Bank Account Closures over US Sanctions

By Dr. Julius Hagen, Attorney at Law

Can a bank close your account over US sanctions?

Your bank gives notice to close an account, stops processing payments or freezes securities. It cites US sanctions or simply refers to its compliance policies. You may be unable to pay staff on time or complete a planned securities sale. Whether you can challenge the bank's action depends on your contract, the reason for its decision and the applicable sanctions rules.

The EU Blocking Regulation, Council Regulation (EC) No 2271/96, may provide a remedy where the bank is complying with certain US sanctions. It applies only to the legislation listed in its Annex and measures based on or resulting from that legislation. Even where the Regulation does not apply, you may have contractual rights against the bank. An OFAC designation does not, by itself, entitle a bank to refuse every service.

When the Blocking Regulation applies

The Annex covers certain US laws concerning Cuba and Iran. A connection to Russia or a different OFAC sanctions authority does not automatically bring a case within its scope. We identify the US rule on which the bank relies and check whether the Annex covers it.

The prohibition in Article 5 of the Blocking Regulation applies to the persons and entities specified in Article 11. These include companies incorporated under the law of an EU Member State and based in the EU. They are generally prohibited from complying with the covered US requirements even without a US authority expressly ordering them to do so.

How to establish why the bank acted

A bank does not necessarily have to give detailed reasons when serving an ordinary termination notice. In a dispute, however, its emails, questions about business partners, the timing of the notice after a designation or its treatment of comparable customers may help establish the reason. Suspicion that US sanctions played a part is not a substitute for evidence.

In Bank Melli Iran, judgment of 21 December 2021, C-124/20, the Court of Justice of the EU addressed the burden of proof. Where the available evidence indicates, at first sight, that termination was intended to comply with the covered US laws, the terminating party must prove to the requisite legal standard that this was not its purpose. A general reference to commercial policy does not resolve that question.

Can you require the bank to continue the contract?

Termination in breach of the prohibition may be invalid. The Bank Melli Iran judgment also requires consideration of proportionality, including the extent of the economic losses the terminating party could face. Whether it sought authorisation from the European Commission may be relevant. The Regulation therefore does not provide an unconditional right to keep every bank account open.

If serious harm is imminent, we assess whether to seek interim relief under section 940 of the German Code of Civil Procedure, alongside demanding continued performance. The application needs evidence supporting both the claim and the urgency. Payroll commitments, tax payments or an imminent transaction may be relevant. We also examine whether another bank could process the affected payments in time.

When the Commission can authorise compliance

Under Article 5, second paragraph, of the Blocking Regulation, the European Commission may authorise full or partial compliance with the covered US requirements if non-compliance would seriously damage the interests of the applicant or the Union. Implementing Regulation (EU) 2018/1101 sets out the assessment criteria. Filing an application does not itself grant permission.

A separate notification duty may arise. If the covered legislation or measures affect the economic or financial interests of a person within the Regulation's scope, Article 2 requires notification to the Commission within 30 days of obtaining that information. Notification can also be made through the competent national authority. This deadline is separate from contractual notice periods and court deadlines.

Who can claim compensation?

The right to recover damages under Article 6 of the Blocking Regulation is available to the persons specified in Article 11 who are engaged in the international trade, movement of capital or related commercial activities covered by the Regulation. They must establish the loss caused by the application of the listed laws or measures based on them. Relevant evidence may include rejected payment instructions, additional financing costs or records of a sale that could not proceed.

Having a branch in Germany does not necessarily qualify a company. In its judgment of 18 March 2025, XI ZR 59/23, the German Federal Court of Justice rejected eligibility for an Iranian bank whose German branch had no separate legal personality. That does not automatically prevent reliance on an invalid termination or rule out other civil claims. Each claim has its own requirements.

How we challenge the bank's decision

We review the notice, contractual terms and correspondence. We then put the legal objections to the bank and, depending on the case, demand continued performance or execution of a particular instruction. If the dispute cannot be resolved, we represent you in proceedings to enforce your rights. We assess losses by reference to the individual payments and transactions affected.

If your own OFAC designation caused the dispute, a petition for removal from the SDN List may also be needed. The requirements for removal and your rights against a European bank are separate legal questions. We coordinate these steps and involve US counsel where required.