Swiss sanctions and contract law: How far do GTC compliance clauses reach?

The dispute arose from a banking relationship with a Swiss bank involving cash accounts maintained in Switzerland, a call deposit booked at the bank’s Guernsey branch and securities held through a multijurisdictional custody chain. Although the client itself was not designated under any sanctions regime, a former indirect majority shareholder became subject to Swiss, EU and UK sanctions following the 2022 Russia-related measures. Shortly before the designations, that shareholder’s indirect participation was reduced below 50%.

The bank refused to execute the client’s instructions and provisionally froze the assets. Although SECO subsequently indicated that, in its assessment, the client was not owned or controlled by a sanctioned person under Swiss sanctions law, certain foreign financial intermediaries within the custody and booking chain continued to apply restrictive measures. Following the termination of the account relationship, the bank maintained the position that it was restricted from complying with the client's instructions due to foreign sanctions and compliance requirements. The ensuing litigation ultimately reached the Swiss Supreme Court.

The client argued that because the parties had expressly agreed on Swiss governing law (Article 18 GTC[1]), the bank could not invoke foreign legal requirements to justify its refusal to perform. In particular, the client pointed out that Article 14 GTC[2] – the compliance clause on which the bank relied – contains no express reference to foreign law and does not mention any foreign jurisdiction. In the client's view, the express choice of Swiss law in Article 18 GTC must be understood as excluding reliance on foreign legal requirements, and any silence on this point should be construed against the bank as the drafter of the GTC.

The Swiss Supreme Court rejected this argument, drawing a clear distinction between two different concepts. On the one hand, a choice-of-law clause under Article 116 of the Federal Act on Private International Law (“PILA”) determines which law governs the contract (Vertragsstatut) – here, Swiss law. On the other hand, the parties remain free, within the framework of that governing law, to agree on the substantive content of their obligations – including, for instance, that the bank may refuse performance if doing so is necessary to comply with foreign legal or regulatory requirements. This is an exercise of substantive contractual freedom (materiellrechtliche Privatautonomie), not a conflict-of-laws question. The Court emphasised that Swiss contract law, with its strong principle of freedom of contract (Vertragsfreiheit), permits such arrangements, provided they do not contravene mandatory provisions of Swiss law (consid. 6.3.1 - 6.3.2).

Accordingly, the choice of Swiss governing law does not limit the reach of a contractual compliance reservation clause to only Swiss legal and regulatory requirements. In substance, a compliance reservation clause where the parties have agreed that performance may be refused to comply with foreign legal or regulatory requirements, is valid under Swiss law as an exercise of substantive contractual freedom.

[1]     Article 18 GTC provides as follows: “All legal relations between the client and the bank are governed by Swiss law”.

[2]     Article 14 GTC provides as follows: “To comply with legal, regulatory or contractual provisions, to ensure the exercise of the standard of due care customary in the business or to ensure proper management conduct, the bank is permitted to partially or fully restrict services to the client. [...] In particular, the bank can freeze account and safekeeping account relationships, limit the execution of instructions of any kind (e.g. deposit and withdrawal orders, orders to remit or transfer funds, securities and other assets and orders to close the account) [...]”.

Turning to the interpretation of the GTC, the Swiss Supreme Court applied the principle of reliance (Vertrauensprinzip) and examined the wording, context and purpose of Article 14 of the bank's GTC. The clause refers broadly to “legal, regulatory or contractual provisions” without any geographic or jurisdictional limitation. The Court concluded that, read in the context of an internationally active bank offering cross-border financial products and services, the provision was plainly broad enough to encompass foreign legal and regulatory requirements. The client sought to counter this interpretation on two grounds.

• First, it invoked the Unklarheitsregel (contra proferentem rule) – the principle that ambiguous terms in standard-form contracts must be construed against the party that drafted them (here, the bank). The Court held that this rule is subsidiary: it applies only as a last resort, when all other methods of interpretation have been exhausted and a genuine ambiguity remains. Since the wording, purpose and commercial context of the clause yielded a clear meaning, no residual ambiguity existed and the rule did not come into play.

Second, the client argued that the clause was an unusual provision (ungewöhnliche Klausel) that should not be enforceable against it. The Court dismissed this objection, holding that such clauses are a widespread and well-established feature of banking practice and that the client, as a sophisticated international counterparty, could not credibly claim to have been surprised by its scope (consid. 6.3.3 - 6.3.4).

The decision suggests that broadly worded compliance clauses referring to “legal, regulatory or contractual provisions” without geographic limitation are likely to be given a correspondingly broad interpretation, particularly in the context of an international banking relationship.

