Introduction and Factual Background: Fridman v Luxembourg
In February 2022, shortly after Russia’s full-scale invasion of Ukraine, the European Union placed Mikhail Fridman on its sanctions list. The designation subjected the Russian-Israeli businessman’s funds and economic resources to an asset freeze, affecting interests held through Luxembourg – including his 37.9% ownership of the investment group LetterOne. Luxembourg consequently became the focal point in Fridman’s efforts to challenge the sanctions and recover access to his investments. Those efforts would eventually place the country in the position of defending its first known investment treaty arbitration.
The arbitration commenced in 2024, with Fridman seeking approximately $16 billion in compensation. His claim invokes the 1989 Bilateral Investment Treaty between the Belgium–Luxembourg Economic Union and the Soviet Union (BLEU – Russia BIT). While the details are not publicly available, his claim is that Luxembourg’s freezing of Fridman’s assets interfered with his investments protected under the BIT, allegedly amounting to indirect expropriation. As such, the proceedings bring Luxembourg’s implementation of EU sanctions measures within the framework of its BIT obligations.
This arbitral claim is part of a series of legal proceedings Fridman initiated in response to these sanctions imposed on him. He had already contested his designation before the EU General Court. On 10 April 2024, in Fridman v Council (T-304/22), the Court annulled the acts listing and maintaining Fridman on the EU sanctions list for the period between 28 February 2022 and 15 March 2023. The Court found that, although the material relied upon by the Council could indicate a degree of proximity between Fridman and Vladimir Putin or his close circle, it did not sufficiently substantiate the relevant listing criteria (par. 67). The Court did not establish that Fridman had supported actions or policies undermining Ukraine’s territorial integrity or had provided material or financial support to, or benefitted from, the Russian decision-makers responsible for such actions (pars. 62-64). Later listings remained in place and were themselves challenged by Fridman separately (T-304/22, T-296/23, and T-605/24). Fridman also commenced arbitration against the Netherlands in March 2025, alleging that sanctions and measures taken in their implementation had resulted in the expropriation of his investments there.
On 22 September 2026, the Council removed Fridman from the sanctions list. Surprisingly, it was reported that Luxembourg had advocated that outcome. Prime Minister Luc Frieden subsequently confirmed that his government initially supported continuing the sanctions but reconsidered its position after France sought changes to the list. It is reported that France’s push to remove Alisher Usmanov from the sanctions list provided the occasion for Luxembourg to seek Fridman’s removal. Frieden explained that Luxembourg had acted in the “overriding national interest” to “avert harm to the country”. Multiple sources expressly link Luxembourg’s efforts to secure Fridman’s removal from the EU sanctions list to Fridman’s arbitral claim (see here, here, and here).
Given the factual background above, one question that comes to mind is whether Luxembourg would have advocated Fridman’s delisting had it not faced the risk of a substantial arbitral award arising from his claim. It is indeed a strong possibility that this potential exposure influenced Luxembourg’s position in favour of removing him from the sanctions list, although France’s push for the removal of Usmanov and the wider negotiations also appear to have played a role. Even if arbitration may not have been the sole cause, the facts support a compelling argument that it played a material role.
Regulatory Chill in the Grand Duchy?
The possibility that the pending arbitral proceedings influenced Luxembourg’s position has already prompted some early commentary linking this development to the phenomenon of “regulatory chill” in investor-State dispute settlement (ISDS) (see here and here). In a familiar form of the phenomenon, a government abandons, delays or weakens a public interest measure because of concern that the measure may trigger an investment claim and expose the state to the costs and risks of arbitration. Environmental regulation and fossil fuel phase-outs, along with the arbitral claims arising from such measures, have attracted notable scholarly attention. States may feel a similar pressure after a measure has been adopted and the arbitral proceedings have commenced, where the prospect of an adverse award, along with the financial and administrative burdens of continuing the arbitral proceedings, may encourage the amendment or withdrawal of the challenged measure. This does not mean that reconsideration of a measure in response to a legal challenge is problematic per se. A government may have a good reason to revise a measure where credible allegations of unlawfulness exist. The issue here is that the costs and risks associated with arbitration may induce a state to roll back a measure that it views as lawful and legitimate on public interest grounds. Ultimately, the primary issue here is whether the risk of (prospective or ongoing) arbitration changes conduct that the state would otherwise have maintained.
A possible sub-category of this phenomenon, what I call administrative chill, may more accurately capture the particular decision affected in this case. The difference between administrative chill and the general phenomenon of regulatory chill is primarily the level at which the change occurs. Regulatory chill generally concerns the adoption, amendment or abandonment of rules of general application. Administrative chill concerns the way an existing legal framework is applied to a particular person or company (or the set of facts surrounding them). In this case, the EU sanctions framework itself remained in place, but its application to Fridman changed through his removal from the sanctions list – in other words, an individual designation made within that framework. This is an important nuance, because investment claims may affect not only whether states adopt or retain general measures, but also how those measures are administered and enforced in individual cases.
Luxembourg’s role as an EU Member State adds a further dimension to this form of administrative chill. Luxembourg could not unilaterally choose to disapply the EU sanctions regime or remove Fridman from the list. Instead, while remaining bound to implement the sanctions in force, it sought a change through the Council process. This illustrates how an ISDS claim against one state implementing the EU sanctions regime and the associated risk of liability can influence that state’s negotiating position and contribute to a change in the reach of the EU sanctions regime.
