The EU’s sanctions paradox: frozen Russian assets and EU Bilateral Investment Treaties

Russia’s full-scale invasion of Ukraine prompted wide-ranging sanctions against Russia and a subsequent effort by Europe and members of the Coalition of the Willing to support Ukraine by securing funding for its defence effort by using frozen Russian assets. But an arbitration mechanism known as investor-state dispute settlement (ISDS) is weakening the EU’s ability to enforce its policy choices in the context of conflict.

Belgium’s reluctance to release the frozen Russian assets held by the Belgian depository Euroclear, partly defended by risks posed by Cold War-era bilateral investment treaties (BITs) with Russia, has cast a sharp light on a significant vulnerability within the EU’s exposure to a mechanism written into investment treaties, known as investor-state dispute settlement (ISDS).

The European Commission and most EU member states want to use €90bn in Russian assets held at Euroclear to provide financial support to Ukraine. However, the Belgian government has blocked the use of the funds, primarily out of concern that doing so could expose it to legal challenges. The Russian Central Bank followed up on its threats in December by filing a suit against Euroclear over alleged damaging actions, affecting its ability to dispose of Russian state funds and securities.

European sanctions also target companies and individuals closely linked to the Russian regime and the war effort. These sanctions are now being challenged by Russian oligarchs and companies in private tribunals using ISDS. Claims and threats of claims by sanctioned individuals and entities already amount to US $62bn.

This illustrates the way bilateral investment treaties (BITs) between EU member states and third countries undermine legitimate policy objectives of the European Union and its member states on issues of strategic – and in some cases existential – relevance.

Friends of Europe leads a civil society dialogue of independent, pro-Ukraine actors to identify ways to sustain comprehensive support for Ukraine while addressing ISDS risks arising from the weaponisation of investment treaties against European and Ukrainian sanctions. Building on its Ukraine Initiative launched in 2022, this event – held in collaboration with Friends of the Earth Europe – is part of an ongoing series of roundtables and working groups, including discussions on frozen Russian assets.

These resources can provide a deeper understanding of the implications of ISDS for the war in Ukraine: Frozen assets, hot claims: how Russian oligarchs & other investors sue over sanctions

Related content:

• Insight | Europe at war: Friends of Europe’s warning shot
• Podcast | Policy Voices | Why is Europe at war and what needs to be done
• Event | Europe’s decision time: the future of frozen Russian assets

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