United States market, which can cause the collapse of all banks subject to these sanctions. This would be disastrous for the bank, its customers and employees, and even the country in which it is located.

With reference to Smith’s testimony, the court concluded that it was reasonable to conclude that in the circumstances and in general, OFAC would consider these transactions to be material under Section 226 of the CAATSA. Smith said that Nordea Bank could theoretically be included in the same sanctions list if OFAC wanted to qualify transfers in the interests of Boris Rotenberg as “substantial assistance.”

In the final conclusions of the decision, the court stated that the representatives of the respondent banks John Smith14, Richard Nephew,15 and Aleksi Pursiainen, in their concluding arguments, presented the same assessment of the risks of banks if they serve the transactions of Boris Rotenberg, who is under US sanctions.

The court concluded that it follows from Smith’s opinion that well-known world banks strictly comply with the conditions of sanctions established by the US Treasury’s OFAC and terminate client relations with the parties that are subject to sanctions, since otherwise they run the risk of being subject to sanctions, which, in turn, may pose a threat to the continuation of the bank’s activities. The consequences can be serious if the bank admits to violating secondary sanctions. For example, for international financial institutions that require the ability to use US banks and US dollars, being denied access to US correspondent banks, a place in the United States market, and transactions in US dollars would be a serious threat to their continued operations.

It should be noted that the governments of Finland, Sweden and Denmark do not give national banks the right to unilaterally close customer accounts or refuse to conduct operations due to the requirements of American law. However, as long as dollar transactions pass through the US banking system, the Treasury Department will monitor and block transactions and oblige banks to pay fines. European banks are not under US sanctions, but still agree to pay billions in fines every year.

The court did not take into account that Boris Rotenberg’s payments listed for payment were subject to Council Decision 2014/145/CFSP and were intended: (a) to meet the basic needs of the persons listed in the Annex, as well as their dependent family members, including for the payment of taxes, insurance premiums and utilities; (b) solely for the payment of reasonable professional fees or reimbursement of expenses incurred in connection with the provision of legal services.

The court ordered Rotenberg to pay court costs in the total amount of 530,528.64 euros. Will the bank be disconnected from the US financial system and the dollar market, or will secondary sanctions be imposed for the payment of this account, since the reimbursement of legal costs is not included in the list of generally permitted transactions with the funds of a person from the SDN sanctions list? Persons who are prohibited from meeting claims can apply for a judicial review of the legality of nonperformance of contractual obligations on the basis of a decision of the Council of the EU16. As a result, an oligarch who ranks on the Forbes list cannot pay his own bills, taxes, utility bills, transport fees, electricity bills, security alarms, or garbage collection fees, to say nothing of payments from collection companies, and as a result, may lose creditworthiness in Finland. In the case of a repeatedly unpaid bill, the debt is collected through a court decision requiring the forced sale of property to pay off bills and court costs.

It is important to emphasize that the new version of the Finnish Constitution, which came into force in 2000, established the priority of the basic law in the article “supremacy of the constitution” as a guarantee of the unconditional sovereignty of the State and its people. “The requirements of international laws and treaties can only operate in the part where they do not contradict the Constitution and if the trial application of the provisions of the act would be in evident conflict with the Constitution, the court must prefer the Constitution.”17.

When considering claims for the annulment of earlier decisions of national courts on the basis of the recognition by the European Court of Human Rights of Finland’s violation of the European Convention articles, the Supreme Court of Finland referred to the supremacy of the Constitution and was guided by Chapter 31, Paragraph 2, Clause 3 of the Finnish Judicial Procedure Act, leaving in force the decisions of national courts.

In the United States, the conflict between the Constitution and an international treaty favors the Constitution. At the same time, the strategic interests of the United States are put above international law. In 1919, President Woodrow Wilson considered it “part of the political tradition” to refuse to comply with international obligations after they were signed. A hundred years later, US National Security Adviser John Bolton called the decision of the International Criminal Court “illegal,” promising that the US will do everything to “protect its citizens.” Including the US threatened in case of persecution of Americans18 to use sanctions against the International Criminal Court, the model of which is universal, i.e., applicable to all cases of violation of international peace and security19.

The Helsinki County Court found that the desire to comply with the OFAC sanctions orders should not be considered “an acceptable goal,” provided for in Section 11 of the law on equal treatment of anyone, especially a person not included in the EU sanctions list.

It should also be noted that similar complaints about the inclusion of the applicant in the sanctions list at the request of the United States have already been considered in the ECHR. Thus, in 2016, the ECtHR found a violation of Article 6 § 1 of the European Convention in the case of Youssef Nada v. Switzerland20.

Earlier, the European Court of Human Rights recognized in the case of Nada v. Switzerland violated articles 13 and 8 of the Convention and awarded 30,000 euros21.

