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 a restraint or an account freezing order; or (iv) The bank would or may be committing a crime by providing banking services.
Financial Sanctions – Asset Freezes
Where a customer is designated on the UK Consolidated Sanctions List, it is a principal sanctions offence for a bank (or anyone) to make funds available to, or deal with the funds or assets of the designated person without a licence from OFSI.4. It is also a principal sanctions offence to circumvent sanctions, for example by structuring a transaction in a particular way. There are also several secondary sanctions offences: failing to comply with the terms of a licence (; and failing to report a sanctions breach or to provide information requested by OFSI. OFSI is responsible for the enforcement of penalties for breaching of any sanctions, the possible penalties include:
i. Criminal prosecution with a maximum penalty of 7 years. DPAs are also available for corporates.5
ii. Monetary penalties with a range of between 50% of the value of the breach or £1million, whichever is higher.
iii. Warnings & referral to regulators, including overseas sanctions enforcement agencies.
iv. OFSI can also publish a report on any sanctions breach, irrespective of whether a monetary penalty has been imposed.
Where a customer’s account has been lawfully ‘frozen’ pursuant to sanctions, it will be obvious because that customer will either be designated, or a transaction into or out of the customer’s accounts will be to/from a designated individual or entity. In those circumstances the customer can seek to challenge their designated status or apply for a licence from OFSI to allow the bank to pay for basic needs. Applications for basic needs licences (and other types of licence) now routinely take months to process. Once granted, banks are often cautious to the point of obstruction, causing long periods where designated persons are forced to make numerous self-reports of breaches to OFSI when they buy food, toiletries and other necessities of life. This makes significant work for OFSI, who do not then punish these obviously necessary breaches. Anecdotes show banks moving funds to other holding account, refusing to tell the customer those details, even after the issuance of a basic needs licence.
Banks have an obligation to report suspected breaches of the financial sanctions regulations by a designated person.6 There is not, however, any legal basis upon which the bank may freeze an account of a person who is not designated pending the determination by OFSI of any such report.
Money laundering offences and SARs
In the UK there are three principal money laundering offences;
i. Concealing, disguising, converting, transferring, or removing criminal property from the UK;7
ii. Entering into or becoming involved in an arrangement which facilitates the acquisition, retention, use, or control of criminal property by or on behalf of another person;8
iii. The acquisition, use, and/or possession of criminal property.9
There are two secondary money laundering offences under POCA which are of particular importance to banks; Failure to disclose10 and tipping off.11
A bank would commit a failure to disclose offence, if it failed to report a reasonable suspicion of money laundering12. The threshold for suspicion is a low one.13 Furthermore, by reporting the suspicious transaction to the NCA by way of a SAR, the bank may also have a defence to one of the principal money laundering offences, should it transpire that the funds in question were the proceeds of crime.14
When a SAR is submitted to the NCA by a bank, the bank must freeze the relevant account for a period of 7 days to allow the NCA time to investigate, this can be extended for a further 31 days (38 days in total, known as the moratorium period).15 During the initial moratorium periods, the bank cannot disclose to its customer, the fact that are SAR has been made or the existence of the investigation otherwise it would commit a tipping off offence. After the expiration of the initial moratorium period, the account must either be unfrozen or the customer notified that the NCA is taking further action (moratorium extension or restraint). From that point on, the customer is on notice of the reason for the suspension of his account and be able to challenge any further application by the NCA.16 Where a customer’s account is frozen as a result of a SAR, it will be obvious because the bank will either not engage with the customer, or limit engagement with the customer until the expiration of the moratorium period.
In March 2022, UKFIU introduced a new glossary code for anyone submitting a SAR, to identify if an entity or individual was also on the sanctions list. Crucially, this did not change the fact that a SAR has never been and is not a tool for reporting a suspicion of a sanctions breach, nor does submitting a SAR ever give rise to a defence against a sanctions breach in the way it does with a money laundering offence. Evidently this must have caused confusion because following the introduction of this code the NCA reported receiving requests for a defence against money laundering concerning sanctioned entities. In response, the 15th issue of ‘SARs in action’ the NCA was empathic that the SARs regime was not meant to be used for the purpose of reporting a suspicion of a sanctions breach.
