The EU Court of Justice (the Court) decided in its decision C‑81/24 [Jenec] that the presence of a person on the OFAC sanctions list cannot be a reason for denying such person access to the basic payment account in an EU country. The Court considered in its decision relevant provisions of AML legislation as well as Article 16 of the Directive 2014/92/EU about the right of access to a payment account with basic features. This article does allow financial institutions to refuse the opening of a payment account with basic features if opening of such an account results in infringement of the provisions on the prevention of money laundering and the countering of terrorist financing. But what are the consequences of this decision?
An important point of this decision is that it concerns only the payment account with basic features. It is a type of account allowing issuance of a debit card, payments, and fund transfers as well as withdrawals. Such account type must be available to all legal residents of the EU, usually free of charge or with minimum fees. In other words, we are talking about the bare minimum that people need in order to be able to maintain their finances in a bank account and function in today’s world, where living without a bank account is very difficult, if not impossible.
The Court stated that applicable EU legislation does not require an automatic prohibition from opening a bank account for a person included on the OFAC sanctions list and that such inclusion might constitute a reason for enhanced due diligence, nevertheless not an automatic refusal of service.
Given the fact that life without a basic bank account is virtually impossible in the EU and given the Court’s focus on the EU legislation, the decision does make perfect sense from the EU legal point of view. What the Court does miss however is the operational reality of most, if not all, financial institutions operating in the EU.
Many financial institutions and other obliged entities operating in the EU do have either a US parent or belong to a group operating in the US as well. Institutions with a nexus to the US must apply the OFAC sanctions regime in order to be compliant with applicable US law, and if a person or a company is included in the OFAC sanctions list (assuming we are talking about the SDN list), ignoring a customer’s inclusion on the OFAC sanctions list can put these institutions at risk of regulatory action from US regulators.
Moreover, the OFAC sanctions list is being regularly used by obliged entities without any US nexus as well, since ignoring the OFAC sanctions puts them in danger of being hit by secondary sanctions and, as such, losing access to dollar transactions. Obliged entity targeted by US secondary sanctions would have a very hard time maintaining a correspondent relationship considering how connected today’s financial world is to the US and the dollar.
Obliged entity willing to open a bank account for an OFAC sanctioned individual would also face other hardships. Even if the transactions on such an account would have nothing in common with the US or dollar, its usage might be very limited. The payment account with basic features does assume the existence of a debit card for such an account, allowing online payments and withdrawals. The majority of debit cards are issued by Visa and Mastercard. Both of these companies are incorporated in the US and both follow the OFAC sanctions regime, therefore it is very doubtful they would agree to issue a card to an OFAC sanctioned individual.
It is not only the debit card that would cause problems. As explained above, the majority of EU operating obliged entities do follow the OFAC sanctions regime and have the OFAC sanctions list in place in their transaction monitoring system. In reality, even if a financial institution opens a payment account with basic features, or any other account, for an individual targeted by OFAC sanctions, all transactions of this account would be caught by the transaction monitoring tool of the recipient’s bank, which could have and likely would have denied such a transaction to proceed.
Not only that, but a potential recipient of a transfer from an account owned by an OFAC sanctioned individual, even if only within the EU, would be very likely subjected to investigation and enhanced due diligence by his bank, making his life more difficult. In the extreme case, he might even be the subject of a suspicious activity report and account closure.
Opening a bank account for an OFAC sanctioned individual, even just for payments within the EU, would, in the end, still might make regular account use almost impossible, as issuing a debit card could be an issue, and potential recipients of transactions from such account might be accidental victims as well because of their heightened AML risk level.
Having established that, the decision, while formally in line with EU AML legislation, will very likely not help the individuals within the EU targeted by OFAC sanctions. The only outcome of this decision will, or at least should, be a change of the obliged entities approach towards OFAC sanctioned individuals and entities whose refusal of services will have to be based on more reasons than just the OFAC sanctions itself.
Interestingly, there was a similar case in 2024 when Roman Abramovich, sanctioned by the EU and UK, was denied a payment by an Israeli bank that claimed that his inclusion in EU and UK sanctions lists is against its risk management policy. Abramovich tried to have the bank’s decision overruled by the court. The Israeli Supreme Court however agreed with the bank that the transaction should not go forward because of the bank’s risk management policy.
Sources:
The EU Court of Justice judgment C‑81/24 [Jenec] https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62024CJ0081
Directive 2014/92/EU https://eur-lex.europa.eu/eli/dir/2014/92/oj/eng
Supreme Court blocks Abramovich donation https://en.globes.co.il/en/article-supreme-court-blocks-abramovich-donation-to-zaka-1001475357