Expropriations Related to the Russia Sanctions May Trigger Liability under Investment Treaties

Reports of legal actions that have affected or may affect the property rights of foreign investors in Russia include:

• As of March 14, 2022, a new law allows foreign planes leased by Russian airlines to be registered as the airlines’ property. Putin Signs Bill: Leased Aircraft Belong to Russian Airlines (Airways Magazine);
• Unauthorized use of patents belonging to individuals or companies affiliated with unfriendly countries will not be compensated. Affiliation to an unfriendly state includes being registered in, conducting business in or holding the nationality of that state. Russia Allows Patent Theft from Anyone in ‘Unfriendly’ Countries (The Washington Post);
• Authorities are considering lifting restrictions on the use of intellectual property over goods whose supply to Russia has been restricted. Russia Allows Patent Theft from Anyone in ‘Unfriendly’ Countries (The Washington Post);
• An export ban on goods from the following sectors:  telecommunications, agriculture, electrical equipment, vehicles and forestry products. The ban covers 48 countries, including the U.S. and the members of the EU. Russia Hits Back at Western Sanctions with Export Bans (BBC News);
• A Wall Street Journal article dated March 14, 2022, indicates that Russian prosecutors have warned they may seize assets of companies that withdraw from the country. Russian Prosecutors Warn Western Companies of Arrests, Asset Seizures (WSJ).

Russia has entered into international treaties that protect foreign investments from a variety of government actions. These bilateral investment treaties (BITs) and multilateral treaties, such as the Energy Charter Treaty, generally include protections against expropriation without adequate compensation; a guarantee of full safety and security of foreign investments; a guarantee against any treatment of foreign investments in an arbitrary or discriminatory manner; that the movement of capital out of the country will not be unduly restricted, and a guarantee that compensation for war-related damage for foreign investments will be equivalent to that given to residents.

Moreover, most BITs allow for foreign investors to bring claims for breaches of their provisions before independent arbitration tribunals administered by, for example, the Stockholm Chamber of Commerce or the Permanent Court of Arbitration in the Hague. It is notable that the Russian annexation of Crimea has led to multiple claims under BITs, some of which have led to awards in favor of the investor.

To benefit from BIT protection, an investor must be a national (or incorporated in) one state to the treaty. However, there is no requirement for direct ownership of an investment, so that indirect owners (including shareholders) with appropriate nationality may be able to bring a claim, even if the direct investor may not. Investors must also be aware that BITs and other investor protection treaties may include additional requirements for jurisdiction, including having refrained from bringing domestic court actions; waving the right to bring cases relating to the same facts in other courts; and sending an advance notice.  See, e.g., Everest Estate LLC et al. v. The Russian Federation, (Cases | PCA-CPA).

Below is list of certain jurisdictions with which Russia currently has bilateral investment treaties. Note that each of these treaties may differ in important ways, both including in the exact definition of a protected investor and the precise protection it offers. 

Investors affected by government action may wish to review whether any BITs may be applicable, and proceed accordingly, including following any treaty requirements with regards to potential claims.  

BITs of Russian Federation

Canada

China

France

Germany

Italy

Japan

Netherlands

Norway

Singapore

South Korea

Spain

Sweden

Switzerland

Turkey

United Kingdom

Ukraine