Introduction

Russia’s war in Ukraine prompted an unprecedented wave of European Union sanctions, targeting hundreds of Russian individuals, businesses and state entities.

These measures – part of the EU’s foreign policy response – go beyond diplomacy and deeply affect private commercial dealings.

One significant side effect has emerged in courtrooms and arbitration tribunals: the enforcement of commercial judgments and arbitral awards involving sanctioned parties has become fraught with legal obstacles.

This article examines how the EU’s sanctions against Russia (especially asset freezes and bans on providing funds) interfere with the normal enforcement of judgments and awards.

We outline the legal basis of the sanctions, explain the impact on enforcing decisions in favor of sanctioned parties versus against them, and highlight real-world examples. We also discuss practical considerations for lawyers and arbitrators navigating these sanctions in commercial disputes.

EU Sanctions on Russia: Legal Basis and Asset Freezes

EU sanctions (termed “restrictive measures”) are imposed through Council decisions and regulations that are directly binding in member states.

A cornerstone of the Russia sanctions is the asset freeze, coupled with a prohibition on making funds or economic resources available to listed persons or entities.

Under Council Regulation (EU) No. 269/2014 (as amended following the Ukraine invasion), all funds and assets belonging to persons designated in Annex I are frozen, and “no funds or economic resources” may be provided to or for the benefit of those sanctioned persons.

In essence, a listed Russian oligarch, bank, or company is financially quarantined: their bank accounts, property, and economic interests in the EU are immobilized, and no one in the EU can transfer money or assets to them – even to fulfill a contract or judgment – without special permission.

The terms “funds” and “economic resources” are defined broadly.

They include not only money but also tangible or intangible property and legal rights that can be used to obtain funds or goods.

Freezing such assets means no movement, transfer, alteration, use, or dealing in those assets that would change their amount, location, ownership, or destination.

The ban on making funds available likewise catches any direct or indirect provision of value – preventing attempts to bypass the sanctions via intermediaries or alternate routes.

Importantly, sanctions extend to entities owned or controlled by a listed person: an EU company that is, say, 51% owned by a sanctioned individual may itself be treated as “frozen” unless it can prove independence.

These restrictive measures are backed by criminal or administrative penalties in EU states, underscoring that compliance is not optional.

With this legal framework in place, we turn to how it disrupts the enforcement of legal decisions involving sanctioned parties.

Enforcing Judgments or Awards in Favor of Sanctioned Parties

Consider a scenario where a Russian company or individual on the EU sanctions list wins a commercial court judgment or an arbitration award, meaning the sanctioned party is the creditor entitled to payment or assets.

Enforcing such a decision in the EU runs headlong into the sanctions regime:

• Asset freezes bar payment: If an EU court orders a non-sanctioned party to pay money to a sanctioned entity, that payment would violate the prohibition on making funds available to a listed person.
  • The debtor cannot lawfully pay, and banks will block any attempt to transfer funds to the sanctioned creditor.
  • In effect, the sanctioned winner is prevented from collecting their judgment/award as long as sanctions remain in force.
• No voluntary compliance without license: Because paying a sanctioned party is illegal without authorization, a judgment debtor who withholds payment due to sanctions is generally protected by law.
  • EU regulations even contain “no claims” clauses preventing designated persons from enforcing claims if doing so would circumvent sanctions.
  • Thus, for example, EU sanctions law prohibits satisfying claims for indemnity or damages if such claims are brought by sanctioned persons and arise from a contract or transaction that was halted due to sanctions.
  • In other words, a sanctioned claimant cannot demand compensation for a deal gone wrong because sanctions made performance impossible.
• Courts won’t compel illegal acts: Courts in Europe will not compel a party to perform an obligation that violates sanctions.
  • In a similar UK context, for instance, the English courts have held that they will not order someone to pay a debt to a person subject to an asset freeze, since that obligation has become unenforceable by law.
  • By the same token, an EU court asked to recognize or enforce a foreign arbitral award in favor of a sanctioned claimant can refuse if it would result in an illegal payment.
  • Article V(2)(b) of the New York Convention allows refusal of award enforcement on public policy grounds, and violating EU sanctions is undoubtedly contrary to public policy in EU states.
  • As a Spanish arbitration guide notes, an award involving a sanctioned party may be deemed contrary to public policy by courts in a sanctioning country if enforcing it would flout sanctions.
• Practical stalemate: The upshot is that sanctioned creditors are essentially stuck.
  • They may possess a valid judgment or award on paper, but they cannot receive the money or property owed – at least not until sanctions are lifted or a special exemption is obtained.
  • EU authorities rarely if ever license payments to sanctioned persons except for narrow humanitarian exceptions (e.g. funds for basic needs or legal defense).
  • Notably, Article 5 of Regulation 269/2014 permits licenses to unfreeze funds to give effect to certain judicial decisions, but one of its conditions is that the decision must not benefit a listed person.
  • This means the derogation mechanism cannot be used to pay a sanctioned winner; it is intended only to assist third-party (non-listed) creditors.

