Payment transactions

  • Updated on 23. 8. 2022: Is it permissible to carry out payment transactions with the Russian bank Alfa Bank and its branches or is it permissible to carry out payment transactions involving the aforementioned bank or its branches (e.g. a customer (non-sanctioned person) of Alfa Bank carries out a transfer to a non-sanctioned customer at a bank in Slovenia or vice versa)? Can the bank restrict payment services through that bank according to its own risk assessment (high risk of being placed on other sanction lists, e.g. OFAC, which are not legally binding in the EU)?

    As already contained in the question: EU restrictive measures against Alfa Bank were adopted by EU Council Regulation 2022/328 and CFSP Council Decision 2022/327. These measures do not apply to the execution of payment transactions. In addition to the above, Alfa Bank's ownership structure includes two natural persons who are on the EU sanctions list. These two persons together hold a 45.26% ownership interest in ABH Holdings SA, which holds a 97.4% ownership interest in ABH Financial Limited, which holds a 100% ownership interest in AB Holding JSC, which holds a 99.99% ownership interest in Alfa Bank. According to the information available in Dow Jones (last updated 11.04.2022), the sanctioned persons are no longer members of the management body of ABH Holdings SA.

    Answer ob BoS: Alfa Bank is listed in Annex XII of Council Regulation (EU) 833/2014 and was added to the list by Council Regulation (EU) 2022/328 of 25 February 2022 amending Regulation 833/2014 (List of legal persons, entities and bodies referred to in Article 5(2)(c)).

    Art. 5(2)

    It shall be prohibited to directly or indirectly, purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments issued after 12 April 2022 by:

    (a) any major credit institution, or other institution with over 50 % public ownership or control as of 26 February 2022 or any other credit institution having a significant role in supporting the activities of Russia, its government or the Central Bank and established in Russia, as listed in Annex XII; or

    (b) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex XII; or

    (c) a legal person, entity or body acting on behalf or at the direction of an entity referred to in point (a) or (b) of this paragraph

    The purpose of the above-mentioned prohibition and other financial restrictive measures adopted in Council Regulation (EU) 328/2022 is to deny Russia access to the most important capital markets. The prohibition in Article 5(2) does not restrict payment services in general.

    Alfa Bank is not subject to the SWIFT exclusion implemented on 12. March 2022 for seven Russian banks. It is also not included in the list of persons whose assets are frozen (Annex I to Council Regulation (EU) 269/2014).

    The inclusion of persons who have an ownership interest of 50% or less in legal entity X and do not exercise significant controlling influence over it in the so-called sanctions list has no effect on the status of legal entity X (legal entity X is not sanctioned). Assuming that a person on the Sanctions List does not have a (co-)ownership interest in the bank above 50% and does not dispose of or control the bank, the bank would not be subject to sanctions within the meaning of Council Regulation (EU) 269/2014. However, if the persons on the Sanctions List collectively had an interest in the bank above 50%, the bank's assets would also have to be frozen.

    About restriction of payment transactions (updated on 23. 8. 2022): Article 121(1) of the Payment Services, Services for Issuing Electronic Money and Payment Systems Act; ZPlaSSIED provides that if all the conditions for the execution of a payment order as laid down in the framework contract are fulfilled, the payment service provider holding the payer's account may not refuse to execute an approved payment order, irrespective of whether the payment order was ordered by the payer, by the payment order service provider through the payer or by the payee or was ordered through the payee, unless prohibited by other regulations.

    With regard to the fulfilment of the conditions for the execution of a payment order as laid down in the framework agreement, we would like to point out that the bank's general terms and conditions are also considered to be part of the framework agreement. Therefore, it is relevant whether the conditions for refusing a payment order are met in each individual case, as set out in the bank's general terms and conditions in force at the time. However, we would like to point out that reference to internal measures and policies which are not annexed to the framework agreement (general terms and conditions) or which are not otherwise communicated to the customers in accordance with the requirements of the Framework Agreement cannot be considered as part of the framework agreement with the customers within the meaning of Article 121(1) of the ZPlaSSIED.

    In cases where the framework agreement (including the bank's general terms and conditions) does not provide the bank with a basis for refusing an individual payment order, we would like to clarify that the implementation of financial restrictive measures/sanctions in our country is regulated by the Act Regulating Restrictive Measures Introduced or Implemented by the Republic of Slovenia in Accordance with Legal Acts and Decisions Adopted by International Organisations (ZOUPAMO), which does not recognise the so-called risk-based approach. While the entry into force of the latest amendment to the ZOUPAMO requires debtors to "... establish effective policies, procedures and controls, in accordance with the requirements of the competent authorities, to enable compliance with restrictive measures and the timely detection of breaches of restrictive measures", no act has yet been adopted in this respect within the meaning of the first paragraph of Article 121(1) of the ZPlaSSIED.

  • What does a bank’s exclusion from SWIFT entail?

    Payment transactions with Russian banks are generally executed via the correspondent banking mechanism, i.e. via the correspondent accounts of Russian banks at European banks and vice versa. The exchange of financial messages by which banks (both Russian and European) order the transfer of funds from correspondent accounts (debiting Russian banks and crediting European banks or vice versa) is generally undertaken via the SWIFT network. When a bank is excluded from SWIFT, it is much harder for the excluded bank to access its correspondent accounts at other banks, and for other banks to access their correspondent accounts at the excluded bank.

  • If Russian banks that were excluded from SWIFT on 12 March 2022 turn to other means of communication, would this be considered circumvention of the restrictive measures?

    In this case the direct prohibition relates to SWIFT, and not to the Russian banks excluded from the system. Therefore SWIFT (and all other providers of financial data exchange services in the EU) may not circumvent sanctions (see the amendment to Article 12 under Council Regulation (EU) 2022/328: “It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation including by acting as a substitute for natural or legal persons, entities or bodies referred to in Articles 5, 5a, 5b, 5e and 5f or by acting to their benefit by using the exceptions in Articles 5(6), 5a(2) 5b(2), 5e(2) or 5f(2)”).

  • Is the “margin call” exempted from the prohibition in connection with SWIFT messages?

    No, communications of this type are not exempted from the prohibition. The use of SWIFT for margin call messages that are exchanged between Russian banks that are the target of this prohibition is also prohibited.

  • Can Russian persons who do not hold an account with a bank in Slovenia be refused the opening of a basic payment account, or can additional conditions be set for them to ensure that the purpose of the basic payment account is upheld?

    The third paragraph of Article 181 of the Payment Services, Electronic Money Issuance Services and Payment Systems Act (ZPlaSSIED) stipulates that consumers legally resident in the EU, including consumers without a permanent abode and asylum seekers and consumers for whom a resident permit has not been approved but whose deportation is impossible on legal or factual grounds, have the right to open and use a basic payment account at a bank. This right applies irrespective of the consumer’s permanent residence. An application to open a basic payment account may only be refused for a Russian entity that satisfies any of the three reasons explicitly stated in the ZPlaSSIED for refusal of an application (Article 181(7) of the ZPlaSSIED), or if opening the account would cause a breach of the ZPPDFT-1 (Article 181(6) of the ZPlaSSIED), or if the person is on the list of persons subject to financial restrictive measures. The opening of a basic payment account may not be refused simply because the person is a Russian national/resident.

    The EBA opinion is still relevant with regard to the procedures for opening a basic payment account for asylum seekers. It emphasises a risk-based approach by financial institutions when providing financial products under such circumstances, where the flexibility afforded by the EU’s AML/CFT legislation can be exploited.