The bank served a notice of termination of the banking relationship in October 2022. Here, as is generally the case, the liquidation of the account relationship took some time. The client argued that, following termination, the bank could no longer rely on a contractual right to refuse performance, since the contract itself had come to an end. Under Swiss law, the banking relationship at issue constituted a mixed contract with elements of deposit and mandate, governed primarily by mandate law. Pursuant to Article 404 (1) of the Swiss Code of Obligations (“CO”), a mandate may be terminated at any time by either party; such termination is irrevocable and takes effect immediately. Upon termination, the primary performance obligations are extinguished, but the relationship enters a liquidation phase in which the bank's duty to render an account and to return the client's assets continues (Article 400 (1) CO).

The Swiss Supreme Court held that the contractual refusal right must be read – under the principle of reliance – as surviving into this liquidation phase. It reasoned that the clause would otherwise be rendered entirely ineffective at the very moment when the bank is called upon to return assets to the client, thereby enabling a result that the parties had expressly sought to prevent: the release of assets in violation of applicable legal requirements (consid. 7.3 - 7.4).

The compliance reservation clause therefore remains valid post-termination of the banking relationship, including to deny the client's demand for restitution of assets under Article 400 (1) CO. Termination of the mandate does not deprive the bank of its contractual basis for withholding assets where their release would conflict with applicable legal or regulatory requirements, including under foreign law.

Article 15 of the Ordinance on measures in connection with the situation in Ukraine (“UKRO”) prohibits the making available of funds or economic resources to designated persons or to entities owned or controlled by them. The client argued that the lower court had impermissibly lowered the standard of proof by accepting a mere “well-founded suspicion” (begründeter Verdacht) of continued control, rather than requiring full proof that the sanctioned person in fact controlled the client. The Swiss Supreme Court rejected this argument. It held that the lower court had not reduced the standard of proof but had correctly identified what needed to be proven: under the applicable sanctions framework, the relevant question is not whether the sanctioned person actually controls the entity, but whether the circumstances give rise to a well-founded suspicion of such control. This is a factual element built into the sanctions prohibition itself – the threshold at which a financial institution must treat assets as frozen – rather than a departure from the ordinary civil standard of proof. In practice, this means that a bank need not establish actual control to the standard of full proof; it suffices to demonstrate, on the basis of objective circumstances, that a well-founded suspicion exists. The Court further held that the client bore a heightened duty of substantiation with respect to facts within its own sphere of knowledge – in particular the circumstances of the share transactions undertaken shortly before the sanctions designations – and that it had failed to discharge this duty adequately (consid. 8.2 - 8.3.3).

It follows that a financial institution invoking a contractual compliance clause on sanctions grounds need not prove actual control by a sanctioned person; demonstrating a well-founded suspicion on the basis of objective circumstances is sufficient. A client contesting such a refusal bears a heightened burden of substantiation with respect to the facts underlying the control assessment, particularly where those facts fall within its own sphere of knowledge.

Decision 4A_455/2025 complements, rather than replaces, the Swiss Supreme Court's earlier sanctions jurisprudence. In two decisions of 28 April 2026 (4A_535/2025 and 4A_537/2025, discussed in our Insight of 1 July 2026 available here), the Court addressed the application of the UKRO asset freeze regime to crypto assets held with a Swiss provider of brokerage and custody services. There, the Court confirmed that where concrete indications give rise to the suspicion that crypto assets may be owned or controlled by a sanctioned person, the service provider may validly refuse to execute client instructions, without incurring contractual liability. Those decisions were framed through the lens of the provider's statutory obligations under the UKRO; the present case, by contrast, is grounded in the interpretation of a commercial bank's GTC under general contract law.

In a parallel development, the Swiss Supreme Court held in 4A_305/2025 (13 March 2026) that Swiss sanctions against Russia constitute overriding mandatory law, barring enforcement of an arbitral award that would have indirectly benefited a sanctioned entity regardless of the governing law of the underlying claim. The PostFinance decisions (4A_84/2021 and 4A_454/2025) occupy a different position in the landscape, as they concerned a financial institution’s statutory universal-service obligations under public law rather than the contractual framework of a commercial banking relationship.

Taken together, this body of case law confirms a clear trend: Swiss courts are prepared to uphold refusals to perform – whether grounded in statutory obligations, contractual provisions, or overriding mandatory law – where the release of assets would be inconsistent with the Swiss sanctions framework. The present decision is significant because it extends this approach to the contractual architecture of commercial banking relationships, providing important guidance on the interpretation of GTC compliance reservation clauses, including for compliance with foreign legal and regulatory requirements, the survival of such contractual terms post-termination, and the evidentiary threshold for sanctions-related control assessments.