Author: Maria Rouchota*
| Jurisdictions: | Topics: |
Introduction
A sanctions measure renewed every six months is, in law, temporary. But can it remain so indefinitely? The pending proceedings in Mikhail Fridman v Grand Duchy of Luxembourg bring that question into sharp focus. They require the tribunal to consider whether a prolonged asset freeze, though formally temporary, may ultimately become functionally equivalent to an indirect expropriation.
The unprecedented expansion of restrictive measures following Russia’s full-scale invasion of Ukraine has given rise to a growing number of investment treaty claims.[1] As sanctions-related disputes begin to reach arbitral tribunals, they expose an unresolved question in indirect expropriation doctrine: how should investment law distinguish between temporary regulatory interference and a deprivation that, while legally provisional, has become permanent in practice?
Existing doctrine provides only a partial answer. Tribunals have consistently assessed indirect expropriation by reference to the effects of the challenged measure on the investor’s ability to use, control, or derive economic benefit from its investment. Duration and the degree of economic deprivation therefore occupy a central place in the analysis.[2] Yet sanctions expose an important limitation in that approach. Asset freezes remain temporary as a matter of law because they are subject to periodic renewal, while successive renewals may immobilise investments for years without any realistic prospect of release. Duration alone cannot explain when temporary regulation becomes a compensable taking.
This post argues that the answer lies in the process through which sanctions are maintained over time. At first sight, the quality of that process appears to belong more naturally to procedural fairness or fair and equitable treatment than to indirect expropriation. That intuition is understandable, but also incomplete. Indirect expropriation is concerned with the practical effects of State measures. Where those effects evolve through successive renewals, the quality of the renewal process necessarily shapes the character of the interference itself. A sanctions regime that continually reassesses the factual basis for designation, responds to changing circumstances, and offers a realistic prospect of delisting is qualitatively different from one in which renewal becomes a purely formal exercise.
Existing doctrine therefore explains why prolonged sanctions become increasingly burdensome, but not when they cease to deserve the presumption of temporariness. Duration and economic effect describe the consequences of a measure; they do not determine whether its formally temporary character remains justified in practice. The answer, this post argues, lies in the quality of continuing review: whether the measure remains subject to genuine, evidence-based reassessment.
Duration Alone Cannot Explain When Regulation Becomes Taking
Investment tribunals have consistently treated the temporary character of a regulatory measure as weighing against a finding of indirect expropriation.[3] The underlying premise is straightforward: where an interference is genuinely temporary, the investor retains a realistic prospect of recovering the use and economic value of the investment once the measure comes to an end. Duration therefore matters not as an end in itself, but because it serves as a proxy for reversibility.
This approach is reflected in decisions such as LG&E v Argentina[4] and SD Myers v Canada.[5] In LG&E, the tribunal concluded that Argentina’s emergency measures had not resulted in an expropriation because the interference was temporary and the loss had not crystallised into a permanent deprivation. Likewise, in SD Myers, a fifteen-month export ban was held not to constitute expropriation because the claimant was able to resume its business once the restriction was lifted. In both cases, the decisive consideration was not simply the passage of time, but the continuing prospect that the investment would recover its economic function.
Those decisions, however, rest on an implicit assumption. A measure is treated as temporary because a realistic prospect of recovery remains open to the investor. What matters, then, is not the passage of time in isolation but whether that prospect endures. Where it does not, the measure has ceased to be temporary in any meaningful sense.[6]
Prolonged sanctions challenge precisely that premise. Restrictive measures adopted by the European Union are renewed every six months and therefore remain temporary as a matter of law. Yet many designations first adopted in 2014 have remained continuously in force for more than a decade, while numerous listings introduced following Russia’s full-scale invasion of Ukraine have likewise been renewed with no identifiable horizon for termination. Successive renewals preserve the legal character of the measure while progressively weakening the assumption that the interference remains genuinely reversible.
The substantial deprivation cases reinforce this point. In Starrett Housing v Iran,[7] the Iran–United States Claims Tribunal famously observed that property rights may become “so useless that they must be deemed to have been expropriated,” notwithstanding the formal retention of legal title. The same reasoning appears in Phillips Petroleum v Iran, which confirmed that compensation may be required whether the taking is formal or de facto, and regardless of the form of the rights affected. Similarly, the effects-based approach underpins decisions such as Tecmed v Mexico[8] and Belokon v Kyrgyz Republic,[9] which direct attention to the investor’s practical ability to use and derive economic value from the investment rather than to the continued existence of legal title.