In sum, a sanctioned individual or company can bring a lawsuit or arbitration (being on the sanctions list does not bar access to courts or tribunals), and they can obtain a judgment on the merits.

However, enforcement of that judgment is thwarted by the asset freeze.

The sanctioned party, as creditor, will likely have to wait until they are delisted or sanctions end before they can actually collect any award.

Any attempt by a sanctioned party to force payment sooner (for example, by contempt proceedings) would be blocked by the overriding mandate of the sanctions regulations.

Enforcing Judgments or Awards Against Sanctioned Parties

Now consider the reverse situation: a sanctioned Russian entity is the judgment debtor – they owe money or must comply with an award in favor of a non-sanctioned party.

At first glance, one might think the sanctions make it easier to grab the debtor’s assets (since they’re already frozen). In reality, the opposite is true: sanctions make enforcement more complicated for the winning party:

• Frozen assets cannot be seized without approval: Under EU law, all assets of the sanctioned debtor in the EU are frozen in situ by operation of law.
  • Any step to attach, garnish, or transfer those assets to the creditor would “result in a change in their…destination,” breaching the asset freeze.
  • In the landmark Bank Sepah case, the Court of Justice of the EU (CJEU) confirmed that no enforcement or precautionary measure may interfere with frozen funds absent government authorization. The CJEU held that allowing a creditor to attach frozen funds (even for a pre-sanctions debt) would violate the freeze by altering the status of those assets.
  • Following this logic, the French Court of Cassation ruled in 2022 that creditors holding a billion-dollar arbitral award against Libya’s sovereign fund (a sanctioned entity) could not seize about $300 million of that fund’s assets in France without prior approval from sanctions authorities.
  • Simply put, a winning claimant cannot unilaterally enforce against frozen property – the sanctions create a legal blockade.
• Licensing path – Article 5 derogations: EU regulations do allow creditors to apply for a license (permission) to enforce against a sanctioned debtor’s assets in certain situations.
  • Article 5 of Reg. 269/2014 empowers Member State competent authorities to authorize the release of frozen funds to satisfy a judicial or arbitral claim, provided strict conditions are met.
  • These conditions include:
    • (1) the judgment or arbitral award was rendered before the debtor was listed (or, if it’s a post-listing judgment, that it was issued by a court in an EU Member State);
    • (2) the funds will be used exclusively to fulfill that specific legal claim;
    • (3) the payment will not benefit any other sanctioned person; and
    • (4) recognizing/enforcing the decision would not contravene public policy.
  • For example, if a European company obtained an arbitral award against a Russian entity in 2021 (pre-dating sanctions) and the Russian party was later sanctioned, the European creditor can seek a license to unfreeze the debtor’s assets to pay the award.
  • The authorities will verify that the money goes only to the creditor (who is not sanctioned) and that the sanctioned debtor isn’t profiting (apart from discharging its debt). If satisfied, they may grant a license, effectively carving out an exception to the freeze so the judgment can be enforced.
• Regulatory hurdles: In practice, obtaining such a derogation can be slow and uncertain.
  • Applications must be made to the national sanctions authority (for instance, the Ministry of Finance or central bank in a given EU country), documenting the judgment or award and how the criteria are met.
  • Reviews are strict – authorizations are not routine and are often granted only after weeks or months of vetting.
  • The volume of sanction relief requests since 2022 means delays are common, although urgent cases (e.g. risk of asset dissipation or insolvency) might be prioritized.
  • It’s worth noting that a license is discretionary; even if you check all the boxes, political and policy considerations can influence the outcome.
• Workarounds and examples: Creditors and courts have explored creative means to enforce without violating sanctions.
  • One novel example arose in Ireland in 2023: two EU-based subsidiaries of a major Russian leasing company (GTLK) were sanctioned, which froze their assets.
  • Creditors owed ~$175 million petitioned for the Irish High Court to liquidate those companies. Once liquidators were appointed, the court held that the Russian parent’s control was severed – the entities were no longer under sanctioned control.
  • This allowed certain assets to be unfrozen and sold for the benefit of creditors.
  • In essence, the insolvency process created a “firewall” between the sanctioned owner and the assets, opening another avenue to recover value. Such cases are complex and dependent on specific facts, but they demonstrate that with court supervision and strict safeguards, enforcement can proceed in line with sanctions.
• Enforcement in non-EU jurisdictions: If a creditor tries to enforce against a sanctioned party’s assets located outside the EU, EU sanctions don’t legally bind foreign courts – but practical obstacles loom.
  • For instance, assets in Russia itself are effectively unreachable (Russian authorities have banned compliance with foreign judgments and have their own countersanctions in retaliation).
  • Assets in friendly third countries might be enforceable, but if any transaction ultimately touches the EU or U.S. financial system, sanctions could still be triggered.
  • Creditors must therefore map out where assets are and whether local laws or banks will freeze them due to global sanctions coordination.

