Depoliticizing Sovereign Wealth Funds through International Arbitration

By Lippincott, Meg | Chicago Journal of International Law, Winter 2013 | Go to article overview

Depoliticizing Sovereign Wealth Funds through International Arbitration


Lippincott, Meg, Chicago Journal of International Law


Abstract

Since their inception in the 1950s, Sovereign Wealth Funds (SWFs) have dramatically expanded with the purpose of investing government revenue and maximizing returns for states with surplus funds. While SWF investments benefit their sovereign owners and can bring stability and growth to the economies they invest in, concerns about the use of investments for political gains and about the defense of national security have led to calls for regulation of SWF investment worldwide. But rather than entangle these investments in a series of varied and complex domestic law solutions, this Comment argues that SWF investment can be effectively monitored through international arbitration. If SWFs are held accountable in international arbitration, they will increasingly behave as private investors and politically motivated investing will be more easily identified and prevented. The International Centre for Settlement of Investment Disputes (ICSID) provides just the forum for resolution of disputes regarding SWF investments. Through ICSID arbitration, international standards can be developed and enforced to protect commercially minded investing and to condemn politically motivated investing.

Table of Contents

I. Integrating a New Class of International Investors 650

II. Current Legal Structure of SWFs 654

A. Origin 654

B. The Modern Conceptualization and International Definition of SWFs. ..655

C. The Santiago Principles..................................... 658

D. An Overview of International Investment Law Applicable to SWFs .....................................660

1. The growth of BITs and their depoliticization of SWFs .....................................660

2. A role for the WTO .....................................663

3. Progressing domestic law regimes .....................................665

III. The International Centre for Settlement of Investment Disputes .....................................667

A. Origin and Jurisdiction..................................... 667

B. ICSID's Current Function in Administering International Arbitration.... 669

IV. Sovereign Wealth Funds in the International Centre for Settlement of Investment Disputes .....................................670

A.Jurisdiction..................................... 671

B. Benefits of ICSID for SWF Arbitration..................................... 673

V. Alternative Dispute Resolution Mechanisms for Sovereign Wealth Funds ...................................... 677

A. Alternatives in International Arbitration..................................... 677

B. Possibilities for Policy..................................... 678

C. Domestic Law Approaches to SWF Disputes .....................................678

1. Domestic law solutions..................................... 679

2. Domestic law pitfalls .....................................680

VI. Conclusion .....................................682

I. INTEGRATING A NEW CLASS OF INTERNATIONAL INVESTORS

In an economic climate defined by the passage of Dodd-Frank1 and drastically increased spending on monitoring and enforcement in the financial sector, regulation has become an expected and accepted tool of national governments to sustain and protect the economy. However, regulation is not always the most effective means of stabilizing or stimulating investment. Rather than deter foreign investors like Sovereign Wealth Funds (SWFs) with the threat of increased and uncertain regulation, nations should rely on a well-established alternative dispute resolution body such as the International Centre for Settlement of Investment Disputes (ICSID) to monitor and enforce accepted practices of foreign investors.

SWFs are a diverse class of investors. Some are familiar and accessible, such as the Alaska Permanent Fund, established by the state constitution and managed by the Alaska Permanent Fund Corporation with legislative oversight to invest the profits from mineral leases and sales and pay out dividends to Alaska residents. …

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