The evolving impact of sanctions compliance on civil litigation risk

June 2026  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

June 2026 Issue

For multinational banks and financial institutions (FIs), economic sanctions laws and regulations have primarily presented issues of compliance risk management. Increasingly, however, these same institutions also face the emerging concern that their compliance with these regimes may result in civil litigation risk.

The potential for litigation risk is compounded by the proliferation of ‘blocking’ statutes and legal doctrines in multiple jurisdictions – including the European Union (EU), UK, China, Brazil and Russia – which seek to undermine the extraterritorial effect of other jurisdictions’ sanctions.

Drawing on recent cases, we examine the emergence of civil litigation risks for global banks and FIs that arise from extraterritorial, non-United Nations-based sanctions regimes and identify opportunities for institutions to reduce civil litigation risk while maintaining compliance with mandatory economic sanctions requirements.

The development and evolution of blocking statutes

In 1996, the EU introduced a blocking statute to prohibit EU firms from complying with aspects of US sanctions against Cuba, Iran and Libya, and creating a private right of action for parties who suffer losses as a consequence of application of those aspects of US sanctions.

The EU blocking statute became a subject of renewed attention in 2018, when President Trump pulled the US out of the Joint Comprehensive Plan of Action and reimposed sanctions on Iran, after which the EU implemented an amended version of the measure.

Thereafter, following Brexit, the UK created its own blocking statute to mirror the EU version. While the EU and UK blocking statutes have remained a subject of only limited attention to date, the expansion of the US sanctions regime, and perceptions of its increased politicisation, raise the possibility that the EU and UK blocking statutes, or similar regulations, could be leveraged in the future.

In China, following the proliferation of US export controls and sanctions on that country, the government has issued a raft of blocking statutes and regulations.

These include a blocking regulation issued by the Ministry of Commerce in 2021, which directs Chinese companies to report instances in which they were prevented from engaging in normal economic relations in a third territory so that the government could issue prohibition orders preventing compliance with these obligations.

Another statute is the Countering Foreign Sanctions Law (2021), which provides a menu of countermeasures for formal designation, and opened the door to civil litigation in Chinese courts for compliance with foreign laws that disadvantage Chinese companies or individuals.

Brazil has implemented its own measures to prevent against the application of foreign sanctions following the imposition of US sanctions on a justice of the Brazilian Supreme Court. The Brazilian Supreme Court concluded, in August 2025, that it must ratify foreign laws and acts purported to have effect in Brazil before those measures can become effective.

Russia also introduced counter-sanctions legislation in 2020 and expanded it following Russia’s invasion of Ukraine in 2022. In 2020, Russia enacted an amendment to the Arbitrazh Procedure Code that provides Russian courts with exclusive jurisdiction over disputes involving sanctioned entities, and which enables those courts to block foreign arbitral proceedings and litigation.

Russian courts have interpreted this provision as rendering invalid foreign arbitration agreements and arbitral awards when one of the parties is subject to sanctions. In 2024, the Russian Supreme Court also suggested that arbitrators from jurisdictions that are “unfriendly” to Russia should be presumed to be biased against Russian parties, and that their awards are thus unenforceable.

For FIs, the practical risks posed by these blocking statutes are far outweighed by the risks of noncompliance with sanctions obligations. And some sanctions regimes – including, for example, the EU-Russia sanctions programme – contain measures intended to protect against the application of blocking and counter-sanctions provisions.

But risks still exist and have led to increased civil litigation among private parties as a consequence of the application of these sanctions regimes.

The response of English courts

In cases involving Russian parties, English courts have in recent years navigated the complications arising from sanctions regimes and blocking statutes when deciding disputes between banks and Russian counterparties. English courts have developed an approach that involves a careful consideration of the facts of each case while applying England’s pro-arbitration policy.

In 2023, English courts granted requests filed by two different banks for anti-suit injunctions related to disputes with a Russian counterparty. In two separate cases, Deutsche Bank and Commerzbank alleged that sanctions prevented them from paying RusChemAlliance (RCA), a Russian company.

RCA initiated proceedings against both in Russian courts, even though the contracts at issue were governed by English law and called for resolution of disputes through arbitration in Paris. For Deutsche Bank, the English Court of Appeal issued the injunction after concluding that the issue was properly before English courts notwithstanding that Paris was the seat of the arbitration.

Commerzbank, on its part, secured the injunction after the Commercial Court determined that both the arbitration agreement and financial instrument were governed by English law. Each also obtained anti-enforcement injunctions that would prevent RCA from enforcing any judgment issued in the Russian courts.

