ISDS at Stake: How EU Sanctions Are Testing Investor-State Dispute Settlement

The European Union’s sanctions against Russia have triggered a legal confrontation at the core of investor-state dispute settlement (ISDS). It raises the question of whether the EU can lawfully prevent investors from bringing arbitration claims under Bilateral Investment Treaties (BIT) in response to sanctions, and whether Member States can be held internationally liable for complying with EU sanctions. Belgium is already facing threats of arbitration over frozen Russian assets, while the Court of Justice of the European Union (CJEU) is preparing to rule on whether EU regulations restricting ISDS are compatible with international law.

ISDS Threats against Belgium Over Euroclear

Belgium is at the centre of this storm. Following Russia’s invasion of Ukraine in 2022, Western states froze around USD 300 billion of Russian sovereign and private assets, most of them in Europe. Euroclear, the Brussels-based central securities depositary, holds about EUR 185 billion of those assets.

In September 2025, four Russian nationals, whose assets have been frozen by Euroclear in 2022 despite not being individually sanctioned, threatened Belgium with investment treaty claims,¹ sending trigger letters under the 1989 USSR-Belgium-Luxembourg Economic Union BIT.

They invoke the BIT’s broad guarantee on “free transfer of funds” to request the release of their assets arguing that EU sanctions regime and the freeze of their assets violate Belgium’s obligations under the BIT. Since the BIT provides for a six-month cooling off period before arbitration can be initiated under Stockholm Chamber of Commerce (SCC) or UNCITRAL rules, the arbitration proceedings have not yet been formally initiated. 

Belgian officials recognise the seriousness of the situation. Foreign minister Maxime Prévot has warned that any new measures concerning the Euroclear assets must meet the highest level of “legal robustness”.² He stressed that Belgium cannot unilaterally bear the consequences of potential claims arising out of EU regulations that could reach the size of Belgium’s annual state budget.

Euroclear’s CEO, Valérie Urbain, has likewise warned that further EU proposals to use or reinvest the frozen assets would amount to expropriation,³ as they would prevent the owners from recovering their assets once sanctions are lifted.

The CJEU Challenge

In parallel, Russian investors have filed proceedings before the CJEU to challenge the EU’s 18^th package of Russia sanctions introduced in July 2025.

In this package, Regulations 2025/1494 and 2025/1472 introduced two unprecedented measures:

• A prohibition on enforcing any ISDS award that relates to measures adopted under the EU’s Russia sanctions regulations.
• A right for Member States to seek damages from investors who pursue such ISDS claims.

The EU presents these restrictive measures as a response to Russia’s aggression in Ukraine.⁴

Pursuant to Article 215 of the Treaty on the functioning of the European Union (TFEU), the EU may impose restrictive measures in accordance with its Common Foreign and Security Policy, and Article 4(3) TFEU compels Member States to comply with such measures. In effect, this enables the EU to require Member States to implement sanctions, even in circumstances where such measures may conflict with their existing international treaty obligations.

So far, five actions for annulment  under Article 263 of TFEU have been filed against the package’s provisions designed to block ISDS claims.⁵

The investors argue that the new measures violate the New York Convention, the ICSID Convention, and the principle of good faith under the Vienna Convention on the Law of Treaties. They also invoke EU constitutional principles, such as sincere cooperation, legitimate expectations, and legal certainty, as well as rights under the European Convention on Human Rights, including non-discrimination, proportionality, and effective judicial protection.

Legal Implications for ISDS

This creates unavoidable tensions: EU law requires compliance with sanctions, while international law requires Member States to respect their treaty obligations. For that reason, the CJEU’s decision will have far-reaching consequences.

If the CJEU annuls the ISDS-blocking measures, this will dismantle a key pillar of the EU’s sanctions framework and reaffirm that Member States cannot disregard their BIT obligations because of unilateral EU action.

Belgium would then be exposed to a wave of investment arbitration claims, and arbitral tribunals would need to determine how to balance EU-mandated sanctions with the protections granted under pre-existing BITs.