In summary, having a judgment or award against a sanctioned Russian party does not guarantee a payday. The winning party must either wait out the sanctions, negotiate some sanctioned-compliant settlement, or navigate the licensing regime – all while ensuring they do not run afoul of the strict prohibitions on dealing with frozen assets.

Real-World Examples and Case Highlights

The interplay of sanctions and judgment enforcement is not theoretical; a number of cases across jurisdictions illustrate the challenges:

• EU Court blocks attachment (CJEU – Bank Sepah):
  • An Iranian bank (Bank Sepah) was under EU sanctions when U.S. creditors sought to enforce a French judgment against it.
  • In 2021, the CJEU held that no precautionary attachment could be permitted on Bank Sepah’s frozen funds, because that would constitute a prohibited change in the assets’ destination under the EU sanctions regulation.
  • This clarified that even securing a debt via court lien is forbidden without a sanctions license.
• French Arbitration Award vs. Libyan Fund: In Société Africard v. Libya (2022), creditors holding an arbitral award tried to attach funds of the Libyan Investment Authority (LIA) in France.
  • LIA was an EU-sanctioned entity with hundreds of millions frozen.
  • The French Court of Cassation echoed the CJEU’s reasoning – it quashed the attachments, ruling that LIA’s frozen assets could not be seized absent prior approval from the French sanctions office.
  • The creditors were left to pursue a license or await a diplomatic resolution.
• Sanctioned claimant in Ukrainian courts: In 2019, Ukraine’s Supreme Court dealt with a case (JSC Avia Fed Service v. Artem) where a Russian defense contractor under Ukrainian sanctions sought to enforce an arbitration award against a Ukrainian state entity.
  • The lower courts had refused enforcement on public policy grounds (due to the sanctions).
  • The Supreme Court eventually allowed enforcement, reasoning that the award itself was not about a sanctioned transaction and that the receivable (the debt under the award) wasn’t yet the property of the Russian company and thus not a frozen asset.
  • This nuanced decision underscored that courts might draw fine distinctions – here, permitting recognition of the award while acknowledging that any actual payment would still be subject to sanctions constraints.
  • The case highlights differing approaches to whether a sanctions regime automatically bars enforcement, with Ukrainian courts balancing sanctions against obligations under the New York Convention.
• Liquidation of GTLK Europe (Ireland, 2023): As mentioned, Ireland’s High Court approved the liquidation of two Dublin-based leasing firms owned by Russia’s GTLK, which were under EU asset freeze.
  • The court found that once independent liquidators took over, the companies were no longer controlled by the sanctioned parent, allowing their previously frozen assets to be sold off for creditors’ benefit.
  • This creative use of domestic insolvency law provided a rare success story for enforcement against a sanctioned debtor, though it required court oversight and did not benefit the sanctioned company (which lost its assets).
• “No claims” shield in action: Throughout Europe, there have been instances where sanctioned Russian parties attempted to claim force majeure or contract frustration damages when deals fell apart due to sanctions.
  • Thanks to explicit provisions in EU regulations, such claims have been dismissed or rendered moot – an illustration being that a Russian oligarch cannot sue an EU business for terminating a contract because continuing it would violate sanctions.
  • The law simply does not allow the sanctioned person to gain legally from a sanctions-induced breach.

