Judgment 4A_537/2025 of 28 April 2026
In its recent judgment 4A_537/2025 of 28 April 2026, the Swiss Federal Supreme Court upheld the judgment of the Commercial Court of the Canton of Zurich of 17 September 2025 (HG230210-O) and provided important guidance on the interpretation of Swiss sanctions laws – specifically on the asset freeze and reporting obligations imposed on financial institutions holding or managing funds.
The Swiss Federal Supreme Court clarified, first, the evidentiary threshold triggering the asset freeze and reporting obligations under Art. 15 para. 1 and Art. 16 para. 1 of the Ordinance on Measures in Connection with the Situation in Ukraine (“Ukraine Ordinance”). Second, the Swiss Federal Supreme Court discussed private law implications of these public law obligations, in particular, the right to refuse performance under Art. 20 para. 1 of the Swiss Code of Obligations (“CO”).
Background of the case
The case concerned a claimant entity established in 2018. Until February 2023, it was owned by the spouse of its initial Chief Operating Officer (COO), who is the nephew of an individual designated under OFAC sanctions since 2018 and subsequently listed by the EU, the UK and Switzerland in March 2022. The COO himself was designated by OFAC in November 2022 due to his close personal and business ties to his uncle.
The respondent was a FINMA-licensed securities firm engaged in the trading and custody of crypto-assets. While the respondent itself did not operate in the US market, its group maintained US connections, including licences and relationships with US counterparties.
In November 2021, the parties entered into a brokerage and custody agreement for crypto-currencies. Following the designation of the claimant’s beneficial owner’s spouse in November 2022, the respondent blocked the claimant’s assets. In February 2023, it refused to execute the claimant’s instruction to transfer the crypto-assets to external wallets, invoking its statutory obligations under sanctions laws.
Key Findings of the Swiss Federal Supreme Court
- Threshold for freezing and reporting obligations
The Swiss Federal Supreme Court held that direct evidence of control by a sanctioned person is not required to trigger the financial institution’s obligations under Art. 16 of the Ukraine Ordinance. Rather, it is (already) sufficient that the financial institution has reasonable suspicion (begründeten Verdacht) that the assets are subject to the asset freeze, e.g., because they are directly or indirectly controlled by a sanctioned person (consideration 3.2.2).
In the present case, the respondent had sufficient grounds to have such suspicion, including (i) the close family and economic links between the claimant’s beneficial owner and sanctioned individuals, and (ii) an order issued by the Office of the Swiss Attorney General concerning the assets in question. On this basis, the Swiss Federal Supreme Court found that the respondent could reasonably conclude that the claimant formed part of a sanctioned person’s asset structure, and that the assets therefore fell within the scope of the asset freeze under Art. 15 of the Ukraine Ordinance.
Thus, the Swiss Federal Supreme Court confirmed that the reporting obligation under Art. 16 para. 1 of the Ukraine Ordinance arises already at the stage of reasonable suspicion and the obligation to freeze assets is triggered by the same threshold (consideration 3.2.2). The Court emphasized that the interpretation of the asset freeze and reporting obligations, and whether the respective condititions are fulfilled for these obligations to apply, is not a question of standard of proof (Beweismass). Rather, according to the Court, the relevant questions concern the fulfilment of elements of public law obligations that give rise to a right to refuse performance under the law of obligations (consideration 3.2.2).
As soon as reasonable suspicion exists, financial institutions are obligated to both report and freeze the assets, as allowing reporting without simultaneous freezing would undermine the effectiveness of financial sanctions.
- Ex lege nature of the asset freeze
The Swiss Federal Supreme Court further confirmed that asset freezes under Art. 15 para. 1 of the Ukraine Ordinance arise ex lege (consideration 3.2.1). Consequently, financial institutions are not required to await a formal administrative order before implementing a freeze and before they are allowed to refuse instructions concerning the assets held. Once the conditions for the freeze are met (i.e., reasonable suspicion that the assets are subject to an asset freeze), financial institutions are not permitted to release the assets, even in the absence of a prior formal decision authorizing the freeze (consideration 3.2.1).
- Right to refuse performance under civil law
From a civil law perspective, the Swiss Federal Supreme Court highlighted that the general obligation of the mandatee to follow the mandator’s instructions under Art. 397 CO is not absolute, as the mandatee is not required to follow unlawful instructions. In particular, the Court confirmed that a right to refuse performance may arise from the obligations and prohibitions imposed by the Ukraine Ordinance (consideration 3.2.1).
In the case at hand, as a financial intermediary falling within the scope of Art. 16 of the Ukraine Ordinance, the respondent was subject to mandatory public law obligations. Given the existence of concrete indications that the assets were – at least indirectly – controlled by a sanctioned person, compliance with the claimant’s transfer instruction would have violated the Ukraine Ordinance and, by extension, the Embargo Act (see consideration 3.2.3).
The Court therefore held that the respondent was obliged to freeze the assets and it was entitled to refuse to follow the instruction received and, thus, performance under the contract (cf. Art. 20 para. 1 CO). No breach of contractual duties under Art. 397 CO was therefore found (consideration 3.2.3).
Practical implications
This judgment provides the following helpful and important guidance for financial institutions: (i) obligations to report and freeze arise already upon reasonable suspicion, not certainty, (ii) asset freezes apply ex lege and do no require prior confirmation from the authorities; and (iii) financial institutions may rely on Art. 20 para. 1 CO to refuse client instructions that would result in sanctions violations and are thus permitted to refuse performance under contracts on such basis.
The judgement of the Swiss Federal Supreme Court further confirms previous case law of the Federal Administrative Court. Specifically, Decisions B-3925/2023 of 29 July 2024 and B-4169/2023 of 15 October 2025 required only a certain degree of plausibility for reporting persons and institutions, while confirming that SECO must assess the legality of the asset freeze measures on the basis of the standard of preponderance of probability. This judgment also adds to the previous case law of the Federal Supreme Court on the impossibility of performance due to compliance with sanctions under Art. 119 CO.
