Outdated Treaties Enable Wave of Russian Arbitration Claims Against Ukraine and Allies
TL;DR
- Russian companies and individuals are using Cold War-era investment treaties to challenge sanctions imposed after the Ukraine invasion.
- Claims under investor-state dispute settlement mechanisms have reached billions of dollars, straining Ukraine's resources.
- Outdated treaties continue to expose Ukraine and several EU countries to costly litigation and potential damages.
- Calls grow to terminate these treaties to inhibit Russia's legal leverage over Ukraine and its Western allies.
Overview
According to a recent report from Yahoo News, outdated bilateral investment treaties (BITs) are enabling Kremlin-linked individuals and firms to file major arbitration claims against Ukraine and several Western countries. These claims, mostly leveraging investor-state dispute settlement (ISDS) provisions, seek damages over sanctions imposed after Russia's full-scale invasion of Ukraine in 2022.
What Happened
Tycoons such as Mikhail Fridman and companies like Gazprom have filed dozens of ISDS claims, demanding compensation for asset freezes and nationalizations resulting from sanctions by Ukraine, the EU, the UK, and Canada.
In total, the value of disclosed claims amounts to approximately $48 billion, though the actual figure may be higher; a single arbitration defense costs, on average, over $5 million for Ukraine.
Ukraine has attempted to terminate some treaties - including its investment treaty with Russia, which fully expired only in January 2025 and has a sunset clause protecting pre-existing investments for a decade.
EU member states also remain vulnerable, with 16 active treaties between Russia and various EU countries; only Lithuania has ended its agreement since the war's escalation.
Context
The proliferation of BITs in the late 1980s and 1990s - many including ISDS provisions - was not designed with national security or sanction regimes in mind. These treaties offer reciprocal protections, allowing both Ukrainian and Russian entities to launch cross-border claims.
ISDS mechanisms have faced criticism for opacity, inconsistency, and high costs. For Ukraine, defending against such cases diverts substantial resources during wartime, while for the EU, unresolved treaties may undermine legal sovereignty and the enforcement of sanctions.
Why It Matters
- The continued validity of old treaties presents significant financial and strategic risks to Ukraine and its Western partners amid conflict with Russia.
- Legal disputes and potential damages increase the cost of enforcing sanctions and may undermine efforts to hold Russia accountable for its aggression.
- The report highlights the need for governments to re-examine and potentially terminate outdated BITs to prevent their use as instruments of 'lawfare' during geopolitical disputes.