I. INTRODUCTION

II. LEGAL FRAMEWORK

a. European Sanctions

b. Role and function of the Central Bank of the Republic of Austria (Österreichische Nationalbank (OeNB)

III. IN WHAT WAY DO SANCTIONS AFFECT ARBITRATION PROCEEDINGS?

a. How are these sanctions checks conducted?

b. When does VIAC carry out sanction checks?

c. Who is subject matter of these sanction checks?

IV. WRAP UP / SHORT ANSWERS TO COMPLICATED QUESTIONS

- What are my obligations as an arbitrator in a proceeding with a sanctioned party?

- What are my obligations as a party representative in a proceeding with a sanctioned party?

- The opposing party is sanctioned, can I bring a claim against them? What do I need to consider?

- Will I receive my arbitrator’s fees?

- Are there special issues to consider, when a Russian Party is involved? Can VIAC accept payments of registration fees / advance on costs from Russian parties / Russian banks?

V. SPECIFIC QUESTIONS

 

 

Sanctions & Arbitration – An Overview^1 2

 

I. INTRODUCTION

Since 23 February 2022, the European Union (EU) has issued six successive packages of sanctions against Russia. This set of sanctions, binding for all operators within the EU, provide for freezing of assets of selected entities and individuals and significant restrictions to trade between the EU and Russia and partially to entities and individuals in Belarus. The measures adopted by the EU pose critical challenges for international arbitrations involving Russian or Belarussian parties.

The administration of arbitration proceedings with sanctioned parties is not excluded at VIAC per se. VIAC has a strict and thorough sanctions procedure in place to ensure that arbitrations are administered in compliance with any applicable sanctions taking into consideration the parties right to have access to justice and right to be heard.

 

II. LEGAL FRAMEWORK

a. European Sanctions

The most important legal basis is found in two EU-Regulations, which have been adopted several times and cover the seven packages of sanctions:

• Consolidated text: Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine
• Consolidated text: Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

The packages contain several restrictions regarding business transactions and economic and individual sanctions, for example:

• a ban on imports from Russia of crude oil and refined petroleum products;
• a SWIFT ban for several Russian banks;
• (partly) suspension of broadcasting in the EU;
• a full transaction ban on Russian banks and namely listed individuals and entities (the list has been expanded several times);
• a ban on all transactions with certain state-owned enterprises;
• a ban on the provision of credit rating services to any Russian person or entity;
• a ban on new investments in the Russian energy sector;
• trade restrictions for iron, steel and luxury goods;
• EUR 500 million support package to finance equipment and supplies to the Ukrainian armed forces;
• a ban on the overflight of EU airspace and on access to EU airports by Russian carriers;
• new sanctions on additional 26 persons and one entity.

As part of the 4th sanctions package of 15.3.2022, a new provision (Art 5aa) was added and an "absolute transaction prohibition" was introduced for all persons listed in the relevant annex (Prohibition of (in)direct transaction Art 5 aa Council Regulation (EU) No 833/2014):³

Art 5aa

It shall be prohibited to directly or indirectly engage in any transaction with:

a) a legal person, entity or body established in Russia, which is publically controlled or with over 50 % public ownership or in which Russia, its Government or Central Bank has the right to participate in profits or with which Russia, its Government or Central Bank has other substantial economic relationship, as listed in Annex XIX;

b) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex XIX; or

c) a legal person, entity or body acting on behalf or at the direction of an entity referred to in point (a) or (b) of this paragraph.

The intention of the article is to prohibit all business transactions with the legal persons in the Annex to the maximum extend and it was unclear if the term “any transaction” covers arbitral services, including sitting as an arbitrator for arbitration proceedings.

On 21 July 2022, the EU adopted a 7th package of sanctions which clarified the scope of the prohibition in Article 5aa. In particular, transactions which are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, as well as for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State, had been exempted in a newly added para 3 of Art 5aa.

