Conduction of business activities is not possible without possessing a bank account. Business entities[1] are required to open bank accounts, manage all funds through these accounts, and make all payments via these accounts[2], with banks being the only authorized institutions to open and maintain bank accounts[3].
Although possessing a bank account is a prerequisite for conducting business activities, the right to a bank account is not explicitly guaranteed by imperative rules. The Constitution of Bosnia and Herzegovina („Constitution of BiH“) and the European Convention for the Protection of Human Rights and Fundamental Freedoms („European Convention“) do not regulate the right of business entities to a bank account.
It is undeniable that denying a business entity the right to a bank account[4] can result in damage for such a business entity. This damage can be particularly severe if every single bank refuses to open an account for the business entity – in such a case, the business entity is prevented from conducting its business activities and generating profit, i.e., acquiring assets. Thus, by denying the right to a bank account, legitimate expectations of the business entity to acquire assets may be disrupted. The European Court of Human Rights in Strasbourg („European Court“) includes the “legitimate expectation to acquire assets“[5] under the property rights protected by the European Convention – this leads us to the conclusion that denying the right to a bank account could violate the business entity’s property rights protected by the European Convention.
In practice, there are frequent cases of denial of the right to a bank account based on regulations stipulated in the Law on Prevention of Money Laundering and Financing of Terrorist Activities („Official Gazette of Bosnia and Herzegovina,” No. 13/2024) („AML Law“), regulations adopted based on the AML Law, including internal acts of banks („AML regulations“).
This review analyzes the justification of denying the right to bank account to business entities from the perspective of AML regulations, as well as the potential violations of property rights that business entities may suffer as a result.
The Bank’s Right to Deny a Business Entity the Right to a Bank Account from the Perspective of AML Regulations
A bank is not allowed to open a bank account for a client (including a business entity) or must close an already opened bank account if it cannot perform the identification and monitoring measures required by the AML Law. This obligation of the bank arises from Article 14, Paragraph 4 of the AML Law.
A bank may decide to close an already opened bank account if it determines that it cannot efficiently manage the money laundering and terrorist financing risk in relation to the client („AML risk“). This right of the bank arises from Article 14, Paragraph 5 of the AML Law.
When assessing its ability to manage the AML risk concerning a client, the bank must act in accordance with the principle of good faith and fairness as prescribed in Article 12 of the Law on Obligations of the Republic of Srpska[6] („RS Law on Obligations“), respectively Article 12 of the Law on Obligations of the Federation of Bosnia and Herzegovina[7] („FBH Law on Obligations“). Efficient management of the AML risk depends on various factors that should be determined in each specific case. One bank may be able to manage AML risks for a particular client effectively, while another bank may not be able to do so. For example, one bank may already have a risk management system in place for a specific group of clients, including the particular client, while another bank may not.
In the event of a dispute regarding the bank’s right to close a client’s bank account due to its inability to effectively manage the AML risk, the burden of proof would be on the bank to demonstrate that it could not manage the AML risk effectively. Such a dispute would almost certainly arise if the client requests compensation for damages caused by the closure of the bank account. If the client proves that damages resulted from the closure of the bank account, the bank, in order to defend itself, would have to prove that the damages occurred without its fault – this is clearly outlined in Article 154 of the RS/FBH Law on Obligations, which stipulates: “Anyone who causes harm to another is obliged to compensate for it unless they prove that the harm occurred without their fault.” In this regard, the bank could be relieved of liability if it can demonstrate that it acted in good faith (Article 90, Paragraph 2 of the AML Law). Acting in good faith implies proactive engagement by the bank and using available resources to manage the AML risk effectively. The question arises as to how many resources a bank is required to use to ensure effective management of the AML risk. Acting in good faith requires the bank to use the resources that are typically used to manage AML risks in relation to the “average bank client” or “average group of bank clients.” The question is whether the bank can close an account if it determines that it can effectively manage the AML risk, but such management would impose an excessive burden on the bank because, for example, it would require significantly more resources than those the bank uses for managing AML risks concerning the “average bank client” or “average group of bank clients.” In this regard, the AML Law grants the bank the right to close a bank account if the bank assesses that it cannot manage the AML risk. Since the AML Law does not grant the bank the right to close a client’s bank account if effectively managing the AML risk would be uneconomical for the bank, the bank could not close the bank account for this reason alone. However, the bank may protect itself through a contract with the client by reserving the right to terminate the bank account agreement and close the bank account if: (i) managing the AML risk becomes uneconomical for the bank; and/or (ii) the client refuses to provide additional resources to effectively manage the AML risk. An alternative could be for the bank to pass the “additional” cost of managing the AML risk onto the client through the contract.