Belgium has already sought protection from the EU against this risk. Prime Minister Bart De Wever has insisted that Belgium will not pay EUR 140 billion alone and demanded firm guarantees from other Member States.⁶ In response, the European Commission has offered legally binding financial guarantees (initially EUR 140 billion and potentially rising to EUR 210 billion) to cover arbitration risks.⁷ This would amount to an unprecedented risk-sharing mechanism, illustrating the intense pressure now placed on the EU’s sanctions regime.

If, however, the CJEU upholds the ISDS-blocking measures, the EU’s foreign policy authority would be significantly strengthened. The EU would be able to prioritise collective foreign policy, even at the expense of investor protections under BITs.

However, even in that scenario, Member States’ international obligations remain. BITs continue to bind them under the Vienna Convention, and arbitral tribunals are unlikely to decline jurisdiction based on EU’s prohibition on ISDS.

Conclusion

The ISDS threats against Belgium and the ongoing challenges before the CJEU highlight a crucial turning point in how EU sanctions interact with international investment protections. Belgium’s exposure shows that complying with EU law does not shield Member States from liability under BITs. The CJEU’s decision will determine whether the EU can lawfully restrict access to arbitration to safeguard its sanctions policy, or whether Member States must continue to bear the international consequences of measures they are bound to implement. Whatever the outcome, the decision will set a major precedent for how the EU balances foreign policy objectives with long-standing investment treaty commitments.

This also raises a broader question that remains largely unresolved: what is the legal status of frozen assets? EU sanctions prevent owners from using and controlling their assets, yet without formally transferring ownership or extinguishing their rights. But if, in practice, frozen assets amount to a lasting or irreversible loss of control, the boundary between a temporary restriction and an expropriation becomes blurred. This raises difficult questions: could a custodian of frozen assets be held responsible if the assets are not returned? Could investors claim that such an outcome amounts to an expropriation under a BIT, giving rise to arbitration claims?

Exploring these issues shows how much the legal framework around EU sanctions remains unsettled. The CJEU’s decision will not only shape the future of ISDS in the sanctions context, but it may also help define how far frozen assets can go before they amount to an expropriation.

Hala Yammine, Stagiaire, assisted in the preparation of this briefing.

Footnotes:

1. Ballantyne, Jack. 2025. “Belgium Faces More Claims over Frozen Euroclear Assets.” Global Arbitration Review, November 14, < https://globalarbitrationreview.com/article/belgium-faces-more-claims-over-frozen-euroclear-assets>.
2. Dubois, Laura, and Barbara Moens. “Belgium Open to Softening Stance on Frozen Russian Assets if EU Shares Risk.” Financial Times, 10 Sept. 2025, < https://www.ft.com/content/f0ccc395-c9df-473d-8601-d7dd683cea75>.
3. Katanich, Doloresz. “Could the EU’s Frozen-Assets Plan Really Destabilise European Bond Markets?” Euronews Business, 29 Nov. 2025,< https://www.euronews.com/business/2025/11/29/could-the-eus-frozen-assets-plan-really-destabilise-european-bond-markets>.
4. European Commission. “Holding Russia Accountable: EU Actions on International Crimes and Frozen Assets.” European Union, 3 Dec. 2025, < https://commission.europa.eu/topics/eu-solidarity-ukraine/holding-russia-accountable_en>.
5. See Case T-640/25, Case T-655/25, Case T-679/25, Case T-698/25 and Case T-699/25.
6. Liboreiro, Jorge. “‘Fundamentally Wrong’: Belgian Prime Minister Doubles Down on Opposition to Reparations Loan.” Euronews, 28 Nov. 2025,< ‘Fundamentally wrong’: Belgian prime minister doubles down on opposition to reparations loan | Euronews>.
7. “EU pledges protection for Belgium over risks of using frozen Russian assets for Ukraine”, TRT World, 18 November 2025, <https://www.trtworld.com/article/27ad06d4d3d6>.