Taken together, these decisions establish two propositions. Genuinely temporary measures will ordinarily fall outside the scope of indirect expropriation, while prolonged interference may become equivalent to a taking despite the preservation of ownership. What they do not explain is how tribunals should determine whether a measure that remains legally temporary continues to deserve the presumption of temporariness. That is the question prolonged sanctions now require investment tribunals to answer.
Reviewability and the Presumption of Temporariness
The cases discussed above leave one question unresolved. If duration alone cannot explain when a formally temporary measure becomes functionally equivalent to a taking, what does? The answer lies in the distinctive way sanctions operate. Unlike most regulatory measures considered in investment arbitration, sanctions are designed to evolve over time. Their effects are shaped not only by the initial decision to impose restrictive measures, but also by the successive decisions through which those measures are maintained, amended, or lifted.
This feature distinguishes sanctions from the forms of regulation that have traditionally given rise to expropriation claims. Most regulatory measures are assessed as they are adopted. Their legal character is relatively fixed, and tribunals evaluate the effects flowing from that decision. Sanctions are different. Their continued operation depends upon periodic reassessment of whether the factual basis for designation remains justified. The interference experienced by the investor is therefore not produced solely by the original designation. It is equally shaped by the process through which the measure is maintained over time.
That distinction is more than procedural. Indirect expropriation is an effects-based doctrine concerned with the practical consequences of State conduct rather than its legal form. Where those consequences evolve through successive renewals, the process governing those renewals shapes the very effects the tribunal is asked to evaluate. A sanctions regime that continually reassesses the factual basis for designation, responds to changing circumstances, and offers a realistic prospect of delisting remains genuinely temporary in a way that a system of automatic renewals does not.
At first sight, this may appear to be a matter of procedural fairness rather than expropriation, better addressed under fair and equitable treatment. The distinction is more fundamental than that. The issue is not whether the investor has been afforded adequate procedural protection. It is whether the continuing operation of the measure retains the characteristics that justified treating it as temporary in the first place. The quality of the renewal process therefore matters because it shapes the effects of the interference itself, not simply because it protects procedural rights.
The General Court of the European Union has consistently reflected this understanding, albeit in a different legal context. It has repeatedly held that restrictive measures cannot be maintained on the basis of assumptions or historical circumstances alone. In Kadi II, the Court of Justice held that judicial review must verify whether restrictive measures rest on “a sufficiently solid factual basis,” which requires examination of the information and evidence relied upon and an assessment of their probative value. That standard has been applied and refined in subsequent case law, including Pumpyanskiy v Council, where the Court required each ground of listing to be supported by a specific, precise and consistent body of evidence, and Anbouba v Council, which accepted the use of presumptions but required them to be supported by a minimum body of objective and verifiable evidence.[10] Although these judgments concern the legality of restrictive measures under EU law rather than the protection of foreign investment, they reinforce a broader proposition: sanctions remain justified only so long as their factual basis continues to withstand meaningful scrutiny.
A similar evidentiary discipline also appears in investment arbitration. In Bank Melli Iran v Bahrain, the tribunal subjected Bahrain’s reliance on national security and sanctions-evasion risks to substantive scrutiny, requiring the respondent to demonstrate that the interference remained supported by the risks invoked and proportionate to the objective pursued. The significance of the award lies in the narrower proposition that sustained interference defended on security grounds remains subject to evidentiary scrutiny and must continue to bear a substantiated relationship to the justification relied upon.[11]
That proposition does not depend upon the particular facts of Bank Melli. The claimant’s State ownership, the bilateral character of the sanctions, and the political relationship between Bahrain and Iran distinguish the dispute, but they do not confine the broader principle that security rationales do not operate as a self-judging safe harbour. Although the tribunal articulated its analysis through necessity and proportionality, the underlying inquiry is equally relevant in the context of indirect expropriation: whether continuing interference remains supported by a current and substantiated factual basis. Bank Melli is therefore not relied upon as establishing a doctrine of reviewability. Rather, it demonstrates that arbitral tribunals already require States invoking security justifications for sustained economic restrictions to substantiate the continued necessity of those restrictions. The EU context makes that inquiry more, rather than less, tractable. EU restrictive measures are accompanied by published statements of reasons, periodic renewals, delisting procedures, and judicial review before the General Court, providing a body of material against which a tribunal may assess whether the measure remains genuinely temporary.