Concerns about the chilling effect of ISDS proceedings are usually expressed in cases where governments have limited financial and institutional capacity to defend claims or absorb adverse awards. The Fridman case suggests, however, that even a wealthy state may attach considerable political significance to the prospect of a substantial liability arising out of an arbitral award. Luxembourg is a prosperous, high-income country but prosperity per capita does not mean that its economy is large in absolute terms. A $16 billion claim is therefore substantial relative to the overall size of the Luxembourg economy, despite the country’s considerable wealth – it corresponds roughly to 16 per cent of the country’s annual GDP (2025). The amount claimed is, of course, neither an award nor an estimate of liability, but even an award representing a fraction of that amount may well trigger a significant domestic political debate in the country, which may further undermine the current government’s diminishing popularity.
Ultimately, it is not only about whether a state has the resources to defend an investment claim. Governments must also assess whether they are willing to accept the potential economic and political consequences of an adverse award. Capacity to defend a claim and willingness to tolerate its potential (political and economic) consequences of liability are distinct considerations, including for developed states.
The Broader Effects of the Delisting
Delisting itself naturally does not automatically bring the arbitration to an end. Losses allegedly sustained while assets were frozen may remain compensable if Fridman decides to continue pursuing his claim and if the tribunal establishes jurisdiction and finds that Luxembourg breached the BLEU-Russia BIT. Restoring access to investments may affect the assessment of damages without remedying every alleged loss, especially since the US and UK sanctions remain in place. Therefore, Luxembourg remains potentially exposed to liability for losses allegedly incurred during the period in which the sanctions applied. This continuing exposure creates room for bargaining: withdrawal or settlement of a claim could, in principle, be offered in exchange for efforts to secure sanctions relief. Whether such an arrangement exists here is not publicly known. The possibility nevertheless helps explain why an arbitral claim might influence a Member State’s position on whether an individual’s sanctions designation should be maintained.
The wider danger is that this sequence opens a Pandora’s box. The possibility that sanctions against Russian investors might trigger investment arbitration claims has long been recognised. In this case, however, the relevant incentive may arise not only from challenging the sanctions with a view to obtaining compensation, but also from the possibility that the claim itself may create additional pressure in favour of a sanctions relief. Other sanctioned investors can observe a designation, a substantial investment claim, a change in the respondent state’s position, and eventual delisting. They may consequently interpret that sequence as a strategy worth reproducing, and this is a possibility that warrants serious attention from EU Member States. The attractiveness of such a strategy would depend on the extent to which the claim can impose notable financial or political pressure on the respondent state, as well as on the investor’s prospects of ultimately obtaining an enforceable award. That perception among other sanctioned investors does not require conclusive proof of Luxembourg’s actual motivations. If Fridman’s experience is perceived as demonstrating that an investment claim can contribute to sanctions relief, it may encourage similar investors to bring further claims – while governments anticipating such proceedings may become more cautious about supporting or renewing individual designations. This pressure could spread well beyond Luxembourg and, where applicable investment agreements permit, beyond the EU.
The Myth of Depoliticisation
This matter also relates to the argument that investment arbitration “depoliticises” disputes by channeling foreign investors’ grievances away from inter-state diplomatic confrontation and into adjudication. I recently argued elsewhere that geopolitical crises generate clustered investment disputes sharing factual, legal and political foundations, and their submission to arbitration does not detach them from the conflicts and the wider political context that produced them. Fridman’s sanctions claims, particularly those against Luxembourg and the Netherlands, and the subsequent developments surrounding his delisting fit this framework closely. Formally separate proceedings against different states arise from measures adopted by the EU in response to the same war. The significance of these ISDS claims becomes clearer when they are considered collectively and alongside the political decisions taken by EU institutions and Member States concerning the sanctions regime, as well as the parallel judicial challenges brought against individual listings. The overarching risk is that ISDS arbitration may itself become a means of influencing bargaining among EU Member States over the maintenance and application of sanctions.
The clustered nature of these disputes may also amplify the effects of individual arbitral claims. A change in the application of a common sanctions measure to one investor can alter the position of several states and the expectations of other potential claimants. Within the EU, an individual state’s incentive to reduce its exposure to arbitral claims and liability can influence negotiations over a policy maintained collectively and produce compounded effects if more Member States face similar ISDS claims. The disputes thus feed back into the geopolitical context from which they emerged: sanctions generate investment claims, and those claims may in turn reshape the political conditions under which sanctions are maintained. A settlement or a policy change that resolves one investor’s dispute can consequently affect the incentives of other sanctioned investors and of the Member states facing, or anticipating, similar claims across the wider cluster.
Luxembourg’s precise motivations notwithstanding, states should take this possibility into account when assessing the apparent benefits of delisting. Securing the withdrawal or settlement of one claim may reduce an immediate financial risk while encouraging other sanctioned investors to pursue a similar strategy. If this practice gains traction, ISDS could facilitate a dynamic similar to ransom, with the threat of substantial liability being maintained until the respondent state helps secure sanctions relief. The broader risk is that a Member State’s effort to avoid an arbitral claim and the domestic political costs associated with an adverse award in one case may make the continued application of EU sanctions more vulnerable to bargaining in subsequent cases.