Account of the case
The Company has received payments from Russia for many years without problems on the basis of a long-term service agreements, but since May 2022 payments were no longer credited to the companys´s account because the bank stopped to process payments to and from Russia.
Customer’s complaint
The customer states that the bank has had no legal right not to accept or credit the payments, because no party of the payments were subject to any restrictive measures (sanctions) either from the EU, the USA, or any other country. Previous similar payments made in March and April 2022 were credited to company's account without any problems. It was only June 3 when the EU Council introduced new restrictions on working with Russian companies. The restrictions included a ban on the provision of consulting services for Russian companies.
In the customer´s view there is no "legal uncertainty" and "complexity of sanctions regulation". To understand the sanctions, one must read the EU's official journal and browse the relevant websites of the UK and US governments. Everything is clearly written there, what sanctions are imposed, and against whom the lists of persons are published. The bank has the opportunity to hire professional lawyers who will help to understand the restrictive measures and sanctions regulation if necessary.
The customer also points out that one of the payments was carried out by the Russian branch of the largest Italian bank UniCredit, which is also not included in the sanctions lists. The money was received, but it was blocked by the bank.
Originally the customer stated that the payments, which the bank groundlessly denied, total to 10.590 euros must be paid to company´s account, but also because the future deprivation of payments can lead to the bankruptcy of the company and the therefore the loss of the owner´s job, the bank should also pay 144.000 euros at the rate of €3.000 a month and for 4 years until his retirement age. Later in the process the customer has amended the claim towards the bank being only the amounts not paid to the company’s account and that the rest of the claims will possibly be taken to EU Court as a claim against Finnish government based on the depriment of his livelihood by the bank.
Bank´s reply
The bank denies the Customer’s claim that the Bank has refused to credit the payments made to the Customer’s account and rejects the Customer’s monetary claims as unfounded and disproportionate.
The bank notes that the case at hand concerns two separate payments from Russia to the Customer’s account, not a potential legal right to basic banking services. Since the Customer is a corporate customer and not a private individual, the basic banking service rules in the Finnish Act on Credit Institutions (610/2014, as amended) (the “Credit Institutions Act”) do not apply.
The bank states that the other payment was never forwarded to its payment intermediation system as the payment was blocked by an intermediary bank and therefore the bank cannot have any liabilities in respect of that payment. Regarding the other payment, the bank has refused to carry out the payment because of risk management and sanctions policy reasons.
The war in Ukraine has led to a rapidly changing sanctions landscape as well as increased money laundering and terrorism financing risks. The bank has adapted its cross-border payments policy to the new sanctions and risk environment. As a result of this, the bank has made a principal decision to stop processing of payments to and from Russia and Belarus. Because of this, also payments where no particular sanction prohibitions have been identified can be stopped. This is justified because of the unclear, continuously changing and highly complex sanction landscape and the legal risks associated to that. In some cases, payments need to be stopped also because of money laundering and terrorism financing risk related reasons.
The bank has also a regulatory obligation to prudent risk management. Pursuant to chapter 9, section 1 of the Credit Institutions Act a credit institution may not, in the course of its activities, incur a risk that fundamentally endangers the solvency or the liquidity of the credit institution. The sanction risks associated with payments to and from Russia have increased in a radical way during the war in Ukraine. Violation of sanctions or enabling a sanctions violation could result in adverse consequences to the bank. When assessing the sanction risks, it must be noted that the bank complies not only with domestic and EU sanctions, but also with US and UK sanctions. This is necessary because of the extraterritorial nature of many US and UK sanctions and the global importance of these financial markets.
In any case, if the Customer's claim would be seen as justified, the bank’s general terms and conditions for outgoing and incoming currency payments limit the Bank’s liability for damages to only direct damage to property arising from the user's bank acting in breach of the payment services act (30.4.2010/290) or the General Terms in transmitting a payment. According to the General Terms such direct loss refers to the necessary expenses incurred by the payment service user from investigating the error or neglect. It should also be noticed that in its payment service agreements the bank has not committed to process payments to or from all countries, for instance Russia.