Thereafter, in a suit filed by Unicredit, the UK Supreme Court issued an anti-suit injunction after affirming that English law should govern the arbitration agreement between that bank and RCA, which was substantially similar to the agreements at issue in the Deutsche Bank and Commerzbank cases.

The English Commercial Court had initially denied Unicredit’s request for an injunction, but the Court of Appeal and the UK Supreme Court both took the view that an injunction was appropriate. The Supreme Court confirmed that, because the contract was governed by English law, and there was no separate choice of law governing the arbitration agreement, English law should apply even though the seat was Paris.

In contrast, Fashion House Holding Moscow Ltd. (FHHM) was unable to obtain an anti-suit injunction in a recent decision issued by the English Commercial Court arising out of contracts with Unicredit’s Russian subsidiary, AO Unicredit.

FHHM had borrowed funds from AO Unicredit through a facility agreement that was governed by English law and provided that disputes would be resolved through arbitration seated in Vienna. A companion mortgage agreement, subject to Russian law and the jurisdiction of the Moscow Commercial Court, secured the facility.

FHHM claimed it could not pay AO Unicredit because of Russia’s counter-sanctions following the 2022 invasion of Ukraine. AO Unicredit commenced foreclosure in the Moscow Commercial Court, which FHHM sought to enjoin through a proceeding in England.

The English Commercial Court denied the request on the grounds that the foreclosure concerned a mortgage agreement governed by Russian law and subject to the jurisdiction of the Moscow Commercial Court.

Opportunities for risk mitigation

The proliferation of blocking statutes, together with growing perceptions that sanctions regimes are politicised or fragmented, may increasingly require multinational banks and FIs to account for those statutes when complying with sanctions and avoiding conduct that could trigger secondary sanctions. Certain measures may help manage these competing pressures.

Firstly, the cases discussed demonstrate the usefulness of arbitration agreements and the importance of unequivocally stating their choice of law. Although English courts have generally extended the governing law of the contract to the arbitration agreement absent express terms to the contrary, these jurisdictional issues were not resolved without significant expense and litigation, which could have been avoided with better drafted provisions.

Selecting an arbitral seat and governing law requires judgement and foresight. The recent success of Deutsche Bank, Commerzbank and Unicredit in English courts highlights the advantages that a London seat and English law can offer. But those advantages may diminish where sanctions risk arises from geopolitical divergence between US and European interests. In such cases, New York – or, depending on the circumstances, jurisdictions such as Dubai or Singapore – may provide a more favourable forum and governing law.

Key considerations in selecting a seat and governing law include: (i) the jurisdiction’s pro‑arbitration track record; (ii) the availability of anti‑suit injunctions or similar mechanisms to enforce the agreement to arbitrate; (iii) judicial experience with complex cross‑border disputes; (iv) recognition of global sanctions‑compliance obligations; and (v) the depth of the local banking and finance bar. It may also be advantageous to adopt arbitral rules that permit prompt injunctive or equitable relief.

Another important consideration – particularly at the point a dispute crystallises – is whether the relief available at arbitration or in court can provide meaningful commercial benefits. Banks have requested and received dismissals of anti-suit injunctions, perhaps based on the banks’ fact-specific analysis of the potential practical utility of maintaining the English injunctions in the face of potential Russian retaliation.

Secondly, banks now routinely include sanctions clauses to justify refusing payment where performance would risk violating sanctions regimes, and courts in multiple jurisdictions, including England and Singapore, have upheld the enforceability of these clauses.

To reduce the risk of conflict with local blocking statutes, banks may instead reference the practical effects of sanctions in provisions addressing fundamental changes in circumstances, force majeure or impossibility. Framing the issue this way shifts the focus from the bank’s own sanctions compliance – which may itself trigger blocking‑statute exposure – to the practical impossibility of completing transactions when counterparties, service providers and affiliates are unwilling to participate.

Sanctions litigation risk is an inherent consequence of increased use of sanctions measures worldwide. While the risk cannot be removed entirely, it can be managed through careful attention to dispute resolution, choice of law and risk-allocation provisions of cross-border banking contracts.

 

Miguel López Forastier and Nikhil Gore are partners and John Catalfamo is an associate at Covington & Burling LLP. Mr Forastier can be contacted on +1 (202) 662 5185 or by email: mlopezforastier@cov.com. Mr Gore can be contacted on +1 (202) 662 5918 or by email: ngore@cov.com. Mr Catalfamo can be contacted on +1 (202) 662 5822 or by email: jcatalfamo@cov.com.

© Financier Worldwide

BY

Miguel López Forastier, Nikhil Gore and John Catalfamo

Covington & Burling LLP

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