EU Court rejects Latvian bank’s SRF repayment request

Latvian bank ABLV, whose licence was withdrawn in 2018 after US regulators designated it “of primary money laundering concern” over activity allegedly linked to North Korea’s weapons programme, has lost its fight for its Single Resolution Fund contributions for that year to be repaid.

In a 20 January judgment the General Court of the European Union rejected ABLV’s request that it overturn an October 2018 decision by the Single Resolution Board (SRB) denying the bank’s request for a repayment of its contributions for that year, and for the initial payment it had made on the Single Resolution Fund’s establishment in 2015.

ABLV was one of Latvia’s largest private banks when in February 2018 the United States’ Financial Crimes Enforcement Network (FinCEN) barred it from the US financial network, after designating it “of prime money laundering concern” over fears it had facilitated transactions linked to North Korea’s weapons programme, and to corrupt activities in Russia and Ukraine.

Two weeks later, on 23 February, the European Central Bank (ECB) determined the bank was “failing or likely to fail”, but the SRB determined the public interest did not require resolution. The bank filed for liquidation days later, and the ECB withdrew its licence in July following a request from Latvia’s banking regulator, the Financial and Capital Markets Commission (FKTK).

Despite its liquidation proceedings, ABLV paid €1.85 million in up front contributions to the SRF for 2018 in April, three months before its licence was withdrawn.

But in September the bank asked the SRB to repay €947,000 of its 2018 contributions, representing pro rata the portion of the year since its licence was withdrawn, saying that as it had lost its status as a credit institution it no longer posed a risk to financial stability for which the SRF needed to cover.

It also asked the SRB to repay €836,000 of the €1.3 million advance payment it had made in 2015 at the beginning of the fund’s eight-year initial period. It noted that, when the SRB calculates a bank’s obligations for each year during that period, it deducts one-eighth of the contribution it had made in its 2015 payment, and said the fund should therefore repay the remaining five-eighths which had not been deducted from ABLV’s annual contributions.

The SRB rejected those requests in October, citing a provision in the EU regulations establishing the SRF that contributions “shall not be reimbursed”.

Before the European Court

Before the European Court ABLV, represented by GSK Stockmann partner Okko Behrends, argued the SRB’s own public statements made clear that SRF contributions were refundable on a pro rata basis if a bank only qualified for contributions for part of a year. It also said the SRB had “erroneously” relied on the “shall not be reimbursed” provision, and relied on an erroneous interpretation of a supplemental declaration on ex ante contributions.

But a five-member panel of judges at the General Court rejected each of these arguments. It said the terms of the “shall not be reimbursed” provision were “unequivocal” and did not leave open the possibility of adjusting a bank’s contributions once it lost its licence.

It said that although upfront contributions are annual, that “does not mean that they ‘relate’ to a particular year with the consequence that an adjustment should necessarily be made when an establishment loses its licence in the course of the year”. The court noted that it would be difficult for the SRB to reliably calculate contributions if it needed to take account of each European bank’s legal and financial situation and the possibility of needing to repay.

It also emphasised there was no link between payment of contributions and the likelihood that the SRB decide to order the payer’s resolution. “The payment of a contribution by an institution to the SRF does not guarantee any consideration,” the court said, adding they should not be considered as akin to insurance contributions.

The General Court also rejected ABLV’s claim that the SRF had enjoyed unjust enrichment from its contributions, saying the fund had a valid legal basis for collecting the monies and that the bank had not made out illegality.

It also said it was “not apparent from any of the relevant texts” that the payment ABLV had made in 2015 at the outset of the SRF’s eight-year initial period was an “advance payment” for which it should be reimbursed when it fell out of the system. It said regulations setting up the SRF had required the payment of monies upfront to make the SRF immediately effective, but did not include a right to reimbursement.

ABLV also argued the SRB had violated the principles of legal certainty and protection of its legitimate expectations, but the General Court rejected these arguments. It said it was not unforeseeable that the SRB would refuse to reimburse ABLV’s upfront contributions, given the “clear and precise” terms of the SRF regulation’s statement that contributions would not be reimbursed. It also said the SRB’s actions were proportionate to its goal of protecting financial stability.

The General Court also rejected ABLV’s arguments that the SRB had denied its property rights and violated the EU Charter of Fundamental Rights’ protections of freedom to conduct business, saying the board’s actions were justified under the legislation and met objectives of general interest.

The court ordered ABLV to pay its own costs as well as the SRB’s.

ABLV Bank AS vs Single Resolution Board (Case T-758/18)

Before the European General Court

  • Judge Savvas Papasavvas, president
  • Judge Gerhard Hesse, rapporteur
  • Judge Alexander Kornezov
  • Judge Eugène Buttigieg
  • Judge Krystyna Kowalik-Bańczyk

Counsel to ABLV

  • GSK Stockmann

Partner Okko Behrends in Frankfurt am Main

Counsel to the Single Resolution Board

  • Linklaters

Partner Sven Schelo, counsel Tobias Klupsch and managing associate Sinziana Ianc in Frankfurt am Main, with partner Bernd Meyring in Brussels

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