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  No excessive fulfilment of Regulation: Despite Iran embargo, banks may not simply terminate accounts

The Higher Regional Court [Oberlandesgericht, OLG] of Hamburg has ruled that banks cannot simply terminate the accounts of enterprises that are listed in the so-called Iran Embargo Regulation. The proceedings have highlighted a situation increasingly being faced by bank customers in connection with their legal business conducted with Iran: where the business policy decisions of banks exceed the legal stipulations of the Iran Embargo Regulations.

A corporation and the applicant in said proceedings renders a variety of services, in particular for the Islamic Republic of Iran Shipping Lines. In the annexes of the Council Regulation (EU) concerning Restrictive Measures Against Iran (EU/267/2012), the so-called Iran Embargo Regulation, the company is listed as an entity whose assets are to be frozen and to whom no economic resources may be made available. The respondent is a Hamburg commercial bank where the applicant holds an account. The Hamburg bank terminated the business account on grounds that the company is listed in the annexes of the Iran Embargo Regulation. The company opposed the account termination, inter alia because it had been unable to open a new account with another European bank. The applicant had evidently approached more than 100 European credit institutions to try and open an account.

The Higher Regional Court of Hamburg ruled that the account termination was invalid. The account must at least be continued until the customer can successfully open an account with another bank. It argued that the bank holding the account is obliged pursuant to the General Business Terms and Conditions to take due account of the customer’s legitimate interests. In the court's opinion, it is a legitimate interest of the customer that it relies on the account in order to maintain its business operations. The Senate expressly and especially states in this connection that the Iran Embargo Regulation does not demand the termination of accounts. As far as the relationship between the bank and the listed customer is concerned, the freezing of funds and all economic resources as demanded by the Regulation means that no account movements are permitted without the authorisation of German Central Bank [Bundesbank]. The Regulation does not, on the other hand, demand that the account relationship be terminated. The Senate justifies this by arguing that the creation of the authorisation proceedings at the German Central Bank would otherwise be superfluous.

The proceedings highlight a situation that is increasingly being faced by bank customers in connection with their legal business with Iran: where the business policy decisions of banks exceed the legal stipulations of the Iran Embargo Regulation. For example, many banks are currently refusing to accept and credit payments coming from Iran for their customers and that is even if the actual transaction underlying the money transfer is legal. The authorisation proceedings of the German Central Bank are therewith being made obsolete; if no payment is accepted, then there can be no examination of incoming payments.

According to the Regulation, the German Central Bank will not authorise a transfer of funds if sufficient grounds exist to indicate that such transfer of funds might violate one of the prohibitions or obligations of the Regulation. However, fact is that, even with the currently applicable Iran Embargo Regulation, many transactions are still possible. Many entrepreneurs are already shying away from supplying to Iran, however, because they fear that the payment owed therefor will either not reach them or only will only reach them in Germany with great difficulty. Hence, in practice the embargo is being extended to include legitimate transactions, as was not intended by the Regulation, however.

In the current proceedings concerning the termination of the bank account, the Higher Regional Court of Hamburg placed the legitimate interests of the customer above the business policy interests of the bank. Case scenarios in which a crediting of funds is refused have not yet been the subject matter of court proceedings, but are still comparable. Here as well, one could argue that the legitimate interests of the customer may not simply be sacrificed in favour of business policy decisions.   

    

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  Stephan Müller

Partner

Phone: +49 (0)221 2091 448

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stephan.mueller@oppenhoff.eu   

  

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