Originating from the Latin word sānctiō meaning “sacred law”, or sancīre meaning “to make sacred”, sanctions were used as early as 432 BC when the Athenian Empire banned traders from the marketplacies of the city-state of Megara, eventually leading to the Peloponnesian War. In recent years, approximately 13,000 coordinated sanctions have been jointly applied by the United States, United Kingdom and the European Union against the Russian Federation in response to Russia’s military invasion of Ukraine.
Since then, economic sanctions have become a central feature of arbitrations given the growing use of cross-border payments, neutral fora and enforcement reliance on international courts.
1. Contracts and arbitration clauses in a sanctions environment
At the outset, sanctions considerations impact the drafting of arbitration clauses and contract provisions should be drafted to avoid ambiguities with respect to representations and warranties on sanctions compliance, allocation of sanctions-related delay, costs, licensing risk and termination or suspension mechanisms tied to sanctions events.
The choice of seat and choice of institutional rules would also materially affect arbitration outcomes. Specifically, the seat of arbitration may determine the predictability and severity of sanctions enforcement at the seat and the judicial attitude to public policy and international obligations. Similarly, the choice of administering institution and rules would have an impact on how the parties deal with sanctions compliance.
2. Commencing and conducting arbitration proceedings
There are logistical obstacles to initiating arbitration proceedings. Arbitral institutions often require an advance on costs from both parties. Where a sanctioned counterparty is involved, there is an inherent risk of blocked payments which may delay tribunal constitution. The costs of the arbitration, including the advance on costs, are normally shared between parties, but if payment is not received from a designated counterparty party, the non-designated party will ordinarily have to bear them. Similarly, delays may be caused if the designated party needs to obtain approvals or licenses for appointing counsel (such as the US requirements for OFAC approval to represent designated parties) or paying them.
Further, sanctions can also affect the appointment of arbitrators. Arbitrators may be required to comply with sanctions, which could raise concerns around their ability to act independently – depending on the nature of the relief which has been sought.
Similarly, dealing with a designated party may complicate the conduct of the arbitration. The right to fair trial does not get extinguished even if a party is designated (see Mints v PJSC Bank Mellat [2023] EWCA Civ 1132). Therefore, arbitrators must ensure that the designated party’s rights are not impeded, to avoid a breach of due process standards. The inability of a party’s witnesses to travel, lack of access to documents and proper disclosure and discovery or choice of counsel would need appropriate management.
3. Sanctions as a substantive issue on the merits
Aside from potential procedural hurdles, sanctions can impact the substantive issues in an arbitration. Parties oftentimes invoke force majeure, impossibility or frustration as a result of sanctions as defences to an alleged breach of contract. Similarly, parties often raise arguments in respect of supervening illegality, which often differ based on the governing law. Many jurisdictions, including the UK and EU, provide a defence against liability when actions are done under the reasonable belief (or less broadly in the case of the US, in “good faith”) that such acts were done in furtherance or compliance of sanctions.
4. Anti-suit injunctions and counter-sanctions legislation in Russia
A practical risk in the current environment is that of Russian (or other sanctioned) companies or individuals initiating proceedings in Russia against foreign counterparties even where arbitration is mandated. Russian courts rely on Article 248 of the Russian Arbitrazh (Commercial) Procedure Code to claim exclusive jurisdiction over arbitrations involving Russian entities subject to international sanctions where the seat is considered to be an “unfriendly” jurisdiction.
As a result, there is an increased use of anti-suit injunctions by parties arbitrating against Russian counterparties to prevent breaches of arbitration clauses. This however risks punitive orders or fines from Russian courts using countersanctions laws, which increases risks for entities with assets within Russia. This risk was best illustrated in UniCredit Bank GmbH v RusChemAlliance LLC [2025] EWCA Civ 99 where the UK Court of Appeal varied its own anti-suit injunction at UniCredit’s request, as UniCredit’s Russian assets were under threat.
5. Enforcement and post-award risk
Sanctions also raise concerns around the enforcement of awards, especially for a designated party and can act as a barrier to payment (see Ministry of Defense and Support for the Armed Forces on the Islamic Republic of Iran, v. Cubic Defense Systems, Inc., requiring a licence for payment 665 F.3d at 1098). Similarly, a country’s national courts may refuse to enforce a foreign arbitral award in favour of a party (including a sanctioned party) where doing so would be considered against public policy under the New York Convention.
Beyond that, as decided in the Iran case in the US, sanctions legislation in effect by the UN or EU could be considered international public policy, and a national court may refuse to recognise and enforce an award on that basis. Practically, licensing regimes may also limit or delay the successful party’s (even if non-designated) recoveries.
6. Conclusion: strategic implications for parties and practitioners
In summary, sanctions can have both wide-scale procedural and substantive impacts on arbitrations including affecting the whole arbitration process from the institution of the tribunal to enforcement. Coordination between sanctions and arbitration specialists will be key to reducing risk. Consequently, parties should treat sanctions risk assessment and enforcement planning as a continuous process rather than a one-off “check-the-box” exercise.
Akshay Sewlikar is a an arbitration and litigation partner in the London office of Michelman & Robinson. Dmitriy Gelfand is a senior associate in the firm's New York office.
This article does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances.
Email your news and story ideas to: [email protected]
