Academic journal article Texas Review of Law & Politics

Flipping the Act of State Presumption: Protecting America's International Investors from Foreign Nationalization Programs

Academic journal article Texas Review of Law & Politics

Flipping the Act of State Presumption: Protecting America's International Investors from Foreign Nationalization Programs

Article excerpt


At his January 2007 inauguration, Venezuelan President Hugo Chavez reaffirmed his commitment to a radical nationalization program as he proclaimed: "Socialism or death, I swear it!"' This march towards nationalization has serious implications on American business interests. On January 8, 2007, Chavez announced his plan to nationalize CA Nacional Telefonos de Venezuela (CANTV), the country's telephone company, and Electricidad de Caracas, Venezuela's largest electric company.2 Both of these corporations were partially owned by American companies.3 On February 1, 2007, Chavez announced that Venezuela would take majority control of all key oil projects in the Orinoco River basin by May 1-a move that would expropriate property from BP, Exxon Mobil, Chevron, ConocoPhillips, Total, and Statoil.4 Simply put, the Venezuelan government has been explicit and conspicuous in its desire to expropriate American property.

For American policy makers, the Venezuelan nationalization threat represents another chapter in the ongoing attempt by foreign governments to show financial independence by expropriating private property.5 Since the Russian Revolution of 1917, and especially after World War II, an increasing number of nations have promulgated decrees nationalizing or expropriating the property of American corporations, companies, or other business entities.6 The Cuban Revolution of 1959 and the Iranian Revolution of 1979 vividly showcased the ease with which a foreign government can engage in this institutionalized theft. With Hugo Chavez's rise to power, the threat of foreign nationalization once again looms on the horizon.7

More alarming than Chavez's designs on American property, however, is the American government's traditional acquiescence to foreign expropriations. The Act of State doctrine,8 which holds that "the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory,"9 has generally barred aggrieved American investors from filing a claim against foreign governments who engage in nationalization programs.10 Because an expropriation decree constitutes an official act of state, the courts of the United States will not hear cases about the aggrieved parry's losses. American courts thus shield foreign governments from potential civil litigation and deny Americans the chance to obtain compensation for their loss.

This Article argues that the current Act of State doctrine is a muddled law that offers no real help to victims of foreign nationalization. The current case law oscillates between judicial deference to the Executive and the desire to maintain the Judiciary's ability to equitably compensate aggrieved parties. As a result, the current rule is a piecemeal jumble pieced together from the reasoning in three drastically different plurality opinions." Despite this muddled theoretical basis for the Act of State doctrine, the courts have been nearly unanimous in their determination that the nationalization of property constitutes an Act of State. An aggrieved investor who finds his assets nationalized by a foreign government has no recourse in American courts-the only source of relief would stem from benefits secured through the Executive Branch's diplomatic endeavors.12

This situation leaves American investors unnecessarily exposed. To remedy the status quo, this Article argues for a change in the current law: (1) first, the Supreme Court should find that foreign expropriations without just compensation violate international law, thus exposing such expropriations to judicial scrutiny, and (2) the courts should find Executive Branch declarations that any expropriation litigation would not adversely affect American foreign policy interests controlling, thus protecting the President's power to conduct foreign affairs. By incorporating these two changes into the current law, the United States could protect American investors while still placing primacy on the Executive's foreign policy powers. …

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