This article was first published as a chapter in Essential Intelligence: Fraud, Asset Tracing, and Recovery 2025. Written by Tom Stanley, Olena Morozovska, Alexander Stirling, and Laura Christopher. Reproduced with permission. © 2025 Commercial Dispute Resolution. For further use, please visit www.cdr-news.com.
In 2023 we attended a legal conference where a panellist claimed that the number of sovereigns who intend to honour their debt obligations is as low as 5%. In November 2024, a report on Compliance with Investment Treaty Arbitration Awards published by International Law Compliance largely supported this statement.
The report found, perhaps surprisingly, that Spain ranks number one in the world in terms of the number of unpaid awards, ahead of the more likely contenders Venezuela and Russia.
The International Rule of Law Compliance Index, based on this report, ranks the top 20 countries in terms of adverse investor-state dispute settlement awards that have not been paid. It is interesting to see several EU Member States in this index, perhaps suggesting that some EU Member States are following Spain’s example but also opening the door for more future claims against them.
This development is likely to be reinforced by the decision in June 2024 by the EU and Euratom to give formal written notice of their withdrawal from the Energy Charter Treaty (ECT), which will take effect in June 2025. Leaving the ECT appears to have the aim of allowing EU Member States to avoid paying adverse ECT awards.
Sovereigns are big business
Since 2010, renewable energy investors have brought more than 60 arbitration cases against EU Member States worth a total of over EUR 10 billion. However, a 20-year sunset clause applies following withdrawal from the ECT, during which investors can bring disputes against EU Member States concerning investments made before June 2025.
In the International Rule of Law Compliance Index, Spain also ranks third in the world in terms of the outstanding amount of damages, which currently totals about USD 1.6 billion, in addition to interest rates and legal fees totalling USD 350 million. These figures are dwarfed by the USD 60.7 billion and USD 17.1 billion in damages accumulated by Russia and Venezuela, respectively.
Russia’s attitude to international arbitration awards is unlikely to change in the foreseeable future. In July 2024, the Russian Supreme Court issued a landmark ruling restricting the enforcement of international arbitration awards against Russian parties rendered by arbitrators from states “unfriendly” to Russia, claiming arbitrators from these states are biased and lack impartiality towards Russia and cases involving the country. Among the “unfriendly” states are those enforcing sanctions regimes targeting Russia, and this list of countries currently includes EU Member States, the US, UK, Ukraine and others.
Despite these figures and adverse legislative amendments, arbitral awards are not meaningless and are clearly big business for law firms given the billions of dollars at stake. For example, in July 2024 Kazakhstan agreed to settle its long-running dispute with Moldovan investors Anatolie and Gabriel Stati over a USD 500 million ECT award that the state claimed was obtained through fraud.
Investigators also have a crucial role to play in these disputes. Asset searches against a sovereign require bespoke investigative strategies, as pursuit of these funds presents many unique challenges.
Unlike award enforcement against private companies or individuals, in which more traditional asset tracing methods are utilised, enforcing against sovereigns requires a combination of high-pressure tactics and multijurisdictional strategies, which force sovereign debtors to take a seat at the bargaining table and efficiently monetise judgments and arbitral awards.
However, these cases often prove, in equal measure, both fascinating and frustrating for investigators. They provide areas of complexity from a legal perspective far beyond a typical commercial dispute, and simply finding an asset is rarely enough. What about sovereign immunity doctrines in different countries? What are the exceptions to sovereign immunity? How can one go about piercing the corporate veil? What is an alter-ego argument?
We could go on and on. These questions often seem endless when dealing with asset tracing and recovery in a sovereign context, and it can be easy for an investigator to get bogged down in legalese and various points of law. How can this not be the case when lawyers in different countries cannot agree on definitions of the word “enforcement” or “attachment”, or even whether there is a difference between the two? Indeed, on a call last year for a current case, we listened to our client’s US lawyers explain that they had received completely different opinions from four different Austrian law firms giving advice on this very point.
So how much legal knowledge does an investigator really need?