As there is no transparency in relation to the SARs regime, it is not possible to comment on whether banks are issuing SARs on an improper basis, i.e. without the necessary reasonable suspicion of money laundering specifically. To date there has been one legal challenge concerning SARs in Lonsdale v National Westminster Bank  EWHC 1843 (QB). There the court did order the bank to disclose to a customer the suspicious activity reports it had sent to the NCA which resulted in the customer’s account being frozen. The case was ultimately settled and therefore there was no finding as regards to whether the SAR had been improperly submitted, however this does at least show that the courts are, in principle, willing to intervene where the content of a SAR is relevant to a cause of action.
Court ordered account Freezing Orders:
Court freezing or restraint orders are entirely distinct from the sanctions and SARs regimes. Where a bank has frozen an account on the basis of a court order, this will be immediately, or very proximately, known to the customer. If the order is granted without notice, the result of that hearing must be imparted to him as soon as practicable (save in very exceptional circumstances which are not discussed here) Such orders are challenged or varied in the ordinary way. The bank has little or no role in the extent to which an individual’s rights over his or her property is interfered with.
The Bank Would be Committing a Crime
Various regulations render it a criminal offence to provide banking services that make funds available for the benefit of a designated person. Regulations 13 – 15, The Russia (Sanction) (EU Exit) Regulations 2019 make it an offence to make funds or economic resources available to a designated person if they know, or have reasonable cause to suspect, that that is being done. A bank cannot be compelled by a contractual term to commit a crime. If there are facts upon which a bank might reasonably suspect that balances in accounts are being held for the benefit of sanctioned third parties it is, unsurprisingly, compelled to withhold banking services. 17
What is Happening in Practice
Where a customer’s account has been frozen lawfully, as set out above, it is obvious to the customer and their lawyer. In the case of sanctions, the individual or entity will be designated on the sanctions list. In the case of a court order, that order will be served on the individual /entity as soon as possible, and in any event very shortly, after it is obtained. In the case of a SAR, the account/s will be frozen and the bank will not engage with the customer during the moratorium period, after which the account will be unfrozen or the customer informed of an intention to apply for a moratorium extension or restraint order. In cases where the bank has reasonable grounds to suspect the funds are being held for a designated third party, that too will be obvious to the account holder and is likely to be communicated by the bank. Tipping off provisions do not apply to the provision of information under the sanctions regimes.
Where a customer account is frozen for a period greater than the moratorium period, the customer is not designated, and no court order has been served, the customer knows that the account has not been frozen formally, or lawfully. This is becoming routine with Russian customers and even in some instances customers who are not Russian but have Russian names or Russian sounding names. In still other cases, customers who moved to the UK after concerns about their safety due to their opposition to the current Russian regime find themselves unable to access banking services. Most banks terms and conditions do allow the closure of a customer account ‘for any reason’, it is still a breach of ss. 9 & 23 of the Equality Act 2010 and Article 14 of the European Convention on Human Rights for a bank to do this on the basis of a client’s nationality.
While those in compliance roles at banks, and possibly even regulators, may see this de-risking as justified, the banks appear to have disregarded their other obligations: to behave lawfully and, unless there is some other supervening legal obligation, to act in their client’s interests. Once the bank’s compliance team has taken the decision to ‘freeze’ an account, it is incredibility difficult and time consuming to persuade the bank to engage. Irrespective of its legal obligations, it sees the balance of risk a weighing entirely in favour of avoiding any risk, whether real or illusory, of breaching the sanctions regulations. In practice, it routinely takes weeks or even months of correspondence with the bank, and the error is usually only resolved once a letter before claim is submitted by the lawyers for the customer. In the meantime, the customer is unable to access any funds at all. The consequences may be even more significant where the account is a business account, as this may severely impact revenue / ability to fulfil contractual obligations and could even destroy the business entirely. All these consequences flow from a surname, national origin, or even a perceived relationship with someone or something that bears that surname or nationality.
Legal Recourse in England
First establish, with detail and certainty, that the only reason for the informal restraint is that the individual or entity is Russian or is innocently associated with someone or something that is. This must, of course, take account of (i) the origin of funds in the account, (ii) the personal history of the individual customer and (iii) the time that has passed (to exclude any lawful basis for the suspension of services). This should be set out in detail in correspondence with the bank.
There are then two tracks to seeking recourse for the informal freezing or closing of a bank account: regulatory or by court action. The regulatory course, to the Financial Ombudsman Service / FCA, is slow and, in the context of an account that is unlawfully frozen, hopeless.
