In our previous posts, we discussed the increase in cyber attacks that are seemingly perpetrated by governments and the potential complications that might arise if they began to steal assets in regions not under their jurisdiction. Overall, while such a situation might be more complicated than a standard case of theft, this kind of wholesale liquidation of assets lacks any legal basis; as such, it stands to reason that international law and insurance services will eventually develop to deal with such cases, if necessary. In this post, we’ll follow up with some comments about the expropriation of assets when said assets are within the jurisdiction of the government acquiring them.
The most commonly discussed form of legal government asset expropriation is something we touched upon in our piece on political risk – namely, the expropriation of companies and their conversion into state-owned organizations. Given how relatively common this is, it is typically one of the central elements covered by a political risk policy. In such cases, there is frequently little recourse outside of insurance. You may be able to appeal to the judiciary of the country, but such a move isn’t guaranteed to be successful even in countries with truly independent judicial systems.
As such, it’s very important to familiarize yourself with the legal situation in any country where you want to do business, and to carefully review any contracts you sign in order to determine where disputes would be arbitrated. In some cases, businesses have extensive protections; for example, NAFTA provides a complex dispute resolution mechanism for Mexican, American, and Canadian companies to resolve damages inflicted by any government policy, a mechanism that has been invoked multiple times in all the member countries with such a degree of success against the national governments that the treaty itself has come under significant criticism. Similar mechanisms exist in the TPP treaty currently up for review, which in turn have elicited comparable controversy.
The international nature of modern business further complicates the situation. For example, until recently, the Argentine government had been engaged in renegotiation of its foreign debt, but had reached an impasse with a number of creditors. As a result, one of the creditors, a United States hedge fund, asked for and received an injunction in a Ghanaian court to hold an Argentine Navy vessel that was docked there. While the party with assets seized was in this case a national government, there are plenty of other cases where this goes the other way. While not quite a case of international seizure to satisfy debts owed, the US government confiscated a $20,000 dollar payment made by a Danish citizen to a German one when the payment passed through US banking institutions; the US government argued that the payment was illegal because it was intended for Cuban cigars, even though said cigars were never in the United States.
As time goes on and economic markets continue to integrate further through free trade agreements and political unions, these themes will become further clarified. However, the current legal framework for allowing and resolving confiscation is very complex, with laws and precedents still being established. As always, we recommend insurance as a stopgap, but the most importance approach is, as always, to be aware and plan in advance as much as you can.