Given the complexities involved, clearly some. The table below provides examples of conduct that has, and has not, been held to constitute commercial activity in the US:
| Constitutes Commercial Activity | Does Not Constitute Commercial Activity |
| A State’s issuance of bonds to US investors | A State’s repayment of a loan to the IMF |
| A national space agency’s obtaining and assertion of US patents | A provincial government’s expropriation of a finance company’s stake in a local company |
| A national airline’s sale of tickets to US passengers | A State’s expropriation of property of Jewish refugees in the wake of World War II |
| A defence ministry’s purchase of military supplies | A Ministry of Agriculture’s issuance of a licence for the export of rhesus monkeys to a US company |
| A State’s art gallery’s publication of books and advertising of exhibitions in the US | A State’s imposition of taxes on an airline |
| Subcontracting a private company to conduct visa services within an embassy | Running an embassy |
However, investigators are not lawyers and add real value to their clients and legal partners when focusing on our core investigative skills. It is important to remember that a little bit of knowledge is a dangerous thing; our role is not to advise on legal process, but to leverage our skills to support and inform the legal strategy and reach a positive outcome for the client. This outcome is ultimately the recovery of funds, whether through available legal mechanisms or by getting the sovereign debtor back to the negotiation table.
In the context of sovereign enforcement, even more so than normal, communication is key
Working in tandem with legal counsel
In most matters, the best outcomes for clients are achieved through investigators and lawyers working closely together to develop, or support, an existing legal strategy. An experienced investigator will also be well-versed in working across a range of jurisdictions and will have a good understanding of how best to support counsel in different legal systems. At the outset of a project, it is critical to decide which jurisdictions and assets to focus on.
A broad mapping exercise can be crucial when investigating an economically weaker state which may not hold many of the traditional asset types, such as property in favourable jurisdictions or wealthy commercial state-owned enterprises (SOEs). However, in the case of investigating EU Member States, it is likely to be more fruitful to focus an asset investigation on specific jurisdictions and target assets, adopting a narrow scope of work at the outset. Communication is key to determining the scope of work and establishing the exact parameters of the investigation, focusing efforts and not wasting the client’s time and money. For example, establishing whether the focus should solely be on directly held assets or whether to also include indirectly held assets is important to clarify before an asset investigation begins in earnest.
When considering jurisdictions in which to pursue recognition and enforcement, it is important to understand differences in process and evidential thresholds for getting an award recognised, and the considerable variations in the types of sovereign assets that can be enforced against, in different jurisdictions.
Our experience over the past year has shown that sovereign subjects of an investigation can broadly be grouped into one of three categories: (i) a sanctioned sovereign who has no intention of paying, the assets of which are already subject to sanctions or sought by other creditors; (ii) less well-off sovereigns which lack traditional assets; and (iii) EU Member States and other sovereigns with more developed economies and legal systems.
It is important to approach an investigation into a sovereign falling into one of these three categories in a different manner, both in terms of the types of assets that one would target, as well as how the use of leverage or political pressure is considered. Constant communication between client, legal counsel and investigator is key to this.
Adapting to changing requirements
Investigations can evolve rapidly, and skilled investigators have the experience and know-how to revise strategies and meet changing requirements at any point of their investigation. This can include, for example, an entirely new mandate from the client, deepening the client’s understanding of a new issue using the existing investigative methodologies, or to tailor the agreed work product to fulfil a new purpose. This is particularly applicable to wide-ranging sovereign enforcement cases.
On a current case, we are working closely with our client and lawyers to identify assets, prove commercial usage, build alter-ego arguments and pinpoint a variety of other requirements, in over 15 jurisdictions globally. In some instances, we have built promising-looking arguments in a jurisdiction, before the vagaries of the local court system, political posturing, unexpected decisions by the local courts and other factors outside our control have necessitated either the complete abandonment of a particular workstream, or the rapid production of further evidence. In these situations, it is critical for investigators to quickly understand the changing requirements and to ensure that the necessary evidence is produced, and crucially, is usable in court.
Approaching a case and selecting which assets to target
As creditors quickly learn, securing court and arbitration awards is just the beginning, and enforcing those awards against sovereigns and SOEs is often the most significant hurdle in the recovery process. Most importantly, there are significant variations in the way sovereign immunity doctrines apply to sovereign and SOE assets in different jurisdictions. Therefore, a type of asset that is a good target for enforcement in one jurisdiction may be far from it in another.
Separately, in our experience, the likelihood that a sovereign debtor will try to evade paying the award is directly correlated with the award’s size. The national and international political consequences of a sovereign debtor failing to honour an award are also often negligible, particularly in the case of sovereigns with numerous other adverse awards.
