EU’s 18th sanctions package takes aim at investor-State dispute settlement: another layer to the EU’s sanctions toolkit

I. Background: Protecting EU Member States from sanctions-related investor-State arbitration

Regulations 2025/1494 and 2025/1472 were introduced in response to a rising number of sanctions-related, multi-billion-dollar investor-State arbitration claims brought by sanctioned individuals against EU Member States, including:

• OJSC Belaruskali v Republic of Lithuania (PCA Case No. 2024-03): in October 2023, Belarus’ State-owned potash producer, Belaruskali, filed a US$12 billion arbitration claim against Lithuania following the government’s termination of a fertiliser transport contract with Lithuanian Railways. This dispute arose after US and UK authorities sanctioned Belaruskali and the EU progressively restricted, then banned, the import of potash from Belarus.
• Mikhail Fridman v Luxembourg: in August 2024, sanctioned Russian oligarch Mikhail Fridman brought a US$16 billion claim against Luxembourg over the State’s decision to freeze his assets after his inclusion on the EU sanctions list.
• ABHH v Cyprus: in May 2024, Fridman’s partly-owned Luxembourg entity, ABH Holdings S.A., threatened legal proceedings against Cyprus, alleging losses exceeding US$7 billion following regulators’ failure to approve the divestment of its Russian banking holdings.

Prior to the EU’s 18^th sanctions package, the EU’s 14^th and 15^th packages —adopted on 24 June 2024 and 16 December 2024, respectively—had sought to protect EU parties from retaliatory litigation in Russia. These were introduced in reaction to Russia’s 2020 amendments to Article 248 of the Arbitrazh (Commercial) Procedure Code (“Code”), which allow Russian courts to:

• Assert exclusive jurisdiction over commercial arbitrations involving Russian sanctioned entities or individuals even if this conflicts with a valid arbitration agreement or forum selection clause (Article 248(1) of the Code);
• Issue anti-suit injunctions restraining foreign legal or arbitral proceedings where the Russian courts have been seized or could be seized under Article 248(1) of the Code (Article 248(2) of the Code); and
• Impose fines against parties defying such injunctions, up to the full value of the foreign claim plus legal costs (Article 248(10) of the Code).

Over the past two years, Russian parties have increasingly relied on Article 248 of the Code to obtain anti-suit, anti-arbitration, and anti-enforcement injunctions backed by significant fines. One notable example saw UniCredit seek to lift an English anti-suit injunction it had obtained against RusChemAlliance, citing the chilling effect of such fines.

In response, the EU’s 14^th and 15^th packages of sanctions introduced the following countermeasures:

1. Transaction ban pursuant to which the EU may impose a transaction ban on any person who has brought a claim before a Russian court against an EU individual or entity under Article 248(1) or Article 248(2) of the Code, or equivalent Russian legislation, in relation to contracts or transactions affected by EU sanctions;
2. Compensation mechanism for EU nationals and entities incorporated or operating their business within the EU to claim damages in EU courts for losses resulting from legal proceedings initiated by Russian parties outside the EU in relation to contracts and transactions affected by EU sanctions; 
3. Ban on the recognition and enforcement of any injunction, order, relief, judgment or other court decision issued on the basis of Articles 248(1) or 248(2) of the Code or equivalent legislation; and 
4. Ban on providing assistance during an investigation or criminal proceedings, or enforcing any punishment or other sanctions based on alleged violations of Russian anti-arbitration decisions issued on the basis of Articles 248(1) or 248(2) of the Code or equivalent legislation. 

Regulations 2025/1494 and 2025/1472 both add another layer to this toolkit by protecting EU Member States involved in investor-State arbitration proceedings initiated in connection with measures imposed under EU Sanctions Regulations.

II. Key investor-State arbitration measures in Regulations 2025/1494 and 2025/1472

A. Recognition and enforcement bans in investor-State proceedings seated outside the EU

Regulation 2025/1494 amends Article 11 of Regulation 833/2014 by adding two new paragraphs that mirror the EU’s 14^th and 15^th sanctions packages’ enforcement bans, specifically in the context of investor-State arbitration:

1. Ban on the recognition and enforcement of any injunction, order, relief, or judgment issued by non-EU courts or arbitral tribunals in investor-State arbitration proceedings seated outside the EU that could lead to the satisfaction of claims to the benefit of EU sanctioned individuals or entities in connection with measures imposed under EU sanctions regulations (Article 11.2(a)); and
2. Ban on providing assistance during an investigation or other proceedings, or enforcing any penalty based on any injunction, order, relief, or judgment issued by non-EU courts or arbitral tribunals in investor-State arbitration proceedings seated outside the EU to the benefit of EU sanctioned individuals or entities in connection with measures imposed under EU sanctions regulations (Article 11.2(b)).

Regulation 2025/1472 amends Article 8d of Regulation 765/2006 with identical provisions.

The reference to “proceedings other than those in the Member States” suggests that the EU Council intends these bans to apply both to arbitral proceedings seated outside the EU and to proceedings under the ICSID Convention, which operate outside national legal systems and do not have arbitration seats.