These examples collectively show that courts are generally upholding the primacy of sanctions over private enforcement. Whether it’s an international bank, a sovereign wealth fund, or a defense company, being on a sanctions list dramatically alters the litigation/arbitration landscape. Creditors face additional hoops to jump through, while sanctioned creditors find doors closed until further notice.

Practical Considerations for Lawyers and Arbitrators

The intersection of EU sanctions and dispute resolution requires careful navigation. Legal practitioners dealing with cross-border commercial disputes should keep in mind the following:

• Due Diligence on Parties: At the outset of any litigation or arbitration, check whether any party (or its owners/affiliates) is listed under EU sanctions.
  • Sanctions lists are updated frequently, especially in the volatile Russia context.
  • If a party is designated (or becomes designated during proceedings), you must assess the impact on case strategy and your own ability to continue representation.
• Proceedings vs. Enforcement: Remember that a sanctioned party can participate in legal proceedings – they can file claims, defend cases, and even obtain judgments.
  • The EU has carve-outs ensuring the sanctioned person’s right of access to justice (for example, allowing funds to be unblocked for reasonable legal fees with authorization).
  • As counsel, you may represent a sanctioned client, but you will likely need a license to get paid for your services.
  • Distinguish between winning the case (which sanctions law doesn’t forbid) and enforcing the outcome (which is where sanctions bite).
• Stay Updated and Flexible: The sanctions landscape is dynamic.
  • New EU packages (the EU had adopted 15 rounds of Russia sanctions by the end of 2024) can expand or adjust the rules – for example, recent packages have refined definitions and introduced further restrictions on services.
  • Court interpretations are also evolving as cases work their way through national courts and the CJEU.
  • What is impossible today (e.g. seizing a frozen yacht to satisfy creditors) could be revisited by lawmakers or become possible under a later framework (for instance, if the EU creates a fund for Ukraine using frozen assets, private claims might conceivably piggyback on that process).
  • Always verify the current regulations and seek guidance if in doubt.
  • Non-compliance carries severe risks, but so does inaction – so lawyers must thread the needle carefully, ensuring they neither violate sanctions nor fail to pursue their client’s legitimate interests.
• Strategy for Claimants (enforcing against a sanctioned debtor): If you are pursuing a claim against a potentially sanctioned opponent, plan ahead for enforcement. Identify assets and their locations early.
  • Consult sanctions experts on whether a license might be obtainable for those assets if you win.
  • It may be prudent to initiate recognition of your judgment/award in an EU jurisdiction (to qualify as a “decision rendered in the Union” for derogation purposes).
  • Be prepared for enforcement to take extra time – build that into settlement discussions and client expectations.
  • In negotiations, the existence of sanctions might actually give a sanctioned debtor less leverage (since they cannot easily use or hide assets), but it also means you cannot access those assets readily.
  • Creative solutions like escrow arrangements can be explored: for instance, the debtor could agree to pay into a blocked account under the control of an EU trustee.
  • The funds would remain frozen (the sanctioned creditor can’t touch them), but the debt is technically paid – awaiting a future unblock. Such arrangements, however, must be vetted with authorities to ensure they don’t amount to sanctions circumvention.
• Strategy for Defendants (owing a sanctioned party): If your client owes money to a sanctioned entity (say, a Russian supplier who is now blacklisted), recognize that you cannot pay them without authorization.
  • Simply refusing to pay due to sanctions is typically justified – indeed mandated – under EU law.
  • However, it is wise to notify the competent authority and perhaps even seek an official comfort letter or license if there’s any ambiguity.
  • Keep clear records of communications citing the EU regulations to avoid later claims of wrongful non-payment.
  • Also, consider paying into court or an escrow as a sign of good faith (subject to it remaining frozen), which might stop interest from accruing while not releasing the money to the creditor.
• License Applications: When applying for a sanctions derogation to enforce a judgment, make a compelling case that all legal conditions are met.
  • Provide the text of the judgment/award, proof of dates (to show if it pre-dates listing or was issued by an EU court), and evidence that the beneficiaries of enforcement are not sanctioned parties.
  • Demonstrating that funds will go to innocent third-party creditors (and not enrich the sanctioned debtor) is key.
  • Also address public policy – e.g. if the debt arose from a routine commercial deal unrelated to the sanctioned person’s offending activities, mention that.
  • Engage with the authority proactively and be prepared for follow-up questions. Given processing times, file applications as early as possible.
• Arbitration Clauses and Seats: For contracts involving Russian counterparts, lawyers now draft arbitration clauses with sanctions in mind.
  • Choosing a neutral seat of arbitration outside the EU might avoid EU sanctions law during the proceeding, but enforcement in the EU will still trigger EU sanctions compliance if assets are there.
  • Some contracts include provisions that any payment owed to a sanctioned party will be suspended until lawful to pay, to clarify the parties’ obligations.
  • Arbitrators are increasingly aware of sanctions issues – parties may raise sanctions as a force majeure or illegality defense in contract cases, or request procedural orders to accommodate sanctions (for example, extensions if a party has trouble paying arbitral fees from frozen accounts).
  • Arbitrators should give due regard to sanctions as part of the lex fori executionis (law of the place of enforcement) when crafting awards. While they cannot violate applicable law, they can, for instance, order a payment subject to compliance with applicable sanctions – effectively acknowledging that enforcement may be delayed.