Taking all these into account is an important factor for investigators at the beginning of a case. Whilst it is often critical to begin any sovereign asset trace by mapping the global pool of potential assets, it is often equally important to consider a more creative approach.
This is an area where investigators can add real value. Not only can we offer a good overall picture of a sovereign’s global footprint and potential targets for enforcement, but we can also focus on more unusual asset classes. Below we give a snapshot of a few examples of asset classes that may be targeted when investigating a sovereign, excluding the more obvious ones, which can form part of a more creative approach to enforcement.
Air traffic fees
K2 Integrity has extensive experience mapping the payment structures of the intergovernmental entity that manages air traffic operations for all EU Member States. This Belgium-headquartered organisation issues, collects and processes aviation charges to aircraft operators accessing its members’ air space through its central payment office Route Charges Office. These charges fund air navigation facilities and air traffic management developments.
The 27 EU Member States frequently incorporate wholly owned SOEs to manage and collect this revenue, that can be identified by investigators. In a former case, K2 Integrity identified that one Member State disclosed the details of overseas bank accounts that directly collected the aviation charges, enabling our client law firm to pursue the strategy of freezing the accounts.
Transport networks
State-owned rail companies constitute useful entry points for investigators as railway lines often traverse national borders, while the trains themselves often have foreign stations as destinations. As state-owned railway companies typically operate commercial trains for profit, in our experience lawyers generally regard such companies as realistic targets for enforcement.
On previous projects, K2 Integrity has also mapped the corporate structures of state-owned rail networks across Eastern Europe and East Africa, with asset recovery as the ultimate objective.
For instance, as part of one former engagement, K2 Integrity identified a railroad between two African countries that was jointly owned by the two states through their respective state-owned railway companies. While we assessed it unlikely that courts in either state would authorise the seizure and recovery of the in-country assets of their joint venture partner, to avoid negatively impacting the joint venture or wider trade or diplomatic relations, we identified a further holding company for the venture incorporated overseas in the UK. The UK-incorporated company was ultimately owned by the two states (via state-owned railway companies), having been established in the late 19th century to manage the rail transportation of minerals between the two. The UK company’s directors included senior employees of both countries’ state railway companies, while the UK company’s annual accounts reported assets from the sale of the minerals and mineral royalties that were of interest to our client law firm.
The identification of the UK company highlights the importance of understanding geopolitical relationships, such as the UK’s historical colonial control over East African trade networks, to broaden the scope of an investigation beyond a subject state’s geographic neighbouring states.
The use of leverage
The list of asset classes of interest to enforcement could be extended further to include all manner of assets – from trademarks and patents, to property, sovereign debt and so on. However, the question of leverage is perhaps the key difference between sovereign asset traces and more standard enforcement against a private company or an individual. And, indeed, an area where investigators can add real value.
Points of leverage are key to any sovereign asset tracing investigation and should be explored just as proficiently as high-value sovereign assets. When tracing sovereign assets, the objective is not necessarily to identify assets that can be seized, but assets that can be frozen via interim court orders pending the outcome of lengthy and costly appeals processes – therefore, a strategy that has settlement in mind is key. Asset freezing helps paralyse operations, causes embarrassment, disrupts cashflows, and attracts unwanted scrutiny from the media, international institutions and regulators. In other words, freezing assets assists in exerting pressure to induce a settlement.
For this reason, leverage assets are often worth more to the sovereign than the potential financial returns they promise to the enforcer. Even a temporary seizure or credible threat of execution can drive a sovereign to the bargaining table. Examples of this asset class include:
- overseas investments held through sovereign wealth funds;
- ships carrying valuable export products sold by SOEs; and
- receivables owed by foreign business counterparties and pending legal claims.
It is often essential that this information is gathered without alerting the sovereign, and this must be taken into account in any investigation.
To the same end, public relations can be a particularly effective tool for creating political unease for sovereigns, especially when it serves to inform prospective investors or business partners of the risks of doing business with, or in, the sovereign state in question.
By applying pressure globally through a combination of judicial proceedings and unexpected non-judicial channels, investors can realise judgments and awards against foreign governments efficiently and profitably.
A good example of this is the case of Elliott Capital Management’s (Elliott Capital) enforcement case following their purchase of Argentina’s USD 80 million external debt after the state announced it would no longer service its bond repayments in 2001. The case culminated in 2016, when the Argentine government agreed to settle for USD 2.4 billion – believed to be the result of Elliott Capital having “relentlessly pursued Argentina…around the world”.