B. Compensation mechanism for EU Member States and the EU

New Article 11e of Regulation 833/2014 (and Article 8l of Regulation 765/2006) creates a parallel compensation mechanism to Article 11a, allowing EU Member States and the EU itself to claim damages and costs incurred in defending against investor-State claims brought in connection with EU sanctions. This compensation mechanism applies against:

1. Any sanctioned individual or entity that initiated, intervened in, or sought to enforce an award in such proceedings; and
2. Any person or entity owning or controlling such a party.

C. Duty to challenge the recognition and enforcement of adverse awards

New Article 11f of Regulation 833/2014 imposes an affirmative duty on EU Member States to raise “any available objection” to the recognition and enforcement of awards rendered against EU Member States in such investor-State proceedings. Although not legally binding, the recitals to Regulations 2025/1494 and 2025/1472 provide helpful clarification that:

1. Such recognition or enforcement would be contrary to public policy of EU Member States pursuant to the New York Convention;
2. The duty to object does not prejudice Member States’ obligation to participate and defend themselves in proceedings initiated against them or pursue the enforcement of favourable costs awards; and
3. Damages should be recovered in accordance with EU law and customary rules of international law.

As of today, the European Commission has not published any guidance on how these investor-State arbitration measures should be interpretated.

III. Regulations 2025/1494 and 2025/1472: An effective tool?

Regulations 2025/1494 and 2025/1472’s recognition and enforcement ban could raise compatibility issues with EU Member States’ obligations to recognise an ICSID award and enforce it “as if it were a final judgment of a court in that State” (ICSID Convention, Article 54(1)).” Recent experience regarding the recognition and enforcement of intra-EU awards suggests that EU Member States may give preference to their obligations under Regulations 2025/1494 and 2025/1472.

Regulations 2025/1494 and 2025/1472 may lead to preliminary references to the Court of Justice of the European Union (CJEU), as demonstrated by the Svea Court of Appeal’s recent preliminary reference regarding the scope of Article 11 of Regulation 833/2014 — commonly referred to as the “no claims” provision. In its reference, the Svea Court of Appeal questioned whether this provision, which prohibits the satisfaction of any claims resulting from the performance of contracts or transactions affected by EU sanctions, also applies to out-of-court settlements. Regulations 2025/1494 and 2025/1472 provide clarification, confirming that the “no claims” provision applies “including in out-of-court settlement proceedings”.

EU investors and EU Member States should also be mindful that, to a certain extent, EU sanctions regulations do not have extra-territorial effect. EU sanctions will not provide effective protection against the enforcement of penalties or over any assets they may hold in Russia or Russian-aligned jurisdictions. In this regard, the ability of EU Member States and the EU to actively seek damages through judicial proceedings under Article 11e of Regulation 833/2014 (Article 8l of Regulation 765/2006), which echoes EU investors’ compensation mechanism under Article 11a of Regulation 833/2014, is probably the most significant new feature of Regulations 2025/1494 and 2025/1472. Although these mechanisms remain untested, they could provide a powerful tool for redress in response to sanctions-driven investor-State arbitration claims.

IV. How Hogan Lovells can assist

Early and proactive engagement is essential for securing effective protection in sanctions-related investor-State arbitrations. Hogan Lovells’ leading international arbitration and international trade law teams—based across Europe and globally—have deep experience navigating the legal, regulatory, and strategic dimensions of complex, multi-jurisdictional disputes. We are available to assist with risk assessments involving sanctions and sanctions-related investor-State claims; representation and strategy in arbitration and enforcement proceedings; advice on Article 11a/11e recovery actions and defensive measures; and compliance with evolving EU and international sanctions frameworks.

Our sanctions lawyers provide counsel to numerous clients seeking to comply with global sanctions laws and regulations, and applicable blocking statutes while pursuing their legitimate commercial activities. Working together with colleagues in our offices in the United States, Europe and China/Hong Kong, our lawyers can address problems as they arise and help design reporting and compliance structures that anticipate and reduce the risks associated with such circumstances.

We help clients understand which of their global affiliates, officers, and employees are required to comply with sanctions and how corporate and governance structures affect the degree to which they are affected by sanctions. We assist clients in reducing their sanctions risk by assessing their compliance programs and making recommendations on how to institute operational changes. We have also assisted clients in getting licenses, permitting transactions otherwise prohibited by sanctions. Our team advises clients in all aspects of dealing with potential violations, including voluntary disclosures and penalty assessments.

With sanctions specialists in United States, UK, France, Spain, Italy, Netherlands, Brussels, Luxembourg, China/Hong Kong, we are one of the few legal practices that can handle large, varied, and complex sanctions matters in every major world market.

Our strong relationship with regulators enables us to provide a unique insight into regulatory expectations, both generally and in the context of investigations. Many of our international trade lawyers previously occupied leadership positions within the relevant government agencies and we maintain regular contact with all the relevant United States., EU and other agencies.

Authored by Markus Burgstaller, Aline Doussin, Iris Sauvagnac, and Pierre Estrabaud.