Based on all of the above, the bank´s restrictive policy on cross-border payments to and from Russia is a justified, legitimate and appropriate measure from risk management point of view. This approach is also in line with the prohibition against risk-taking pursuant to chapter 9, section 1 of the Credit Institutions Act. The bank notes that the Customer does not lose its right to claim receivables from its Russian counterparties due to the blocking of the payment. The bank also notes that during the process, the Customer has expressed its awareness on alternative means of having the payments processed. From the time the Customer has learned of the alternative means to have the payments processed, the process initiated by the Customer has to be considered unnecessary.
Reports
In addition to the communications between the parties, the Banking Complaints Board was provided with the following documents:
- general terms and conditions for outgoing and incoming currency payments
- decision of the High Court of Justice (UK) Case No: CR-2022-002121
- details of the payments
- online banking messages between the bank and the customer
Recommended solution
Formulation of question
In order to resolve the dispute between the parties, the Banking Complaints Board must assess whether the bank had the right not to process the company's incoming foreign payments.
The applicable norms of law and policy terms
Chapter 1 section 7 of the Payment Services Act states that:
”A contract term that deviates from the provisions of this law to the detriment of the user of the payment service is void, unless otherwise stipulated below.
If the user of the payment service is not a consumer, the user of the payment service and the service provider may agree otherwise on matters stipulated in chapters 2 and 3, section 38, subsection 2, section 40, subsections 1–4 and 6, 62, 64–67, 69, 71, in Sections 72, 76, 79 and 80. In addition, the parties may agree otherwise on the deadline stipulated in section 70.
The user of the payment service and the service provider may agree otherwise on matters stipulated in Sections 47, 48, 52 and 88. However, the parties cannot agree on the execution time of the payment transaction referred to in 47 § to be longer than four working days from the moment of receipt of the payment order.” (unofficial translation)
Chapter 4 section 41 of the Payment Services Act states that:
”The service provider may refuse to execute a payment order only if the conditions agreed in the framework contract for executing the payment order are not met or if the law so provides elsewhere.” (unofficial translation)
In the bank´s general terms it is stated that:
”The payee’s bank pays the funds to the account indicated by the payer in the payment order or places them at the payee’s disposal immediately after the funds have been paid to the account of the payee’s bank and the payee’s bank has received the details needed for the payment of the amount of money to the payee’s account or for placing them at the payee’s disposal, as referred to in clause 3 above, and the necessary foreign exchange trades have been executed.
If a payment order involves a foreign exchange transaction where at least one of the currencies is that of a country that does not belong to the European Economic Area, the aforementioned execution period may be extended by one banking (1) day.”
Regarding the timetable it is also stated that:
”The bank is entitled to suspend the execution of a payment order in order to acquire necessary additional instructions or information.”
Regarding liability for damages and limitations on liability it is stated that:
The payment service user’s bank is liable to compensate the user only for direct damage to property arising from the user's bank acting in breach of the payment services act or these terms and conditions in transmitting a payment.
The payer’s bank or the intermediary bank or the payee’s bank is not liable for any indirect loss, such as unobtained income or profit or loss not being able to foresee, sustained by the payment service user or a third party as a result of an error or neglect in the payment transmission.
The payment service user suffering loss must take all reasonable measures to limit the loss. If the payment service user fails to do so, the user is liable for the loss in proportion to his or her failure to limit the loss. Damages payable to the user based on breach of law or these terms and conditions can be adjusted, if the amount is unreasonable in view of the reason for the breach, the user’s possible contribution to the loss, the amount of consideration paid for the payment service, the bank’s possibility to foresee the loss and prevent it from occurring, and any other relevant circumstances.
Chapter 7 section 67 of the Payment Services Act states that:
”If the payment transaction has not been carried out or it has been carried out incorrectly or late, the user of the payment service has the right to recover from his service provider the costs that he has been charged for the payment transaction. In addition, the user of the payment service has the right to receive compensation from his service provider for the interest he has to pay due to the failure to execute the payment transaction or due to incorrect or late execution.” (unofficial translation)
Chapter 7 section 69 of the Payment Services Act states that:
”The service provider is obliged to compensate the damage caused to the user of the payment service as a result of its violation of this law or the contract.
However, the service provider is only obliged to compensate for indirect damage caused to the user of the payment service if the damage is caused by negligence on the part of the service provider.
Indirect damage is considered:
1) loss of income that the user of the payment service incurs due to the incorrect procedure of the service provider or measures resulting therefrom;
2) damage resulting from an obligation based on another contract; and
3) other similar, hard-to-foresee damage.
