How Sanctions Affect the Enforcement of Arbitral Awards: A Latvian Court Asks the EU Court of Justice to Interpret the Application of Sanctions Rules

In November 2025, the Riga Regional Court referred a question of principle to the Court of Justice of the European Union: how to reconcile a Member State’s duty to recognise and enforce international arbitral awards with its duty to give effect to the prohibitions arising from the EU sanctions Regulation concerning Russia.

The referral arose from a dispute over the enforcement of an award of more than EUR 1.5 million in favour of a Swiss company partly owned by Rosimushchestvo, the Russian Federal Agency for State Property Management.

From a Breach of a Supply Contract to a Sanctions Dispute

The dispute originates in a contract concluded in late 2021, under which the Latvian company SIA Graudu sabiedriba undertook to supply a substantial quantity of wheat to the Swiss company Grainexport SA.

The supplier failed to deliver the goods and did not return the advance payment, and in 2024 the specialised arbitral tribunal of the Grain and Feed Trade Association (GAFTA) awarded Grainexport SA approximately EUR 1.5 million.

At the recognition and enforcement stage, the Latvian courts found that Grainexport SA is wholly owned by the United Grain Company (OZK), which in turn is owned 49% by the Russian company Demetra and 51% by Rosimushchestvo.

Rosimushchestvo itself, as a public authority of the Russian Federation, is subject to the European Union’s sectoral sanctions. The head of Rosimushchestvo, Vadim Yakovenko, was personally added to the EU sanctions list in June 2024. In light of these facts, the court questioned whether enforcement of the award would, in effect, make funds available to a person subject to European restrictive measures.

The New York Convention and EU Regulation 269/2014: A Conflict of Regimes

The conflict facing the Latvian court is characteristic of the current sanctions environment. The 1958 New York Convention requires Latvia, like the other Contracting States, to recognise and enforce international arbitral awards, and permits refusal only on a limited set of grounds, including public policy.

At the same time, Regulation (EU) No 269/2014 prohibits making funds and economic resources available not only to listed persons but also to those acting on their behalf or at their direction, and a breach of these prohibitions is treated as an infringement of the public policy of the European Union.

The Riga court asks the EU Court of Justice to clarify whether a breach of the sanctions Regulation may be regarded as a breach of public policy for the purposes of refusing recognition of an arbitral award, and whether a national court, when issuing an enforcement order, is required to take active steps to prevent its decision from resulting in funds actually reaching a sanctioned or “connected” person.

Indirect Control and Affiliation: How Far Sanctions Reach

For a long time, Regulation 269/2014 relied on the concept of “associated persons” without offering an exhaustive definition, and in October 2025, as part of the Nineteenth sanctions package, direct references to such persons were removed from several key provisions, which increased uncertainty in enforcement.

Against this background, the Latvian court puts the following questions to the EU Court of Justice: whether it is sufficient, for a company to be treated as affiliated, that sanctioned persons have the actual ability to form a majority in its governing bodies; and whether affiliation arises where control is exercised not directly by the listed individual, but through a Russian State entity subordinate to a ministry.

The answers to these questions will determine whether sanctions risk extends not only to companies directly named in the lists, but also to a broad range of subsidiaries and affiliates acting as exporters, traders, or payment intermediaries.

A further indication of this trend is the recent Opinion of the Advocate General of the EU Court of Justice in the Usmanov “trust” case. In that Opinion, the decisive factor for the purposes of applying Regulation 269/2014 is not the formal status of the settlor or beneficiary, but the actual retention of control over assets placed in trust. Even where a person has formally exited the structure, retained powers (the ability to influence the composition of trustees and beneficiaries, de facto use of the property, and the like) are treated as evidence of continuing control sufficient to justify the freezing of assets.

In Graudu sabiedrība v Grainexport SA, the EU Court of Justice faces essentially the same question, but now in a corporate setting: if a company is not formally listed yet is controlled by the State or by sanctioned persons, is this enough to extend to it the prohibitions on “satisfying claims” and “making economic resources available” under Regulation 269/2014. It is possible that a consistent line of case law is emerging in which the sanctions regime relies less on the formal data in the register of owners and more on the actual beneficiary, whether a trust structure or a group of companies.

A Frozen Account as a Possible Compromise, and the Significance of the Nineteenth Sanctions Package

In seeking to balance its obligations under the New York Convention with the requirements of the sanctions regime, the Latvian court invited the EU Court of Justice to consider an option whereby the awarded sums are transferred to a bank account held in frozen status, that is, without the beneficiary having actual access to the funds.

Such an arrangement would allow the arbitral award to be formally enforced while minimising the risk of breaching the prohibition on making funds available to sanctioned persons; it nevertheless remains an open question whether it satisfies the requirements of both international law and EU sanctions rules at the same time.

The EU Court of Justice’s interpretation in this case will have a systemic impact: it is through case law that predictable criteria for assessing indirect links must be re-established, for the purposes of both sanctions compliance and the enforcement of private-law obligations.

We will report on further developments in the case and on the decision once it is rendered.