Court proceedings can be brought under the twin heads of a breach of contract and the Equality Act 2010. A claim under the Equality Act 2010 may only be brought in the County Court18; a claim for breach of contract may be brought in the County Court or the High Court dependent on its value; a claim for damages may not be started in the High Court unless its value is over £100,000.19 The County Court has the power to make an order for specific performance, provided the value in dispute is below the County Court limit. In most cases in which lawyers will be instructed, the value of the balance is likely to be very significant. In an Equality Act claim, the County Court has the power to grant any remedy which the High Court could have granted in a claim in tort;20 this would include the power to grant an injunction, but not the power to grant an order for specific performance of a contract. An important distinction between the claim for breach of statutory duty under the Equality Act, and the common law claim for breach of contract is the limitation period; under the Equality Act, a claim must ordinarily be brought within 6 months,21 as compared to 6 years for a claim for breach of contract.22 Although of course any action in relation to informal ‘de-banking’ would naturally be brought with urgency, the 6 month time limit must be borne in mind when conducting pre-action correspondence.
The community subject to this arbitrary conduct is, since February 24th, predominantly Russian. In the late 2010’s the targeted nationality was Iranian. Companies and individuals with no connection to the Iranian government or IRGC (Revolutionary Guard) have had banking services
terminated for no other reason than their actual or perceived nationality. This has given rise to a group claim against a well-known high street bank under the Equality Act 2010. It is yet to be resolved.
Banks enjoy considerable, but informal, latitude in relation to their dealings with customers. They are, perhaps understandably, anxious to minimise their exposure to the risk of contravening the increasingly draconian sanctions regime. That anxiety has led to the banks’ regular contravention of other parts of the law of England and Wales and to ignore their duty to their customers. It is unlawful to ‘de-risk’ in national categories, yet this appears to be occurring. Regrettably for those faced with informal freezing action by a bank, resolution will require significant time, expense and at least the threat of legal action before balances are returned. Those who have balances returned will find it increasingly difficult to open new UK bank accounts in which to deposit those funds. Those cases dealt with by the authors in the last months are a self-selecting sample of those affected with the knowledge and resource to instruct lawyers. Sadly, most of those affected will have neither.
Gideon Cammerman KC, 187 Chambers
Lisa McKinnon – Lower, W Legal
Robert Levack, 187 Chambers
1. Jon Henley, ‘What Sanctions Have Been Imposed on Russia over Ukraine Invasion?’ The Guardian (28 February 2022) <https://www.theguardian.com/world/2022/feb/28/what-sanctions-imposed-on-russia-over-ukraine-invasion-putin> accessed 27 September 2022.
2. ‘Russia Sanctions: Guidance’ (GOV.UK) <https://www.gov.uk/government/publications/russia-sanctions-guidance/russia-sanctions-guidance> accessed 27 September 2022.
3. HM Treasury Office of Financial Sanctions Implementation, ‘Russia Guidance Guidance for the Financial and Investment Restrictions in Russia (Sanctions) (EU Exit) Regulations 2019’ <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/815675/Post_Brexit_-_Russia_guidance.pdf> accessed 27 September 2022.
4. Russia (Sanctions) (EU Exit) Regulations 2019/855, regs 11-15,
5. Russia (Sanctions) (EU Exit) Regulations 2019/855, reg 80
6. Russia (Sanctions) (EU Exit) Regulations 2019/855, reg 70
7. Proceeds of Crime Act 2002, s.327
8. Proceeds of Crime Act 2002, s.328
9. Proceeds of Crime Act 2002, s.329
10.Proceeds of Crime Act 2002, s.330-332
11. Proceeds of Crime Act 2002, s. 333A
12. Proceeds of Crime Act 2002, s.330(2)(b)
13. R v Da Silva  EWCA Crim 1654
14. Proceeds of Crime Act 2002, s.330(4)
15. Proceeds of Crime Act 2002, s.335
16. Proceeds of Crime Act 2022, s.333D(1A)
17. Himcho  EWHC 1757 (QB)
18. Equality Act 2010, s.114
19. Civil Procedure Rules, PD7A, para 2.1
20. Equality Act 2010, s.119
21. Equality Act 2010, s.118
22. Limitation Act 1980, s.5