Violation of Property Rights as a Result of Denying a Bank Account
As already mentioned in the introduction: (i) business activities, and thus the acquisition of assets, are not possible without possessing a bank account; (ii) denying the right to a bank account can undermine the legitimate expectations of the business entity to acquire assets, which in itself may result in a violation of property rights protected by the European Convention.
It is crucial to determine whether the denial of property rights resulting from the denial of the right to a bank account aligns with the permissible limitations on property rights as stipulated by the European Convention. There is no known practice of the European Court that provides a clear answer to this question. However, there is case law from the European Court that could indirectly examine this issue[8].
According to Article 1 of Protocol 1 of the European Convention, the right to property may be restricted only in the public interest and under conditions prescribed by law and general principles of international law. Through its case law [9], the European Court has developed a “test” for examining whether a violation of property rights has occurred by evaluating the following three principles contained in Article 1 of Protocol 1 of the European Convention (it is sufficient to determine a violation of any of these principles to establish a violation of property rights):
- Principle of legality. This occurs when the restriction on property is contrary to national laws. It is expected that this violation will generally be rectified by national courts. The principle of legality also presupposes that the provisions of domestic law are sufficiently accessible, precise, and predictable in their application.
- Principle of legitimate aim in the public/general interest. Any interference with the enjoyment of property rights protected by the European Convention must have a legitimate goal. According to the protection system established by the European Convention, it is the obligation of national authorities to make an initial assessment regarding the existence of a public interest problem and determine the measures necessary to apply in relation to the exercise of property rights, including the deprivation or control of property. In this regard, national authorities have broad discretion. The European Court has stated that it will respect the legislature’s assessment of what constitutes “public interest,” provided that such an assessment is not manifestly unfounded[10].
- Principle of fair balance. Interference with the peaceful enjoyment of property and the restraint from taking action must achieve a fair balance between the needs of the community’s general interest and the requirements of protecting the fundamental rights of individuals under the European Convention. In every case where there has been a violation of the property rights protected by the European Convention, the European Court must determine whether the individual has had to bear an disproportionate and excessive burden as a result of the state’s (non)action.
AML regulations in certain cases grant banks the right to deny access to a bank account (as detailed in section I. above). Thus, in this specific case, the principle of legality is respected as long as AML regulations are clear, precise, and predictable – this could be problematic because banking activities are highly regulated, and in some cases, it is not entirely clear how a particular issue is regulated. Additionally, in practice, certain internal acts of the bank are often inaccessible to clients, which could result in a violation of the principle of legality.
The goal of all AML regulations is the prevention and detection of money laundering and terrorist financing. Therefore, in practical terms, the violation of the principle of legitimate aim in the public interest is excluded.
A potential violation of property rights could, in many cases, be proven through the violation of the principle of fair balance. It is reasonable to conclude that denying access to a bank account is justified in certain cases – for example, when a (potential) client requests the opening of anonymous bank accounts. However, the situation is more complicated when it comes to high-risk clients (e.g., due to the country of origin, business activity, etc.) who do not violate any regulations and are even able to comply with all the requirements the bank set to meet its obligations under the AML regulations. Practically speaking, in such a case, the property right is restricted solely due to the “fear” of AML risk arising, and it could be argued that the fair balance has been disrupted to the detriment of the business entity’s property rights, thus violating the property right protected by the European Convention.
The Bank’s Autonomy to Decide with Whom to Enter into a Business Relationship – Complete Freedom?
The general rule is that anyone, including a bank, has the right to freely decide with whom they wish to enter a contractual relationship (Article 10 of the RS/FBH Law on Obligations). This general rule has exceptions when someone is legally required to conclude a contract (Article 27 of the RS/FBH Law on Obligations). These exceptions typically apply to the provision of public services, such as the delivery of electricity, heating, water, etc. However, such an exception is not explicitly provided for banks, at least not when it comes to bank accounts for business entities.
Nevertheless, it must be noted that banks are the only institutions where it is possible to open a bank account from which deposits can be made and withdrawn, and without which activity, practically speaking, there is no free enterprise. In this regard, we could talk about a kind of “monopoly” of banks in providing services related to bank accounts and the potential abuse of the bank’s right to refuse to open a bank account (Article 13 of the RS/FBH Law on Obligations “Prohibition of Abuse of Rights“) – especially when the refusal to open a bank account has no explicit legal basis.
Furthermore, denying the right to a bank account to an individual who does not violate any legal provisions, solely because of certain characteristics of the individual (e.g., the individual is engaged in cryptocurrency-related activities), may result in discrimination. Such discrimination is prohibited by Article 1 of Protocol 12 of the European Convention and Article II/4 of the Constitution of Bosnia and Herzegovina.
On the other hand, the bank has the right and obligation to adopt internal AML programs, policies, and procedures that, among other things, define which clients are acceptable to the bank[11]. Such regulation opens the possibility for the bank to categorize certain individuals as unacceptable clients. It is reasonable to question whether such regulation aligns with the European Convention, which takes precedence over all laws in Bosnia and Herzegovina under Article II/2 of the Constitution of Bosnia and Herzegovina.
