In this third briefing on International Investment Law (IIL), we examine how IIL and in-vestor-state arbitration may be used in response to the so-called countersanctions adopted by the Russian government in retaliation to sanctions imposed by the EU and its Western partners.

In this second edition of BLOMSTEIN’s International Investment Law (IIL) briefing series, we look at how the EU’s sanctions against Russia are affecting existing investments in Russia and investment arbitrations against the Russian state. Meanwhile, our next briefing will look at the impact of Russia’s countersanctions on investors and their prospects for redress under IIL.

Foreign direct investments (FDI) have faced greater scrutiny in recent years, as states increasingly subject investment transactions to screening procedures due to rising geopolitical tensions and national security concerns. The Russian invasion of Ukraine and the worsening climate crisis have prompted stronger and more frequent state actions. Regulatory measures and new security policies will likely impact existing and planned investments significantly. For instance, EU financial sanctions can directly affect the ability to control investments by investors subject to asset freezes and other restrictions. Russian “counter sanctions”, on the other hand, have included threats of expropriation to Western companies, with one machine tool manufacturer already reporting that the Russian government nationalized one of its plants.

It has long been recognised that financial support in favour of football clubs can distort fair competition. A widespread concern is that investors behind the big European clubs like Manchester City, Paris Saint Germain, or Chelsea FC reign over professional football with their money at will. In light of this, the Union of European Football Associations (UEFA) established the Financial Fair Play (FFP) rules. With the Foreign Subsidies Regulation, which entered into force in January 2023, there may be another instrument to address financial advantages to football clubs perceived as unfair if the investment is attributable to a government outside the EU.

In view of “Russia’s actions destabilising the situation in Ukraine”, as the relevant Regulations coin it, the EU has tightened the financial sanctions on Russia. Introduced via Council Regulations of 25 February, 28 February and 1 March, the revised and newly inserted Articles 5 to 5i of the amended Council Regulation (EU) No 833/2014 seek to largely restrict access to the EU capital market by Russia’s central bank, several major banks and key companies. As announced in our briefing of 26 February 2022 on the EU’s second round of Russia sanctions, we will go into more detail on these sanctions in the following.

Since last night, the EU has adopted further sanctions against Russia. The new restrictions concern the listing of further persons, including Oligarchs with close ties to President Putin, and the aviation sector. The SWIFT de-coupling is not yet legally implemented.