Public Purpose Does Not End the Analysis
Recognising the relevance of continuing review does not diminish the legitimacy of sanctions as instruments of public policy. Restrictive measures pursue objectives of exceptional importance, including the protection of international peace and security, the defence of territorial integrity, and the prevention of sanctions evasion. Investment tribunals should not lightly question those objectives. But the issue here is a different one. Even where a sanctions regime pursues a legitimate public purpose, that fact alone does not determine whether its effects remain regulatory or have become equivalent to a compensable taking.
Investment law has long drawn that distinction. Investment law has long drawn that distinction. In Compañía del Desarrollo de Santa Elena v Costa Rica, the tribunal famously observed that the purpose of a measure does not alter its legal character as an expropriation or remove the obligation to compensate once a taking has occurred.[12] More recently, the tribunal in Eco Oro Minerals Corp v Colombia confirmed that the pursuit of a legitimate public objective does not displace liability where the measure results in a functional deprivation of the investment.[13] Public purpose is therefore relevant to the lawfulness of an expropriation, not to the prior question of whether an expropriation has occurred.
The police powers doctrine refines, but does not displace, that principle. Decisions such as Methanex v United States, Saluka v Czech Republic, and Chemtura v Canada recognise that non-discriminatory regulation adopted in good faith, for a legitimate public purpose, and in accordance with due process will ordinarily fall outside the scope of compensable expropriation.[14] That doctrine preserves the State’s regulatory autonomy. It does not, however, create a categorical exemption for measures adopted in the name of national security or foreign policy. Whether a measure falls within the police powers doctrine ultimately depends on its character, its effects, and its relationship to the objective pursued.[15]
It is in that assessment that continuing review assumes particular importance. A sanctions regime that remains subject to genuine reassessment is more readily understood as an exercise of regulatory authority because its continuation remains connected to the factual circumstances that originally justified it. By contrast, where successive renewals occur without meaningful scrutiny of whether those circumstances continue to exist, that connection progressively weakens. Security remains the purpose of the measure. It does not, by itself, explain the continuing severity of its effects.
Nor do security exceptions alter that conclusion. Where an investment treaty permits measures necessary to protect essential security interests, the scope of the exception depends upon the wording of the treaty, including whether the clause is self-judging and the standard by which necessity is assessed. Whatever their precise formulation, such provisions address whether conduct that would otherwise breach the treaty may nevertheless be justified. They do not remove the need to determine the nature of the interference in the first place. That inquiry remains governed by the ordinary principles of indirect expropriation.
The issue is neither whether sanctions may legitimately pursue security objectives, they plainly may, nor whether States retain regulatory space to respond to threats to international peace and security. It is whether a measure that remains legally temporary continues, in practice, to deserve that characterisation.
Public purpose cannot answer that question on its own. It depends upon whether the continuing operation of the measure remains meaningfully connected to the reasons that justified it in the first place. That connection is sustained through continuing, evidence-based review.
Conclusion
A sanctions measure renewed every six months may remain temporary as a matter of law. Whether it should continue to be treated as temporary for the purposes of investment law is a different question.
The existing doctrine of indirect expropriation already provides the analytical tools needed to answer it. Tribunals have long examined the duration of an interference, its economic effects, and the extent to which the investor has been deprived of the practical use and enjoyment of the investment. Prolonged sanctions, however, expose an important limitation in that analysis. A measure may retain its formally temporary character through successive renewals while, in practice, producing an increasingly permanent deprivation.
The answer does not lie in developing a new doctrine of indirect expropriation, but in applying the existing one more carefully. Tribunals assessing prolonged sanctions should examine the cumulative duration of the interference, its practical effects on the investment, whether the factual basis for maintaining the measure remains current, and whether that basis continues to be tested through meaningful, evidence-based review. None of these considerations is novel in isolation. Their significance lies in how they operate together when sanctions are maintained through successive renewals over extended periods.
As sanctions-related investment disputes continue to emerge, tribunals will increasingly be asked to distinguish between measures that remain genuinely temporary and those whose cumulative operation has become equivalent to a compensable taking. The decisive question is not how long an asset freeze has endured, but whether the presumption of temporariness remains justified at all.