This last point is key as it showed the benefits of continuous legal action combined with the creative targeting of leverage assets and a lengthy PR campaign. Below is a selection of examples where K2 Integrity have targeted leverage assets to assist clients in the ultimate goal of recovering funds.
Targeting of commodities
Commodities are commonly seized or used as leverage in sovereign asset enforcement. For example, in a case K2 Integrity worked on against a European sovereign, the state was involved in offshore drilling projects with major multinational oil and gas companies. As one strategy, the London law firm we worked with initiated a discovery process, requesting information from each of these companies. This unnerved the companies in question, and in turn embarrassed the adverse sovereign, a factor which significantly contributed to the sovereign settling with our client.
Art is another commodity that has been used as leverage, particularly where the state has a large collection and is known to lend out artwork to galleries and museums globally. In the same case as above, K2 Integrity identified a collection which was due to be shown in the Getty Center in LA and obtained a valuation for the collection. Whilst the lawyers never pursued this vein of the enquiry, this intelligence provided the client with the option to seize the art, or to use the knowledge of the location and value of the collection to put pressure on the sovereign to negotiate.
Presidential planes
During 2019 and 2020 projects involving East African and Eastern European states, respectively, as respondents in international arbitration, K2 Integrity identified that their heads of state claimed to travel internationally in “presidential” state-owned jets, which were in fact borrowed on an ad hoc basis from other allied states or private businesses.
On the one hand, the fact that the jets were borrowed meant that such high-profile and lucrative assets could not form part of a formal recovery strategy, as they were not owned by the relevant state. However, aviation experts advised K2 Integrity that the borrowed aircraft would not have the same immunity protections from temporary seizure or disruption, as they were not owned by the heads of state actively using them at the time.
The client was therefore receptive to the short-term strategy of seizing the aircraft at an opportune moment that would cause acute embarrassment for the head of state, such as at a prestigious international summit. In this regard, the aircrafts were valuable to the client as “leverage assets”, as their strategic value greatly outweighed their market price.
Products critical to the operations of an SOE
In a case against a state-owned power company in the late 2010s, K2 Integrity was able to identify numerous instances of technical equipment being shipped from European ports to the ports of the target sovereign. This was particularly important as extensive research had identified that the state-owned power company did not own any assets outside its home state that were not encumbered by joint venture ownership.
Through a combination of field work and source enquiries, K2 Integrity identified that microchips crucial to the operation of the company’s power plants were being shipped from Hamburg in Germany to the state-owned company’s home ports, and crucially that ownership of these microchips was transferred to the SOE as soon as they were on board the vessel in Hamburg. By liaising with the authorities in Hamburg, our lawyers were able to freeze the shipment in Hamburg. Whilst the value of the microchips fell far short of the amount owed, a significant delay in their arrival would have disrupted the debtors’ operations to such an extent that they swiftly returned to the negotiation table and agreed a settlement.
Targeting receivables
On a recent case we were tasked with identifying the assets of a sovereign post-judgment with the investigation focused solely on Switzerland. We worked closely with the client’s Swiss counsel to identify attachable assets held directly by the sovereign in Switzerland. Our investigation found real estate, financial assets and high-value receivables due to the sovereign that could be intercepted by the client as part of their award enforcement strategy. We were subsequently retained to investigate further the identified receivables due from a Swiss-incorporated entity to the sovereign, including scrutinising the payment structure of the receivables and locating legal precedents that showcased a track record of success in attaching this asset type. Our findings were used by the client and their counsel to secure garnishing orders against the receivables in question.
The above examples serve as a reminder that, through creative strategies and the targeting of specific assets that create enough “nuisance value”, clients do not need to pursue a claim all the way through to full recovery on a judgment. Creating sufficient nuisance value may persuade even the most reluctant sovereigns back to the negotiating table.
Conclusions
Over the past year, our experience of investigating a wide variety of sovereigns – including EU Member States, developing states, states undergoing regime change and sanctioned states – has taught us a huge amount about the creativity and flexibility needed to identify the relevant sovereign assets and to bring sovereigns to the negotiating table. However, equally critical is communication and establishing a clear mandate with the client and their legal counsel at the outset of an investigation, followed by constant dialogue and clear reporting throughout the engagement, all of which are vital to achieving a successful outcome for the client.