Implications of the EU General Court Judgment in NSD v. Council on unblocking the assets in Euroclear and Clearstream

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EU General Court Judgment NSD v. Council in Case T-494/22

On September 11, 2024, the General Court of the European Union (“GC” or the “Court”) rejected the annulment action brought by the National Settlement Depository (“NSD”) against the Council, in which the NSD had sought to challenge the freeze that had been placed on it (the “Judgment”).

Procedural background

On August 12, 2022, the NSD brought an action before the GC seeking the annulment of the acts which included and maintained NSD’s name on the list of designated persons subject to asset freeze measures. According to the Council, the NSD was designated inter alia because it played an essential role in Russia’s financial system and provided material and financial support to the Russian government.

NSD put forward four pleas in law, one of which related to the alleged disproportionate infringement of NSD’s and its customers’ rights to property under Article 17 of the Charter of Fundamental Rights of the European Union (“Charter”). NSD asserted that, due to the measures against NSD, its customers were prevented from accessing their securities, which were being held on a fiduciary basis in its frozen accounts with securities depositories in the European Union (e.g., Euroclear Bank S.A./N.V. and Clearstream Banking S.A.).

The Court’s findings

In addressing this argument that was advanced by NSD, the Court found that NSD could not rely on fundamental rights that it did not possess. Essentially, NSD could not challenge the restrictive measures applied to NSD on the basis of the effect of those measures on the assets (and therefore on the rights to property) of its customers.

In particular, the GC stated that: “According to the case-law, the infringement of a subjective right can, in principle, be relied upon solely by the person whose right has allegedly been infringed, and not by third parties.” Therefore, GC expressly acknowledged that NSD’s “customers have legal remedies available to them before the national courts, before which they may, inter alia, claim infringement of their right to property enshrined in Article 17 of the Charter” (emphasis added).

Moreover, the GC noted that when evaluating a request for the release of frozen funds brought by the customers of NSD who are not subject to any restrictive measures, the National Competent Authorities are required to implement EU law. Consequently, the National Competent Authorities must adhere to the Charter and ensure that, in accordance with the principle of proportionality, the interference with the right to property of those customers is necessary and genuinely meets objectives of general interest recognized by the Union or the need to protect the rights and freedoms of others.

In rejecting the de-listing application of NSD, the Court clarified that its customers are not left unprotected: right to property of non-sanctioned persons whose funds or securities are blocked on the correspondent accounts of NSD with one of depositories in the EU are protected under the Charter; National Competent Authorities must implement EU law with due regard to the protection of the right to property guaranteed under the Charter; and legal remedies before national courts are available to those whose right to property is violated.

The Judgment therefore makes it quite clear that when implementing EU national security measures, National Competent Authorities in the EU should make sure the right to property guaranteed under the Charter is not violated.

Based on the above, customers of NSD and their clients who themselves do not have a contractual relationship with NSD (e.g., persons holding title to securities through the chain of custodians involving NSD) may seek protection of their right to property under the Charter and refer to the above Judgment in their communications with National Competent Authorities in the EU as well as before national courts/tribunals.