* Maria Rouchota is an incoming Legal Trainee at the Court of Justice of the European Union in the Chambers of Judge N. Lycourgos. She recently completed an LL.M. at the University of Cambridge, where her research focused on the intersection of EU restrictive measures, investment treaty law, and the autonomy of EU law. She previously worked as a research assistant on international arbitration and contributed to the ICC Commission on Arbitration and ADR’s 2025-2026 Rules Revision Process.
[1] Xiaoyu Fan & Tong Qi, Is Investor-State Arbitration Appropriate as a Tool for Regulating Unilateral Sanctions? A Comprehensive Study of Sanctions-Related ISDS Practices, 53 Hong Kong L.J. 361 (2023); Sabrina Robert-Cuendet, Unilateral and Extraterritorial Sanctions and International Investment Law, in Research Handbook on Unilateral and Extraterritorial Sanctions (Charlotte Beaucillon ed., 2021).
[2] Andrew Newcombe & Lluis Paradell, Law and the Practice of invetsment Treatues: Standards of Treatment (2009); Ursula Kriebaum, Christoph Schreuer & Rudolph Dolzer, Principeles of International Investment Law 146-85 (3d ed. 2022).
[3] Brigitte Stern, In Search of the Frontiers of Indirect Expropriation, in CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION 29 (Arthur W. Rovine ed., 2008); Rosalyn Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 RECUEIL DES COURS 259 (1982).
[4] LG&E Energy Corp. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, ¶¶ 190–93 (Oct. 3, 2006).
[5] S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Second Partial Award, ¶¶ 283–88 (Oct. 21, 2002).
[6] Bjørn Kunoy, The Notion of Time in ICSID’s Case Law on Indirect Expropriation, 23 J. INT’L ARB. 337 (2006).
[7] Starrett Housing Corp. v. Government of the Islamic Republic of Iran, Interlocutory Award No. ITL 32-24-1, 4 Iran-U.S. Cl. Trib. Rep. 122, 154 (Dec. 19, 1983).
[8] Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, ¶ 115 (May 29, 2003)
[9] Valeri Belokon v. Kyrgyz Republic, PCA Case No. AA518, Award, ¶¶ 213–14 (Oct. 24, 2014).
[10] Case C-584/10 P, Comm’n v. Kadi, ECLI:EU:C:2013:518, ¶¶ 119, 130 (July 18, 2013); Case T-740/22, Pumpyanskiy v. Council, ECLI:EU:T:2024:148, ¶ 32 (Mar. 6, 2024); Case C-605/13 P, Anbouba v. Council, ECLI:EU:C:2015:248, ¶¶ 41–50 (Apr. 21, 2015); Armin Cuyvers, “Give Me One Good Reason”: The Unified Standard of Review for Sanctions after Kadi II, 51 COMMON MKT. L. REV. 1759 (2014).
[11] Bank Melli Iran & Bank Saderat Iran v. Kingdom of Bahrain, PCA Case No. 2017-25, Award, ¶¶ 540–45, 626 (Nov. 9, 2021); Caroline Henckels, Investment Treaty Security Exceptions, Necessity and Self-Defence in the Context of Armed Conflict, in EUROPEAN YEARBOOK OF INTERNATIONAL ECONOMIC LAW (Katia Fach Gómez, Anastasios Gourgourinis & Catharine Titi eds., 2019); Mohamed Shelbaya, Security Exceptions, 39 ICSID REV.—FOREIGN INV. L.J. 263 (2024).
[12] LG&E Energy Corp., LG&E Capital Corp., & LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, ¶¶ 193, 198–200 (Oct. 3, 2006).
[13] Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, ¶¶ 641–44 (Sept. 9, 2021).
[14] Methanex Corp. v. United States, Final Award of the Tribunal on Jurisdiction and Merits, pt. IV, ch. D, ¶ 7 (UNCITRAL Aug. 3, 2005); Saluka Invs. B.V. v. Czech Republic, Partial Award, ¶ 255 (UNCITRAL Mar. 17, 2006); Chemtura Corp. v. Government of Canada, Award, ¶ 266 (UNCITRAL Aug. 2, 2010).
[15] Republic of Korea v. Mohammad Reza Dayyani [2019] EWHC (Comm) 3580 [17] (Eng.).