3.   The prohibition in paragraph 1 shall not apply to:

(g) transactions which are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, as well as for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State and if such transactions are consistent with the objectives of this Regulation and Regulation (EU) No 269/2014.

 

b. Role and function of the Central Bank of the Republic of Austria (Österreichische Nationalbank (OeNB)

In the area of international financial sanctions, in particular in connection with the freezing or unfreezing of funds of sanctioned persons, the Oesterreichische Nationalbank (OeNB) performs the function of an authority. In this role, the OeNB is responsible for monitoring compliance with sanctions-related measures in the financial sector, for granting exemptions or for issuing specific sanctions measures against certain persons. The OeNB's competences in sanction matters are primarily derived from the Federal Law on the Implementation of International Sanctions (Sanctions Law 2010 – SanktG).

Within the scope of the relevant sanction regulations, the OeNB may grant exemptions and freeze-release frozen funds or authorize the making available of funds under strict conditions (e.g. to cover basic needs). Such requests may be submitted to the OeNB (Legal Department). The request should be specific and contain evidence that an exception should be granted. Depending on the subject matter of the request, this may include information/evidence on the persons involved, the origin of the funds, the use of the funds, and the relevant exceptional circumstances. If necessary, the authority will make further inquiries, for example by consulting other authorities or institutions. Releases and approvals are usually issued with conditions and requirements.

 

III. IN WHAT WAY DO SANCTIONS AFFECT ARBITRATION PROCEEDINGS?

a. How are these sanctions checks conducted?

VIAC addresses compliance and sanction matters at the outset of any proceeding and informs parties that it conducts compliance verifications including sanctions checks. The parties will be specifically asked to disclose any information about any sanctions against any person / company involved in an arbitration proceedings. In doing these checks VIAC does not discriminate in relation to party nationality and is vigilant of its confidentiality obligations. In this context, VIAC may have to comply with any applicable obligations requiring it to address notifications and/or requests for authorization to the relevant regulatory authorities, e.g. the OeNB.

While the applicable sanctions may not affect the proceedings per se, payments to be made to or requested by VIAC may be affected / delayed, in particular the initial payment of the advance on costs⁴ and the potential refund of the advance on costs at the end of the arbitral proceeding. While factual difficulties with the payment of fees to arbitrators for instance can cause delays in an arbitration proceeding, this does not hinder the initiation and execution of an arbitration. At the end of an arbitral proceeding, the repayment of the advance on costs (should any repayment be necessary) to a sanctioned party may not be possible, while sanctions are in place.

 

b. When does VIAC carry out sanction checks?

The checks are made at all relevant stages of the proceedings, including, but not limited to

-  the filing of the Statement of Claim and the Answer to the Statement of Claim, because this is the point in time when the registration fee is transferred

-  the making of any and all payments – advance on costs, advance on the arbitrator’s fees

-  and in particular at the end of the proceedings

• any potential leftover advance is being returned to the parties.
• when payments are being made to arbitrators and

- BUT ALSO at any time during the proceedings at the VIACs own discretion or upon request from our bank 

• The Vienna Rules don't include a special provision allowing these additional checks, but in our first letter to the parties, we advise the parties that we carry out these sanction checks and request them to provide us with any information they may have during the proceedings that could be relevant.

 

c. Who is subject matter of these sanctions checks?

At the outset we require parties to provide us with information on:

• the identity of the parties – including the nationalities of the parties,
• the identity of all related Entities in the dispute between the parties; and
• additional information regarding ultimate beneficial ownership of the parties or Related Entities.

In order to ensure compliance with these international sanctions regimes, administrative measures may be taken, in particular if:

- one of the parties in a proceeding is listed under a sanctions regime; and/or

- one of the parties or related entities is a citizen of a country subject to a sanctions regime – particularly relevant for Russia at the moment and/or

- one of the related entities in a proceeding is listed under a sanctions regime, such as

(i) entities or individuals

a. directly or indirectly owning and/or controlling a party in the matter; 

b. directly or indirectly owned and/or controlled by a party in the matter; or 

c. affiliated to a party in the matter (“Related Entities”),; and/or

- the subject matter of the dispute falls within the scope of a sanctions regime; including but not limited to a dispute related to rough diamonds, military goods and/or dual use goods.

