As EU Member States struggle to reach an agreement ahead of the European Council of 18–19 December on the use of frozen Russian assets to finance Ukraine’s reconstruction, the proposal is facing strong legal resistance within the EU. At issue is the growing risk of litigation based on bilateral investment treaties, already used by sanctioned Russian oligarchs and companies to claim massive compensation. While Belgium is demanding guarantees against potential legal action and Member States are slow to denounce treaties nevertheless deemed incompatible with EU law, six European organisations are filing a complaint against France, Germany, Sweden and Austria to compel Member States to put an end to them (1).

The fear of litigation through investment treaties has been explicitly invoked by the Belgian Prime Minister to justify his reluctance ahead of the European Council of Heads of State on the proposal to use Russian assets to finance a reparations loan for Ukraine. While immobilized assets belonging to Russian public institutions are mainly held by the European depository institution Euroclear, based in Belgium, other assets are reportedly held directly by commercial banks across the EU (including €18 billion in France — which may explain the French presidency’s lukewarm support for the European proposal).

These concerns do not appear entirely unfounded, as the Central Bank of Russia announced on Friday 12 December that it had filed a claim before the Moscow Arbitration Court against Euroclear in an attempt to recover alleged losses. At the same time, Russian companies and Kremlin-linked oligarchs are using investment treaties to challenge the international sanctions imposed on them and to seek restitution of their assets, with compensation on top (see our European investigation published on Tuesday 9 December).

The 26 known investor–state dispute settlement (ISDS) cases, as well as threatened claims brought against sanctions, already amount to USD 62 billion. This figure is close to the USD 70 billion in military aid provided by the EU to Ukraine since 2022. The actual amount is likely to be significantly higher, as in more than half of the cases no information is available regarding the sums claimed.

Belgium is now requesting guarantees in order to accept the use of frozen assets, in particular assurances that it would have access to funding equivalent to the entire package should it face legal proceedings or retaliation from Moscow.

How can the continued existence of investment protection treaties between EU Member States and Russia — which provide the legal basis for these proceedings — be justified after the invasion of Ukraine? (2) This question is all the more pressing given that, as early as 2009, the Court of Justice of the European Union ruled that the investment protection treaties of Sweden, Austria and Finland were incompatible with EU law, particularly with regard to the Council’s power to impose sanctions (3). Yet the three Member States concerned by the CJEU ruling have so far failed to remedy the situation, as even acknowledged by the Swedish government in a recent report (4). Worse still, beyond these three countries, most of the old BITs of EU Member States also lack the safeguards required by the CJEU concerning provisions on the free movement of capital.

This is why six European organisations (the Veblen Institute in France, PowerShift in Germany, Attac Austria and Friends of the Earth Sweden, with the support of Friends of the Earth Europe and the European Coalition for Trade Justice) are today filing a complaint against four Member States (France, Germany, Sweden and Austria) to demand the termination of these treaties, which violate EU law.

In December, Ursula von der Leyen suggested denouncing the investment protection treaty between Belgium and Russia. In the European Commission’s proposed compromise on the reparations loan, Member States would also be invited to simultaneously terminate their bilateral investment treaties with Russia.

According to Mathilde Dupré, Co-Director of the Veblen Institute: “After climate action and the exceptional measures adopted by governments in response to the Covid-19 pandemic, national security policies are now being challenged by sanctioned foreign investors through investment arbitration. This system of exceptional justice severely restricts States’ capacity to act, all the more so in a context of heightened geopolitical tensions. States can no longer afford to let it persist.”

Notes

(1) See the press kit presenting the complaint and the full text of the complaint.

(2) France itself is being sued by a sanctioned Russian investor in a dispute following the cancellation of the “Montagne d’Or” mining project in French Guiana. In addition, France is also being sued by Russian-Armenian businessman Samvel Karapetyan, whose villa on the French Riviera was seized by French authorities following allegations of money laundering and of having acted as a front man for the sanctioned oil and gas giant Gazprom.

(3) The Court of Justice of the European Union (CJEU) issued three judgments against Austria, Sweden and Finland (Cases C-118/07, Commission v Finland; C-205/06, Commission v Austria; C-249/06, Commission v Sweden), concluding that the clauses on capital transfers in extra-EU BITs conflicted with the Council’s power to unilaterally impose restrictive measures on third countries under certain conditions.

(4) Swedish National Board of Trade (2024), En modernisering av Sveriges investeringsskyddsavtal.

(5) France and Germany are the EU Member States with the highest number of investment protection treaties. Most of these treaties were concluded at a time when provisions were few and rudimentary, and they do not include the safeguards now required under EU law.
Austria and Sweden have already been found by the CJEU to have failed to remove the incompatibilities between their old pre-accession BITs and EU law.
None of the four countries has brought its BITs into compliance with EU law.
This infringement complaint also targets other incompatibilities of old investment protection treaties between Member States and third countries in light of CJEU case law.
If the European Commission were to intervene regarding the old investment treaties of these Member States, the procedure could have repercussions for all investment treaties concluded by other EU Member States, as they share similar characteristics.