Bank within its rights to freeze payment destined for unoccupied region of Ukraine

Categories:

Delays, Advice & information, Transaction errors, Payment method,

Summary:

In February 2024, Kendra opened a business transaction account with the bank and the following day made an international payment of $US7,750 to her supplier in Ukraine. The bank froze the payment and asked Kendra for information about the use of funds as part of its obligations under the Russia Sanctions Act 2022. Kendra, whose business supplied caviar to New Zealand outlets, said its main supplier was in an unoccupied region of Ukraine, which was not subject to sanctions, and the bank’s actions in freezing the payment were unreasonable and illegitimate. She said Ukraine was not officially sanctioned by the New Zealand Government, and the bank had unjustifiably added Ukraine to its list of sanctioned countries.

Published:

July 2025

Our investigation

The terms and conditions of Kendra’s account allowed the bank to refuse to make a payment if it reasonably believed a payment into or out of the account had a direct or indirect connection to an internationally sanctioned regime, person or activity. In this case, the bank considered the payment might be sanctioned under the Russian Sanctions Act 2022 because the payment was to a business in Ukraine. The fact the supplier was in an unoccupied region of Ukraine did not necessarily mean the payment had no connection to a sanctioned regime, including a sanctioned territory of Ukraine. The bank was within its rights to freeze the payment while it satisfied itself the payment had no direct or indirect connection to a sanctioned regime, person or activity. That assessment considered more than merely the physical location of the recipient of the funds.

When Kendra opened her account, the bank made clear that payments involving Ukraine would be subject to delays and manual reviews. It also said it might ask for details about the ownership of supply companies in Ukraine with which she dealt. The bank did not suggest payments to suppliers in unoccupied regions of Ukraine were exempt from this manual review process.