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

The XI Civil Senate of the German Federal Court of Justice (BGH) ruled on 18 March 2025 on a claim for damages brought by an Iranian bank against the German central securities depository Clearstream Banking AG, Frankfurt am Main (CBF), concerning the freezing of securities (Case No. XI ZR 59/23).

The Facts

The claimant, which operates a branch office in Munich, is primarily seeking compensation from the defendant. The claimant provides financial services related to foreign trade between the Federal Republic of Germany and Iran. The defendant is Clearstream Banking AG, based in Frankfurt am Main (CBF), a central securities depository in Germany.

In 2018, the President of the United States announced that the U.S. would withdraw from the nuclear agreement with Iran and reimpose the sanctions previously lifted under that agreement. These sanctions prohibit, among other things, persons not subject to U.S. jurisdiction (so-called secondary sanctions) from engaging in business relations with individuals or entities listed on the Specially Designated Nationals and Blocked Persons List (SDN List), maintained by the Office of Foreign Assets Control (OFAC). The claimant has been listed on the SDN List since November 2018.

In June 2019, the claimant purchased corporate and government bonds with a nominal value of around €10.5 million through a German commercial bank. These were held in custody or sub-custody by the defendant. In August 2019, the defendant froze the securities. It was only on 10 January 2020 that the U.S. government issued Executive Order 13902, which, effective from October 2020, introduced specific financial market sanctions against persons doing business with entities listed on the SDN List. A disposal order placed by the claimant on 16 January 2020 was not executed.

The Decision

The XI Civil Senate ruled that the claimant is not entitled to contractual compensation from the defendant. However, it can assert a tortious claim under Section 823(1) of the German Civil Code (BGB), as the freezing of the securities unlawfully infringed upon the claimant’s property and other rights.

There was no direct contractual relationship between the parties. The claimant only has a contractual relationship with its commercial bank, which is the final link in a custody chain that extends to CBF. The custody agreement concluded by the defendant is also not a contract with protective effect for third parties, such as the claimant.

The claimant is also not entitled to a claim under Article 6(1) of Regulation (EC) No. 2271/96 (EU Blocking Regulation). According to this provision, any person as defined in Article 11 of the Blocking Regulation who engages in activity pursuant to Article 1 of the Regulation is entitled to compensation for damages caused by the application of the laws listed in the Annex to the Regulation or measures based on or resulting from them. The claimant is not protected under this provision, as it is a bank incorporated under Iranian law and based in Iran. The branch office operated in Munich is not a separate legal entity.

However, the defendant violated the claimant's property and other rights under Section 823(1) BGB. This applies not only to the centrally held securities but also to the foreign securities recorded as "fiduciary WR credits" with the defendant. By freezing the securities, the claimant was completely deprived of the essential usage rights associated with them.

The freezing of the securities was also unlawful. The defendant had no legal justification. In particular, Executive Order 13902 only came into effect in October 2020, i.e., after the securities were frozen by the defendant.

The BGH therefore had to refer the case back to the Court of Appeal, which must make further findings regarding the remaining elements of Section 823(1) BGB.

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