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Expanding the legal toolkit: the EU’s new tools against sanctioned Russian investors

Freshfields | 19 August 2025

Expanding the legal toolkit: the EU’s new tools against sanctioned Russian investors

On 18 July 2025, the European Union adopted its 18th sanctions package in response to Russia’s continued war against Ukraine. Alongside a broad range of restrictive measures covering trade, energy, finance, and investment, the package introduces new protective measures. These new provisions expand the legal tools available to EU Member States to resist and deter investor-State dispute settlement (ISDS) proceedings brought by Russian investors in connection to measures imposed within the EU’s sanctions regime against Russia.

Pursuant to this new package, EU Member States:

  • Must not recognise, enforce or give effect to any judgment or orders issued in such sanctioned-related ISDS proceedings;
  • Are entitled to recover any damages and legal costs incurred therein; and
  • Are obligated to raise all available objections to the recognition and enforcement of awards arising from these proceedings.

These new measures complement other arbitration-related provisions adopted in the 14th and 15th EU sanctions packages, which had already introduced protections against the expropriation of European assets in Russia as well as against anti-arbitration injunctions issued by Russian courts, respectively.

Background

Russian individuals and entities have – and are increasingly expected to – bring international arbitration claims against EU Member States in response to measures taken in the context of EU sanctions.

Notable high-profile public examples include:

  • A 2024 claim from Russian sanctioned individual Mikhail Fridman for up to USD 16 billion in compensation against Luxembourg under the Belgium-Luxembourg-Russia investment treaty for the freezing of assets under the EU Russian sanctions regime.
  • ABH Holdings SA – a Luxembourg entity partially owned by Mikhail Fridman – threatened investment arbitration against Cyprus alleging USD 7 billion in losses linked to EU sanctions.
  • Rosneft, Russia’s state-owned oil company, is reportedly preparing a treaty-based claim against Germany concerning the placement of Rosneft’s German assets (declared to be worth roughly USD 7 billion) under government trusteeship.

The new sanctions package is designed to address the risk of these hefty claims, which are perceived as threatening to undermine the effectiveness of the EU’s sanctions policy against Russia.

The New EU Protective Measures against sanctions-related ISDS claims

While earlier sanction packages were primarily focused on protecting EU companies, the new package shifts focus by introducing measures designed to protect EU Member States. The EU aims to achieve this goal through the following new provisions:

  • Damages recovery mechanism (Article 11e): The regulation introduces a specific right for EU Member States and the EU itself to recover any damages and legal costs incurred as a result of ISDS proceedings in connection with measures imposed under the EU Russian sanctions regime. Recovery may be sought from the Russian parties involved in the arbitration or in the enforcement of the relevant award or judgment, or from their owning or controlling entities. Claims for recovery may be brought before the national courts of EU Member States. To ensure the effectiveness of this new remedy, the regulation also provides that if no court in the EU would otherwise have jurisdiction, the claim may be brought in any Member State with a “sufficient connection” to the dispute (so-called forum necessitatis) (Article 11d).
  • Obligation to resist enforcement (Article 11f): The regulation imposes an obligation on EU Member States to actively resist recognition and enforcement efforts of awards rendered in the context of ISDS in relation to Russian sanctions.
  • No recognition and enforcement (Article 11(2a)): The new rules expressly prohibit EU Member States from recognising, enforcing, or giving effect to any arbitral award, judgment, or order issued in connection with ISDS claims related to the EU Russian sanctions regime.

Recital 22 further clarifies that compliance with these restrictions forms part of the “public policy” of the EU. Domestic courts within the EU are therefore required to apply these rules as overriding principles, regardless of conflicting decisions from arbitral tribunals or non-EU jurisdictions, and Member States are required to raise a public policy objection to resist recognition and enforcement.

As to the new recovery mechanism, Recital 23 states that this should apply after all available remedies in the relevant jurisdiction have been exercised. It also specifies that recovery should occur “in accordance with Union law and customary rules of international law”, suggesting that any proceedings must comply with due process and fair trial principles.

Takeaways

The newly introduced provisions underline the EU’s commitment to adapt and expand its protective measures. Some of these measures have a more re-affirmative symbolic or clarifying value. It seems unlikely that a court from an EU Member State would in any event have given effect and much less enforced an arbitral award issued against an EU Member State in connection with measures imposed under the EU’s Russian sanctions regime. It was also to be expected that EU Member States would resist recognition and enforcement attempts within all available means. The new sanctions package now reassures and codifies such expectations.

The potential practical implications of the damages recovery mechanism seem more significant. In particular, it provides the EU Member States with the legal basis to “claw back” within the EU sums which were enforced outside of the EU, including all legal costs, thereby offsetting the financial impact of the enforced award. The effectiveness of such measure would of course depend on whether the relevant Russian claimant (or its owning or controlling entities) have any assets in the EU.

source: Freshfields