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

As part of the Ukraine Initiative set up in 2022, Friends of Europe has led a series of roundtables and working groups on the topic of the frozen Russian assets. This event is a continuation of this dialogue.

Friends of Europe brought together a multistakeholder panel for an online Policy Insight debate on the subject of Cold War-era bilateral investment treaties (BITs) between EU Member States and Russia and the latter’s weaponisation of Investor-State Dispute Settlement (ISDS) claims. European sanctions are being challenged by Russian oligarchs and companies in private tribunals using ISDS, hindering European sovereignty. This debate was co-organised with Friends of the Earth Europe and moderated by Myroslava Gongadze, Senior Fellow for Peace, Security and Defence at Friends of Europe.

In his introductory remarks, Paul De Clerck, Head of the Economic Justice campaign at Friends of the Earth Europe, explained that investor-state dispute settlement (ISDS) provisions in bilateral investment treaties (BITs) enable corporations and oligarchs to launch massive claims against states in secretive tribunals, increasingly being used to undermine climate policy, tax policy, national security and, crucially, sanctions regimes against Russia.

Following De Clerck, Lukas Schaugg, Policy Advisor at the International Institute for Sustainable Development (IISD) and contributor to the ‘Frozen Assets, Hot Claims’ report, laid out the legal and structural problems posed by ISDS within Europe’s sanctions architecture. He highlighted that EU Member States still maintain more than 900 BITs containing ISDS, most without essential security exceptions, and that Ukraine alone has 15 such treaties with EU states. Schaugg argued that ISDS is incompatible with EU law on three main grounds: tribunals interpret EU law while sitting outside the EU judicial system; BITs grant investors far-reaching substantive rights (such as free transfer of capital) that constrain sanctions and other restrictive measures; and, even after the EU’s 18th sanctions package, Russian-linked claimants can pursue cases and enforce awards outside the EU, undermining sanctions and prompting the EU to label such arbitration “abusive.”

Schaugg described a rapidly growing wave of claims by Russian oligarchs and state-linked entities against Ukraine and EU Member States, imposing heavy financial and administrative burdens and having a chilling effect on support for Ukraine. Looking to the future, he recommended three ways forward: coordinated termination of Ukraine–EU member state BITs, coupled with neutralisation of sunset clauses; termination of EU member state BITs with Russia and Belarus as a signal that normalisation is not on the horizon; and strengthening the 18th sanctions package so that sanctions-related ISDS awards against Ukraine are also non-enforceable.

Dirk Schuebel, Head of the Russia Division at the European External Action Service (EEAS), former EU’s Special Envoy for the Eastern Partnership, and former EU Ambassador to Moldova and to Belarus, provided the political and institutional framing from the EU side, emphasising that detailed legal competence lies with the European Commission’s DG Trade. Schuebel stressed that the EU’s primary goals are to support Ukraine “on all fronts,” including financially, and to limit Russia’s capacity to finance its war. Schuebel detailed the 18th sanctions package, which obliges Member States not to recognise or enforce sanctions-related ISDS awards, to seek recovery of costs, and to raise all available objections, thereby shielding Member States within the EU legal space, while acknowledging that the Commission is still reflecting on next steps such as possible treaty terminations or infringement proceedings. In his final remarks, Schuebel reiterated that the EU remains “tuned in” to Ukraine’s needs, is preparing further sanctions packages and hybrid measures, and will continue to look for ways to address the vulnerabilities discussed.

Speaking from the Ukrainian government’s perspective, Mykola Yurlov, Counsellor at the Department of International Law, Ministry of Foreign Affairs of Ukraine, underlined how ISDS claims by Russian investors concretely undermine Ukraine’s capacity to defend itself. He recalled that BITs were originally meant to encourage and protect mutual investment, but have been repurposed and abused in ways that chill legitimate regulation and national security measures. Yurlov described the heavy financial and human costs of defending each arbitration, which requires top-tier external counsel and extensive interagency work inside government, even when Ukraine ultimately prevails on the merits. He also noted that the mere threat of claims, for example under the Belgium–Luxembourg–USSR BIT, shaped the EU’s internal debate on using immobilised Russian sovereign assets, despite strong legal arguments that such treaties should not apply to sovereign acts (acta jure imperii) of a central bank. Yurlov linked the debate on Russian assets and BITs to the emerging international compensation architecture. He pointed to the UN General Assembly resolution recognising Russia’s duty to make full reparation, the establishment of the Register of Damage and the newly signed Convention on the Claims Commission for Ukraine. His key call to action was for states to ratify this convention quickly,

From the European Parliament side, Petras Auštrevičius, Member of the European Parliament Committees on Foreign Affairs, on Security and Defence, and the Subcommittee on Human Rights, broadened the discussion to the strategic level. He argued that because Russia is an aggressor state violating fundamental norms of international law, Europeans must use all available legal, economic and financial tools to constrain its war-making capacity. Auštrevičius criticised the December EU decision not to proceed with using frozen Russian state assets for Ukraine as a “political failure”. In his view, this is strongly linked to Belgium’s reliance on BIT-related risks as a justification while failing to terminate its treaty with Russia, in contrast to Lithuania, which denounced its BIT in 2024. He contended that continuing “business as usual” assumptions vis-à-vis Russia is naïve, that Russian counter-measures will occur regardless, and that EU Member States have a political and moral responsibility to end enabling economic links with an aggressor. Auštrevičius concluded by urging Europeans to view frozen Russian assets as belonging ultimately to the people of Russia, not to the current regime, and suggested engaging the democratic Russian opposition to voice support for their use in reparations to Ukraine. He argued that such voices could help embolden hesitant European policymakers to move faster on terminating BITs and unlocking Russian assets for Ukraine’s defence and reconstruction.

In a late intervention, Timothy Ash, Associate Fellow, Russia and Eurasia Programme at Chatham House, reflected on the December Council outcome and the broader campaign to use Russian state assets. While acknowledging disappointment that the €210 billion euro “reparation loan” concept was not enacted, Ash noted that the agreed €90 billion euro package, combined with other support, largely covers Ukraine’s financing gap for the next two years, and that the immobilised assets remain available in principle for future reconstruction and reparation needs. He stressed that advocates of using these assets are not going away, that the legal and political case has only grown stronger, and that the core objective remains ensuring that Ukraine has the resources both to win the war and to rebuild on sustainable terms.

Interested in the implications of ISDS for the war in Ukraine? Read this: Frozen assets, hot claims: how Russian oligarchs & other investors sue over sanctions

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