Russians, Sanctions And SARs: Are The UK Banks Getting It Wrong?

• Published date: 24 August 2023
• Subject Matter: International Law, Export Controls & Trade & Investment Sanctions
• Law Firm: W Legal
• Author: W. Legal

The 24th February 2022 radically changed the political, economic and legal world. Since Russia invaded Ukraine, sweeping new economic sanctions were imposed on Russia, and importantly on Russians, by the international community.¹ These are some of the most severe and broadly applied sanctions ever imposed. A brief review of the statutory guidance² issued by HM Government (relating to the UK) , and the 'Russia Guidance'³ immediately gives a sense of the breadth of application. The rapid pace at which sanctions have been imposed, and changes made to them, has had a significant impact on banks globally. As at August 2023, regulations implementing the 'Ukraine related' 2023 round of sanctions were on their 17th amendment. In particular the new sanctions regime has presented challenges to the comparatively small teams within banks charged with sanctions compliance. The responsibility for risk and compliance experts at banks has rapidly become very onerous: getting sanctions wrong could lead not only to a sanctions breach, with all the legal ramifications that follow. It could also lead to significant regulatory implications for the banks. It is therefore unsurprising that banks are, in balancing risk, taking an extremely cautious approach. This is especially so when it comes to dealing with the fund of customers whose national origin or business the bank deems to be 'high risk'. The result of this approach is that Russian customers, who are not sanctioned, have no dealings with sanctioned entities, and do not in any way fall with the sanctions or money laundering regimes, are finding their accounts informally and unlawfully frozen for many months. When challenged, banks frequently stonewall, do not attempt to justify their position, and if challenged persistently, merely issue a notice of closure of the account. Those receiving balances then find it very difficult to find new banking facilities in the UK. This is both a breach of contract and contrary to the Equality Act 2010.

This article is not designed to assess the political propriety of sanctions regulation, nor is that the banks' role. The Government may well take the view that the unfair restraint and / or the 'de-banking' of innocent Russians is a price worth paying to ensure that the current Russian regime is punished. They may be right, but the bank is not an instrument of that policy. It must act lawfully.

The purpose of this article is to analyse banks' common and recent policy of informal freezing of money, and the termination of banking services on the basis of national risk-profile alone.

Banks, perhaps by force of circumstance, appear to work in categories of people, and not as directed by suspicion of the conduct of individual customers. They also have contractual obligations, and broader legal ones, owed to their clients. Most banks impose upon themselves an obligation that any suspension of banking services necessary to comply with regulatory obligations will be conducted reasonably and with the minimum of inconvenience. A typical form of term adopted by banks is "If we suspend a service or close an account, we will take reasonable steps to reduce the inconvenience to you. If we can, we will tell you before we suspend the service or close the account (usually giving you two months' notice)".(Metrobank, 11.2, standard online retail t's and c's). This is merely an illustrative example. Freezing an account without a statutory basis or judicial order, because someone is, or is connected to someone or something that is, Russian, and doing so for months, is clearly a breach of that term. No bank with whom this issue has been raised has sought to justify a prolonged informal freezing on that basis. The banks aren't merely bound by contracts but also by their regulatory obligations to act in the interests of their client unless some other obligation prevents it from so doing and by ss. 9 & 23 of the Equality Act 2010 which prohibit discrimination on the basis of nationality.

Circumstances in which a bank must 'freeze' a customer account:

There are currently four circumstances in which a bank must, in law, suspend services on a customer account: (i) the customer is designated pursuant to the sanctions regime; (ii) the bank has submitted a Suspicious Activity Report (SAR) to the National Crime Agency (NCA), because of money laundering concerns and permission to transact has been declined for a period; (iii) there is a court order, criminal or civil, granting...