German BGH Ruling on Frozen Securities due to U.S. Sanctions: Key Takeaways

The German Federal Court of Justice (BGH) has ruled on a damages claim filed by an Iranian bank against a German securities depository (Clearstream Banking Frankfurt) over the freezing of securities. The decision, issued on March 18, 2025 (Case No. XI ZR 59/23), has significant implications for financial institutions operating under international sanctions.

Background of the Case

The plaintiff, an Iranian bank with a Munich branch, sued the defendant, Germany’s sole securities depository (Clearstream Banking AG, Frankfurt - CBF), seeking damages or, alternatively, the unfreezing of securities. The dispute arose following U.S. secondary sanctions imposed after the United States withdrew from the 2015 Iran nuclear deal. The bank was added to the Specially Designated Nationals (SDN) list in November 2018, leading to restrictions on its assets.

In 2019, the plaintiff acquired securities worth €10.5 million, which were subsequently frozen by the defendant as a precautionary measure against potential sanctions violations following U.S. Executive Order 13902 of 10 January 2020. The plaintiff argued that this action resulted in financial losses, including missed interest payments and blocked transactions.

BGH Decision

The BGH overturned the previous appeal court ruling and referred the case back for further review. The key findings included:

• The defendant did not have a contractual obligation to compensate the plaintiff, as no direct custody agreement existed between them.

• However, the freezing of securities violated the plaintiff’s property rights under § 823 (1) BGB, a key provision in German tort law.

• The plaintiff could not claim damages under EU Blocking Regulation (Council Regulation (EC) No. 2271/96), as it did not meet the regulation’s criteria for legal protection.

• The proportionality test for U.S. secondary sanctions was misapplied by the lower court, as these sanctions were not in effect during the relevant period.

Implications for Financial Institutions

This ruling highlights the complex legal challenges financial institutions face when balancing EU regulations and extraterritorial U.S. sanctions. Key takeaways include:

• Risk of liability for freezing assets: Institutions must carefully assess the legality of asset freezes under German and EU law.

• Impact of EU Blocking Regulation: Entities operating in the EU cannot automatically enforce U.S. sanctions without considering EU legal constraints.

• Necessity of proportionate measures: Courts will evaluate whether financial institutions have explored alternative compliance mechanisms before freezing assets.

Conclusion

The BGH’s decision sets a precedent for handling disputes involving sanctioned entities and securities depositories. As the case returns to the appeals court, financial institutions should closely monitor developments to align their compliance strategies with EU and international law.

Kronsteyn Services

Kronsteyn advises and represents German and international financial institutions on sanctions law. Please contact attorney Dr. Hendrik Müller-Lankow for any further information.