Should the administration of a case, including any payment, trigger a requirement to notify the Austrian authorities under international sanctions regulations, VIAC follows this procedure. In practice, that means that it may be necessary for VIAC to request formal clearance from the OeNB to make/recieve such payments. This may result in delays at these stages of the proceedings – because VIAC cannot guarantee these payments until the formal clearance has been obtained.⁵

In case a party is affected from an asset freeze, the OenB can grant exemptions in the following situations:

Art. 4 para. 1 b of Regulation Nr. 269/2014 (Russland Sanktionen) foresees that the competent authorities of the Member States may authorise the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources, under such conditions as they deem appropriate, after having determined that the funds or economic resources concerned are intended exclusively for payment of reasonable professional fees or reimbursement of incurred expenses associated with the provision of legal services.

We assume, the general consensus is, that there is an exception for legal services and the access to justice but VIAC cannot guarantee, that the authorities grant the payments.

 

IV. WRAP UP / SHORT ANSWERS TO COMPLICATED QUESTIONS

 

The subject matter of this Q&As topic is complex, and a case-to-case-approach is always recommended and necessary. Nevertheless, we try to give very brief answers – knowing that in fact the handling won`t be that easy.

- What are my obligations as an arbitrator in a proceeding with a sanctioned party?

Please keep in mind, that our obligation is to check if the administration of the proceeding is legally permissible and the registration fee and the advance on costs were paid. Any sanctions that may affect the matter of conflict are not and cannot be the subject matter of VIACs sanctions check.

- What are my obligations as a party representative in a proceeding with a sanctioned party?

Please make sure any additional information in this regard is presented at the earliest stage of a proceeding.

- The opposing party is sanctioned, can I bring a claim against them? What do I need to consider?

In general, yes a claim can be brought. However, we . Please keep in mind, that the proceeding can only be administrated if the registration fee and the advance on costs is fully paid.

- Will I receive my arbitrator’s fees?

Yes. The file will only be transmitted to the arbitrator(s) when the advance of costs are fully paid. The Secretariat calculates the advance of costs with a buffer for additional costs; we recommend that the arbitrators keep an eye on the sufficiency of the advance of costs at any stage of the proceedings.

- Are there special issues to consider, when a Russian Party is involved? Can VIAC accept payments of registration fees / advance on costs
from Russian parties / Russian banks?

If a bank is affected by a SWIFT-ban (see above II a) the payment may be actually impossible and another solution has to be found (eg. other bank, payment through representative).

 

V. SPECIFIC QUESTIONS

If you have specific questions, please direct them to This email address is being protected from spambots. You need JavaScript enabled to view it. and we will do our utmost to address them.

 

 

^{1 Subject of this sheet are only the sanctions of the European Union.}

^{2 Please note: We try to keep your information updated; due to the ongoing developments we can`t guarantee the accuracy at any time. The information provided in this note does not, and is not intended to, constitute legal advice. It is for general informational purposes only. It outlines in broad terms, the current legal status of arbitral proceedings at VIAC and is subject to change. It does not relate to a specific case. Parties should obtain legal advice in the relevant jurisdiction with respect to any specific legal matter. All liability with respect to actions taken or not taken based on the content of this note are hereby expressly disclaimed.}

^{3 Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine.}

^{4 The advance on costs prescribed by the VIAC must be paid in full by the parties during the first stage of the proceedings. If the advance on costs allocated to one party is not received (in full) within the time limit specified – be it for legal or practical reasons-, the Secretary General shall inform the other party/parties and request payment of the outstanding amount. All the payments have to be made in EURO.}

^{5 Of course VIAC can`t foresee which additional compliance restrictions a bank, that actually processes the money transaction, has put in place.}