Russian oligarch Fridman to take Luxembourg to court in a $15.8bn sanctions compensation claim

Russian oligarch Fridman to take Luxembourg to court in a $15.8bn sanctions compensation claim
Russian oligarch Mikhail Fridman will take Luxembourg to European arbitration courts in a $15.8bn compensation claim based on a Soviet-era investment agreement he argues protects him from “indirect expropriation” of his assets, all of which were registered in Luxembourg. / bne IntelliNews
By Ben Aris in Berlin May 22, 2024

Mikhail Fridman, founder of Alfa Group, is the first Russian billionaire to challenge European sanctions and demand compensation for his frozen assets, reports Vedomosti on May 22, citing company sources.

Fridman has proposed an out-of-court settlement from the government in Luxembourg, where all his holding companies are ultimately registered, seeking $15.8bn. Should Luxembourg refuse, Fridman plans to pursue international arbitration, Vedomosti reports.

The offer was made in February and Fridman gave the government six months to respond, a period that is about to expire. Lawyers interviewed by Vedomosti say that the government is likely to refuse the offer but that Fridman has a “non-zero” chance of winning his case in court, forcing Luxembourg to pay.

If the Luxembourg government says no the dispute may be taken to either the UN Commission on International Trade Law or the Stockholm Arbitration.

Friedman holds either a direct or beneficial interest in CTF Holdings, ABH Holdings, Alfa Asset Management (Europe), Alfa Capital Investments Holdings, LetterOne Holdings and LetterOne Investment Holdings. Through these companies, he has invested in various jurisdictions and sectors, including Alfa Bank and Amsterdam Trade Bank, retailer X5 Group, telecommunications companies Veon and Turkcell, pharmaceutical group Emma Healthcare,  including shares in major companies such as 47.86% of his X5 Retail Group and 100% of Alfa Bank are owned by holding companies registered in Luxembourg, which were frozen in 2022 under EU sanctions regime.

Fridman argues he is protected by investment agreements and that the seizure constitutes illegal expropriation so he is seeking compensation based on a 1989 agreement between Belgium, Luxembourg, and the USSR. This treaty stipulates that compensation must be paid for nationalisation or expropriation of assets. The Luxembourg government is expected that the freezing of his assets is justified on the basis of protecting public order, which are excluded from the investment protection regime. However, lawyers said that they are not sure that arbitration courts will see the sanctions on oligarchs as a matter of maintaining public order, reports The Bell.

Legal experts suggest Fridman’s claim hinges on a provision in the treaty that equates “other measures that have similar consequences” with expropriation. Legal experts explain this clause could include indirect expropriation—decisions that deprive owners of the ability to manage, use, or control their assets without transferring ownership.

Almost all the oligarchs included in the sanctions regime have launched legal actions to have their assets unfrozen, arguing the claim that they are “close to Putin” is groundless and based on slipshod evidence, Politico reported.

On April 10, the EU Court overturned personal sanctions against Russian entrepreneurs Petr Aven and Mikhail Fridman, who were included in the sanctions lists in February 2022. The court ruled that the decision to include Aven and Fridman in the sanctions lists was ruled unlawful. However, the decision only covers the period 2022–2023, whereas in March 2024, the restrictions were extended so the pair remain under personal sanctions. But while that decision did not lift EU sanctions, it could pave the way for hundreds of Kremlin-linked individuals to challenge the European sanctions regime.

While no oligarch has managed to have sanctions lifted, some have won legal cases undermining the case made against them by the EU as justification for imposing sanctions. The Uzbek-born Russian tycoon Alisher Usmanov has won an unbroken string of cases against media and against German authorities, in connection to the sanctions and investigations against him, while courts also concluded there was no solid evidence justifying raids and seizures of the property owned by the trusts he set up years ago 

The tribunal, if convened, will face a difficult task, since in international law the question remains debatable as to whether the tribunal has the right to determine what constitutes a security interest for the state, reports Vedomosti.

ABH Holdings of Fridman and his business partners Peter Aven and Andrey Kosogov at the end of 2023 filed a request for arbitration against Ukraine with the International Center for Settlement of Investment Disputes: the company accuses Kyiv of the “illegal expropriation” of the local Alfa Bank and demands more than $1bn in compensation (RUB 90.4bn).