Dubai Court of Appeal, judgment dated 15 May 2025

A recent Dubai Court of Appeal judgment provides useful guidance on the interaction between foreign sanctions compliance and a bank’s obligations under UAE law when processing cross-border payments.

The Court upheld an order requiring a bank to return funds connected with payment instructions to employee accounts at a Russian bank after the customer had cancelled the transfers and the bank had confirmed their cancellation.

The decision is significant not because it diminishes the importance of international sanctions compliance, but because it illustrates that a bank relying on sanctions as a basis for retaining customer funds must establish the factual and regulatory basis for doing so and comply with the applicable UAE regulatory requirements.

Background

The dispute arose from salary transfers initiated by a UAE-based company to employees holding accounts with a Russian bank.

The transfers were initiated on 6 April 2022. On the same day, the customer instructed its bank to cancel them. On 8 April 2022, the bank confirmed that the cancellation request had been accepted.

The funds were nevertheless retained.

The bank explained that, as a branch of a US banking institution, it was subject to sanctions-compliance requirements and that the intended recipient bank had become subject to sanctions administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). The customer maintained that the transfers had already been cancelled and sought repayment of the retained funds.

The Court of First Instance ordered the bank to return the relevant amounts, together with legal interest. The bank appealed.

Sanctions were relevant, but not determinative on their own

On appeal, the bank argued that the sanctions position prevented it from returning the funds without the necessary OFAC authorisation.

The Court did not treat that argument, standing alone, as determinative.

Instead, it considered the complete factual and regulatory position, including the timing and status of the transfers, the cancellation instructions, the sanctions status of the relevant parties and the evidence concerning the bank’s compliance with applicable UAE requirements.

The judgment therefore does not establish that foreign sanctions are irrelevant to UAE banks. Rather, it demonstrates that the existence of a foreign sanctions measure does not remove the need to establish how that measure applies to the particular transaction.

The timing and cancellation of the transfers were central

The Court attached particular importance to the fact that the customer requested cancellation on the same day the transfers were initiated.

The bank subsequently confirmed that the transfer requests had been cancelled.

The lower court had also found that the corresponding amounts had not been shown as finally debited from the relevant accounts in a manner that defeated the customer’s entitlement to recover them.

Against that factual background, the Court was not persuaded that the bank was entitled to continue retaining the funds on the sanctions basis advanced in the proceedings.

Banking expert evidence was significant

A three-member banking expert committee was appointed during the appeal.

The experts found that the bank had not demonstrated that the claimant company itself was included on the relevant OFAC sanctions list. They also considered the timing of the sanctions affecting the intended recipient bank and the applicable period allowed for winding down existing transactions.

The expert evidence further addressed UAE regulatory requirements applicable where a financial institution takes freezing measures. The committee found that the bank had not produced evidence demonstrating that the required notifications had been made to the competent UAE authorities within the relevant period.

The Court accepted those findings.

Internal compliance policies did not determine the customer’s legal entitlement

The bank also relied on its internal compliance procedures, arguing that a cancellation request could not be processed until completion of the relevant sanctions-compliance review.

The Court rejected that argument on the particular facts.

The customer had requested cancellation on the same day as the transfers, and the bank had subsequently confirmed that the payment instructions had been cancelled.

The judgment therefore illustrates an important distinction: internal sanctions controls are essential for financial institutions, but they operate within the wider legal and regulatory framework and do not, by themselves, determine the contractual rights of the bank and its customer.

Practical Significance

The decision is fact-specific and should not be read as requiring UAE banks to disregard OFAC or other foreign sanctions.

Its significance lies instead in the importance of establishing and documenting the basis for a sanctions-related restriction. Relevant considerations may include the status of each party, the timing and scope of the relevant designation, any applicable licence or wind-down provision, the status of the underlying payment instruction, communications with the customer and any notification or reporting obligations under the UAE regulatory framework.

For financial institutions, the judgment reinforces the importance of maintaining a clear record of the legal and factual basis for restricting funds rather than relying solely on general compliance policies or the existence of a foreign designation.

For corporate customers, it highlights the value of prompt written instructions and preserving payment records, cancellation requests and confirmations received from the bank.

Conclusion

The Dubai Court of Appeal judgment illustrates the complex interaction between sanctions compliance, cross-border banking and domestic regulatory obligations.

Foreign sanctions may be highly relevant to the manner in which an international bank manages a transaction. They do not, however, eliminate the need to establish the legal and factual basis for restricting customer funds and to comply with applicable UAE regulatory requirements.

For financial institutions operating across multiple jurisdictions, the decision reinforces the importance of considering foreign sanctions requirements alongside the applicable UAE legal and regulatory framework.

DISCLAIMER

This publication is provided for general information only. It does not constitute legal, sanctions or regulatory advice and should not be relied upon as such. Sanctions regimes and regulatory requirements may change rapidly, and the outcome of any matter will depend on its particular facts, parties, transaction structure and applicable law. Specific legal advice should be obtained before taking or refraining from taking any action.