If the damage referred to in subsection 2 is caused by the limitation of another type of damage, it is not, however, considered indirect damage in this respect.
The service provider's liability for indirect damage caused by an error or negligence in the execution of the payment order can be excluded or limited by contract. The service provider cannot invoke the limitation of liability clause if the service provider or someone for whose actions it is responsible has caused the damage intentionally or through gross negligence.” (unofficial translation)
In the government proposal of the act (HE 169/2009) regarding the above mentioned section it is stated that:
”Since there is a special provision in section 67 for the compensation of interest loss caused by an unfullfilled or erroneously executed payment transaction, the section at hand applies only to other damage. According to this section compensated should be for example telephone costs, which to the user of the payment service are incurred when he investigates the service provider’s mistake.” (unofficial translation)
In the bank´s general terms regarding liability for damages and limitations on liability it is stated that:
The payment service user’s bank is liable to compensate the user only for direct damage to property arising from the user's bank acting in breach of the payment services act or these terms and conditions in transmitting a payment. Such direct loss refers to the necessary expenses incurred by the payment service user from investigating the error or neglect. The payment service user is not entitled to compensation for a direct loss from his or her bank unless the payment service user notifies the bank of the error within a reasonable time of having detected it or when he or she should have detected it. In the case of an EEA payment in an EEA currency or an EEA payment, in addition to direct loss, the bank is also liable to compensate the interest and expenses referred to in clause 11.1 of these terms and conditions in accordance with clause 11.1.
The payment service user is liable for all damage arising from the bank’s inability to transmit a payment because there have not been sufficient funds for executing the payment order, or the account agreement has expired or use of the account has been prevented, and for any damage caused by the payment service user by acting in breach of either law or these terms and conditions.
The payer’s bank or the intermediary bank or the payee’s bank is not liable for any indirect loss, such as unobtained income or profit or loss not being able to foresee, sustained by the payment service user or a third party as a result of an error or neglect in the payment transmission.
The payment service user suffering loss must take all reasonable measures to limit the loss. If the payment service user fails to do so, the user is liable for the loss in proportion to his or her failure to limit the loss. Damages payable to the user based on breach of law or these terms and conditions can be adjusted, if the amount is unreasonable in view of the reason for the breach, the user’s possible contribution to the loss, the amount of consideration paid for the payment service, the bank’s possibility to foresee the loss and prevent it from occurring, and any other relevant circumstances.
The other parties involved in the execution of the payment order are also entitled to invoke these terms and conditions concerning limitations of liability.
Evaluation of the case
In the present case the customer should have received payments abroad from two different companies. Some payments were blocked by an intermediary bank and they never reached the bank and from those the bank can not be kept liable.
The bank has stated that the reason for not processing the received payments to the company´s account has been its own risk management and sanctions policy due to the war in Ukraine, which has resulted to decision to stop processing of all payments to and from Russia and Belarus. The bank has also stated that it has not committed to process payments to or from all countries, for instance Russia. The customer has stated that there is no "legal uncertainty" and "complexity of sanctions regulation" because no party of the payments were subject to any restrictive measures.
According to the Board´s view in the present case the bank has not presented appropriate grounds based on the law or its own general provisions according to which it would not have liability to process payments from certain countries that have already reached the bank and its own account and thus also credit them to the company´s account. The Board also pays attention to the fact that prior to these disputed payments the bank has had an established practice to process similar payments.
Monetary claims
The customer has claimed the amounts not paid to the company´s account totalling to 10.590 euros. The bank has rejected all of the claims as unfounded and contrary to the bank’s general terms and conditions stating that the customer does not lose its right to claim the sum from its counterparties due to the blocking of the payment.
The Banking Complaints Board states that from those payments that had already been blocked by an intermediary bank, the bank can not kept liable. Regarding the payments that reached the bank, but were not credited to the customer´s account the board states that according to the legislation and bank´s general terms the claimed amounts of the payments per se are not compensable damage and that the customer has not demanded any other expenses from the bank.
Final outcome
The Banking Complaints Board does not recommend compensation in this matter.
The Banking Complaints Board’s decision was unanimous.
BANKING COMPLAINTS BOARD
Chairman Sillanpää
Secretary Sainio
Members
Ahlroth
Atrila
Piilo
Tervonen