Analysis of sanctions regimes shows that the EU’s restrictive measures in practice have always been quite independent of the sanctions recommended by the UN Security Council. But in the twenty-first century, sanctions are increasingly becoming a central element of the EU’s foreign and security policy. As of May 2018, the EU already had 42 sanctions programs in place against 33 countries. Between 1980 and 2014, the EU accounted for 36% of all sanctions imposed, while the US accounted for 36.9%22.

When imposing new unilateral sanctions related to the United States’ own political interests or security, the Secretary of the Treasury may impose sanctions on foreign individuals and block assets, property, and ban certain transactions. According to § 22323 The Minister of Finance may modify any subsequent Directives to guarantee a directive ban on the supply, export and re-export of goods, services and technologies that contribute to research or development in the areas of deep-sea, Arctic or shale projects. Section 226 requires the president to impose sanctions as long as he believes they are in the national interest of the United States.

The court noted that in 2018, the US Congress introduced freedom of choice in relation to Russian sanctions in accordance with the provisions of Part Two of the CAATSA. Smith argues that the two provisions of the CAATSA present an obvious risk in this case. The court noted that, given his work experience, Smith could be considered a specialist with a high degree of expertise in the work of OFAC, and no one questioned the validity of his claims.

In making the decision, the Helsinki County Court referred to Smith’s submission of Section 226 (Imposition of sanctions on Russian and Other Foreign Financial Institutions) and Section 228 (mandatory imposition of sanctions on Transactions with Foreign Sanctions Violators and Serious Human Rights Violations in the Russian Federation) of the 2017 AntiRussian Influence in Europe and Eurasia Act, which requires the president to impose sanctions if a foreign person facilitates significant transactions on behalf of or in the interests of persons under US sanctions against the Russian Federation.

The court arbitrarily interpreted the meaning of Section 226 of subsection 1 (A): “The president must impose sanctions if he decides that it is in the national interest of the United States to do so.”

The court noted that the provision of § 226 amended the Law on Support of Freedom of Ukraine issued in 201424, which obliges the president to impose sanctions on a foreign financial institution if the president finds that this financial institution “knowingly facilitated a significant payment transaction on behalf of a Russian person,” if this Russian person is included in the sanctions list on the basis of Presidential Decree No. 13661.

The court further found that Section 228 of the US Sanctions Act H. R. 3364 obliges the president to impose freezing sanctions, the same as those imposed on Boris Rotenberg, on any person who is not a US citizen. According to the federal law (according to § 311 CFR, § 561.308), “foreign financial institution” means any foreign legal entity engaged in receiving deposits, providing loans or buying/selling foreign currency or securities. Nordea is a “foreign” (non-US) organization that receives deposits.

And then the court concludes: “Thus, OFAC will almost certainly consider Nordea a foreign financial institution within the meaning of the law.”

According to Professor Brian Monroe, economic sanctions have been used as a political weapon since ancient times. Today, the United States, the European Union and other developed countries are increasingly using sanctions to support their policies25. The lists of sanctioned individuals are extensive and growing rapidly. At the moment, the US’ list is more than 1200 pages long26. Russian Foreign Minister Sergey Lavrov expressed his position on the matter quite bluntly: “Part of the elite in the West would like to see Russia weak, because the sanctions war is also aimed at achieving this goal. They would like to see Russia ready to make concessions to the detriment of its interests”27.

In conclusion, it should be concluded that while the US dollar is one of the main currencies in settlements between states, the Ministry of Finance of a state with an external debt of more than 24 trillion US dollars will control not only dollar transactions, but also the very principle of the functioning of the world banking system.

This decision of the Helsinki County Court may become the first judicial precedent for most banks in European countries that hold real estate and accounts of foreigners who do not live in the EEA countries, regardless of their citizenship or residence permit.

Notes:

1 Laki rahanpesun ja terrorismin rahoittamisen estämisestä ja selvittämisestä 503/2008. Act on Detecting and Preventing Money Laundering and Terrorist Financing (503/2008; amendments up to 327/2013 included). URL: https://www.finlex.fi/fi/laki/alkup/2008/20080503 (reference date: 12.02.2020).

2 Decision of the Helsinki County Court of 08.10.2019, R 18/6573. The author participated in the defense of the main suspect, and is also preparing a defense in the Helsinki Court of Appeal.

3 Countering America's Adversaries Through Sanctions Act. Public Law 115–44. August 2, 2017. URL: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/caatsa.aspx (reference date: 10.02.2020).

4 Laki luottolaitostoiminnasta 8.8.2014/610. Act on Credit Institutions, 8 August 2014/610. URL: https://www.finlex.fi/fi/laki/ajantasa/2014/20140610 (reference date: 14.02.2020).