Conclusion

EU sanctions against Russia have introduced a powerful public-policy overlay to commercial litigation and arbitration. Enforcing a judgment or award is no longer a straightforward procedural matter if one of the parties is blacklisted by the EU. Instead, lawyers must navigate a dual regime: the normal rules for enforcement and the exceptional rules of sanctions law.

For sanctioned creditors, the reality is harsh – they may win in court but not in fact, as their victories are pyrrhic until they regain access to the global financial system. For claimants enforcing against sanctioned debtors, patience and regulatory savvy are essential; with effort and often creativity, one may still recover assets, but it’s a slower and more convoluted journey than before.

Ultimately, the policy goal of sanctions is to exert maximum pressure on Russia while minimizing unintended harm. In the legal arena, this translates to a careful balance: courts and authorities strive to uphold the rule of law and honor valid judgments without allowing sanctioned actors to bypass financial restrictions. As the war and sanctions persist, legal practitioners must remain vigilant. By understanding the sanctions framework and planning accordingly, they can ensure compliance while effectively advocating for clients – even on this new legal battlefield where geopolitics and commercial enforcement intersect.

Sources:

• Council Regulation (EU) No. 269/2014 (as amended) – Asset freeze and funds provision prohibitions
• CJEU Judgment in Bank Sepah v. Overseas Financial Ltd (Case C-340/20, 11 Nov 2021) – attachment of frozen funds constitutes an unlawful change of destination
• Global Investigations Review – Crucial sanctions challenges in civil litigation and arbitration (analysis of enforcement and legal services under sanctions)
• Linklaters blog – EU sanctions prevent creditors from attaching frozen assets (French Cour de Cassation rulings on Libyan Investment Authority case)
• William Fry – Applying for a Derogation under EU Regulation 269/2014 (Article 5 licensing conditions and Irish GTLK case study)
• UIA (Union Internationale des Avocats) – Guía Práctica: Sanciones Económicas y Arbitraje (impact of sanctions on award enforcement and public policy)
• Global Investigations Review – Guide to Sanctions, 5th Ed. (no-claims clauses and illegality of paying sanctioned persons)
• Lexology – Enforcement of arbitral awards by sanctioned entities: public policy exception (Ukraine Supreme Court case analysis)