The EU’s 18th sanctions package and its ban on ISDS outside the EU

On 18 July 2025, the EU adopted another and at the same time one of its strongest sanctions packages against Russia to date with the 18th package of economic and individual restrictive measures (“18th Sanctions Package”) (see our previous Insight here). The 18th Sanctions Package entered into force on 20 July 2025. The measures target the Russian Federation's energy, banking and military sectors, as well as trade with the EU. All in all, the package amounts to a strong tightening of previous measures.

One novelty of the 18th Sanctions Package lies in the planned measures regarding dispute resolution, specifically, investor-State arbitration based on multi or bilateral investment treaties (“BIT”) such as the German-Soviet BIT of 1989 which nowadays applies in relation to the Russian Federation. The characteristic feature of investment arbitration is that investors can bring alleged claims for expropriation and the like directly against EU Member States or the EU. The dispute is decided by international arbitrators, elevated from the domestic courts.

General prohibition for designated persons to bring investor-state claims against EU member states

The 18th Sanctions Package now limits the possibility for certain Russian companies and individuals to bring such investor-State claims. These Russian companies and individuals are enumerated in Art. 11 of Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (“Russian Designated Parties”).

The 18th Sanctions Package does not prohibit a EU Member State to defend itself in arbitration proceedings initiated against it.

General prohibition for EU member states to recognize and enforce arbitral awards involving designated persons

The prohibition for Russian Designated Parties to bring investor-State claims is accompanied by a corresponding non-recognition provision for such arbitration proceedings by the EU Member States.

From now on, if a Russian Designated Party is party to an arbitration, only injunctions, orders, reliefs or judgment issued by tribunals issued in arbitral proceedings held in an EU Member State are recognizable and enforceable. Thus, the decision-making body needs to be in the EU. Indeed, the new rules clarify that judicial or arbitral decisions in favour of investors against EU Member States issued outside the EU “which could lead to the satisfaction of any claims in connection with measures imposed under this Regulation” must not be recognised, given effect or enforced in an EU Member State if it is invoked by any of Russian Designated Parties.

Accordingly, EU Member States are, first of all, obliged to raise all defences available to them in domestic or foreign proceedings for the recognition and enforcement of such arbitral awards. This includes raising the objection that the recognition or enforcement of the award would be contrary to the public policy of the EU and the EU Member State where recognition and enforcement is sought, pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The new provisions therefore effectively limit the recognition and enforcement of arbitral awards possibly issued in favour of the Russian Designated Parties against other states. Consequently, it now is much harder to find assets to turn an arbitral award into money, because the geographical area a designated party can look for assets has become much smaller due to the extensive prohibition to recognize and enforce arbitral awards obtained by Russian Designated Parties.

The strict prohibition of recognition and enforcement also covers requests for assistance during an investigation or other proceedings if such recognition and enforcement were to be invoked by a Russian Designated Party. The same goes for requests for assistance regarding for instances of penalties based on an injunction, order, relief, judgment issued by a non-EU Member State.

However, the strict prohibition of recognition and enforcement, however, does not prohibit EU Member States from seeking recognition and enforcement of an award that grants it the reimbursement of costs.

EU member states can sue designated persons for damages

The 18th Sanctions Package also contains a new basis for claims for direct and indirect damages incurred by an EU Member State because of investor-State dispute settlement proceedings brought against an EU Member State in connection with the EU’s Russia sanctions. In such cases, the EU Member State itself can file a claim for damages against Russian Designated Parties who commenced investor-State proceedings. The rationale behind this claim for damages is that “there is evidence to suggest that Russian persons” or entities controlled by them “might seek to abusively initiate” claims under the bilateral investment treaties outside the EU in connection, however, with the Russian sanctions imposed by the EU. Under the new rules, any such claim for damages will be decided in accordance with EU law as well as customary rules of international law.

The new rules also create corresponding subsidiary jurisdiction for such damages claims, showing that the EU is determined to keep these claims for damages within the EU legal system. Under the new rules, any EU Member State court has jurisdiction to hear such claim for damages against designated persons, if the case has a sufficient connection with the respective EU Member State and where neither EU law nor domestic law provides for the jurisdiction of another EU Member State.

The 18th Sanctions Package severely restricts the judicial means at the disposal of certain Russian parties.