5 Maksupalvelulaki, 30.4.2010/290. §41. Payment Services Act, 30.4.2010 / 290. §41.

6 Decision of the District Court of Helsinki, 13.01.2020.

7 The British Ambassador spoke about the fate of the Skripals. February 2, 2020 URL: http://engnews24h.com/the-british-ambassador-spoke-about-the-fate-of-the-skripals/ (reference date: 4.02.2020).

8 Laki eräiden Suomelle Yhdistyneiden Kansakuntien jäsenenä kuuluvien velvoitusten täyttämisestä. 659/1967. Act on the Fulfilment of Certain Obligations of Finland as a Member of the United Nations and of the European Union. URL: https://www.finlex.fi/fi/laki/alkup/1967/19670659 (reference date: 14.02.2020).

9 The UN Charter. Chapter VII, article 39. URL: https://www.un.org/ru/sections/un-charter/chapter-vii/index.html (reference date: 14.02.2020).

10 Countering America's Adversaries Through Sanctions Act. H. R. 3364. URL: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/caatsa.aspx (reference date: 17.02.2020).

11 The Countering Russian Influence in Europe and Eurasia Act of 2017 (U.S. Sanctions Act H. R. 3364) H. R. 3364 — Countering America's Adversaries Through Sanctions Act. 115th Congress (2017–2018). URL: https://www.congress.gov/bill/115th-congress/house-bill/3364/text (reference date: 12.02.2020).

12 The National Security Strategy of the United States of America. September 2002. URL: https://2009-2017.state.g.,ov/documents/organization/63562.pdf (reference date: 15.02.2020).

13 The UN Charter. Chapter VII, article 39. The Security Council shall determine the existence of any threat to the peace, any breach of the peace or act of aggression and make recommendations or decide what measures should be taken in accordance with articles 41 and 42 to maintain or restore international peace and security. URL: https://www.un.org/ru/sections/un-charter/chapter-vii/index.html (reference date: 12.02.2020).

14 John E. Smith has worked at OFAC for more than 20 years, previously serving as Deputy Director and Assistant Director, and was Director of the Office of Foreign Assets Control (OFAC) from February 2015 to April 30, 2018. U.S. Treasury Secretary Steven T. Mnuchin considers Smith an outstanding OFAC executive with invaluable experience in the internal workings of sanctions agencies.

15 Richard Nephew is one of the leading U.S. officials in the development and implementation of sanctions and author of the book The Art of Sanctions.

16 Сouncil Regulation (EU) No. 269/2014 of 17 March 2014. Article 11.3. Official Journal of the European Union 17.03.2014. L 78/6.

17 Constitution of Finland, article 107. 11.6.1999/731. URL: https://www.finlex.fi/fi/laki/ajantasa/1999/19990731 (reference date: 15.01.2020).

18 John Bolton threatens ICC with US sanctions. September 11, 2018. URL: https://www.bbc.com/news/world-us-canada-45474864 (reference date:17.04.2020 г.)

19 Pechegin D. A. The combination of adversarial and investigative principles in the production of cases in the International Criminal Court: abstract of the dissertation for the degree / Moscow State University named after M.V. Lomonosov, Moscow, 2016. 30 p.

20 ECHR. Case of Al-Dulimi and Montana Management Inc. v. Switzerland. Application No. 5809/08. 21 June 2016.

21 ECHR. Case of Nada v. Switzerland. Application No. 10593/08. 12 September 2012.

22 Martin Russell. European Parliamentary Research Service. PE 621.870 – May 2018. URL: https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/621870/EPRS_BRI(2018)621870_EN.pdf (reference date: 10.02.2020).

23 Law on Countering Russian Influence in Europe and Eurasia 2017.

24 Ukraine Freedom Support Act of 2014. Public Law 113–272—DEC. 18, 2014. URL: https://www.congress.gov/113/plaws/publ272/PLAW-113publ272.pdf (reference date: 15.02.2020).

25 EU sanctions: A key foreign and security policy instrument. European Parliament Briefing, May 2018. URL: https:// www.europarl.europa.eu/RegData/ etudes/BRIE/2018/621870/EPRS_ BRI(2018)621870_EN.pdf (reference date: 17.02.2020).

26 Specially Designated Nationals and Blocked Persons List U.S. Department of the Treasury Office of Foreign Assets Control, May 23, 2019. URL: https://www. treasury.gov/ofac/downloads/sdnlist.pdf (reference date: 10.02.2020).

27 Lavrov: The US desire to secure its economic interests in the EU through sanctions is shameless. URL: https://tass.ru/politika/4476901.11.08.2019 (reference date: 17.02.2020).

About the authors

Vladimir A. Jilkine

Author for correspondence.
Email: info@lawcenter.fi

Doctor of law

References

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