Additional Protection of Foreign Business Entities in the Republic of Srpska
Article 57, Paragraph 3 of the Constitution of the Republic of Srpska[12] guarantees the right of foreign entities to engage in business or other activities and enjoy the rights related to their business under conditions that cannot be changed to their detriment.
Since business activities cannot be conducted without a bank account, denying the right to a bank account to a foreign business entity could also result in a violation of the above-mentioned right protected by the Constitution of the Republic of Srpska.
Conclusion
Denying the right to bank account can result in a violation of the property rights guaranteed by the European Convention, and consequently, the bank may be required to compensate the business entity for the damage caused by this denial. In this regard, it is important to keep in mind the following:
- The AML Law authorizes banks to close a client’s bank account if the bank cannot effectively manage the AML risk. This inability must be objective for the bank, and in the event of a dispute, the bank must prove the existence of such inability. Otherwise, the bank risks being obligated to compensate the client for damage caused by the closure of the account.
- AML regulations provide banks with broad discretionary powers to deny business entities the right to a bank account by categorizing them as unacceptable clients. However, denying the right to a bank account is solely because the bank considers a particular individual “high risk” according to AML regulations and thus “unacceptable to the bank” can result in a violation of the property rights of that individual, and the bank may be liable to compensate for damages. In such a situation, the bank may even act according to AML regulations and still be responsible for damages – this could occur if the court concludes that the AML regulations are contrary to the Constitution of BiH and the European Convention.
Context of the Notice
All the above represents an overview of legal issues related to the right of business entities to a bank account. Nothing in this document constitutes legal advice, and we do not accept any responsibility for actions taken based on the above.
[1] Article 3, paragraph 2 of the Law on Domestic Payment Transactions of the Republic of Srpska („Official Gazette of the Republic of Srpska”, Nos.: 52/2012, 92/2012 – corr., 58/2019, 38/2022, and 63/2024) defines business entities as commercial companies, public enterprises, republic administrative bodies and bodies of local self-government units, banks and other financial organizations, other forms of legal entities whose establishment is registered with the competent authority or established by law, as well as natural persons who independently perform registered business activities. A nearly identical provision is contained in Article 2, paragraph 3 of the Law on Domestic Payment Transactions of the Federation of Bosnia and Herzegovina („Official Gazette of the Federation of Bosnia and Herzegovina”, Nos.: 48/2015, 79/2015 – corr. and 4/2021).”
[2] This obligation arises from Article 8, paragraph 1 of the Law on Domestic Payment Transactions of the Republic of Srpska, respectively from Article 6, paragraph 1 of the Law on Domestic Payment Transactions of the Federation of Bosnia and Herzegovina.
[3] This undisputedly arises from Article 4, paragraph 1 of the Law on Banks („Official Gazette of the Republic of Srpska”, Nos.: 4/17, 19/18, 54/19, and 63/24), which stipulates the following: “No one other than a bank can engage in accepting deposits or other repayable funds, granting loans, and issuing payment cards within the territory of the Republic of Srpska without a license from the Agency in accordance with this law.” A practically identical provision is prescribed in Article 4, paragraph 4 of the Law on Banks (“Official Gazette of the Federation of Bosnia and Herzegovina”, No.: 27/17).
[4] Whether by the bank’s refusal to open a bank account or by closing an already opened bank account due to the unilateral actions of the bank.
[5] European Court for Human Rights, case: Pressos Compania Naviera S.A. v Belgium, paragraph 31 and case Tre Traktorer v Sweden, judgement dated 7 July 1989.
[6] „Official Gazette of SFRJ“ Nos.: 29/78, 39/85, 45/89 and 57/89, „Official Gazette of Republika Srpska“ Nos “: 17/93, 3/96 and 74/04.
[7] „Official Gazette of SFRJ“ Nos.: 29/78, 39/85, 45/89 and 57/89, „Official Gazette of RBH“ Nos.: 2/92, 13/93 and 13/94, and „Official Gazette of FBH“ Nos.: 29/03 i 42/11).
[8] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.
[9] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.
[10] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.
[11] Article 15, paragraph 4 of the Decision on Managing the Risk of Money Laundering and Terrorist Financing („Official Gazette of the Republic of Srpska”, no.: 22/24 and „Official Gazette of the Federation of Bosnia and Herzegovina”, no.: 79/24)
[12] „Official Gazette of the Republic of Srpska”, NoS. 21/92 – consolidated text, 28/94, 8/96, 13/96, 15/96, 16/96, 21/96, 21/02, 26/02, 30/02, 31/02, 69/02, 31/03, 98/03, 115/05 and 117/05.
By Djordje Dimitrijevic, Counsel, Dimitrijevic & Partners