Foreign investors should consider treaty protections when structuring their investments abroad

Investors seeking to invest abroad – including investment funds – should safeguard and strengthen their investments by considering treaty protections. Investment Treaties can provide foreign investors access to substantive protections under international law. Many investment treaties provide neutral forums to resolve potential disputes through investor-state dispute settlement (“ISDS”). These arbitral tribunals have the power to issue monetary damages awards to compensate foreign investors that are harmed by their host governments in a manner that breaches the treaty. When structuring investments abroad, investors should understand the requirements for treaty protections and structure their investments accordingly.

Several tribunals, including recent tribunals in Elliott Associates v. South Korea and Gramercy v. Peru, have held that nationality planning, including for investment funds, is not an abuse of process or a bar to jurisdiction.1 Nationality planning consists of channeling investments through a country other than the investor’s home state for tax, corporate, or other purposes.  Reasonable nationality planning can include protecting investments through states that have investment treaties in place with the host state.  Investors can structure their investments at the outset or can restructure their investments at a later time and secure treaty protections.  Most importantly, investors should keep in mind: the timing of the purported investment, the timing of the claim or dispute, the substance of the transaction, the true nature of the operation, and the degree of foreseeability of the governmental dispute at the time of restructuring.2

This is an issue of critical importance for investors, including in particular investors in the North American Region.  On July 1, 2023, the opportunity to bring claims under the North American Free Trade Agreement (“NAFTA”) through the legacy claims clause of the United States-Mexico-Canada Agreement (“USMCA”) expired.  The USMCA has much weaker protections for foreign investors in North America than its predecessor agreement, the NAFTA.  The USMCA contains a limited bilateral ISDS clause between the U.S. and Mexico.3 Canada is outside the scope of USMCA’s ISDS mechanism.4 The USMCA provides comprehensive ISDS protections for covered government contracts and lesser protection for other types of contracts and investments.5 Thus, U.S., Canadian, and Mexican investors in the North American region should carefully reassess their investments, and consider restructuring them now if they want to ensure investment treaty protections. 

While treaty protection requirements may vary depending on the treaty at issue, there are some principles every prudent investor should consider: who intends to qualify for protection, and the limits of corporate restructuring for this purpose.

What are Investment Treaties and who qualifies for protection?

Investment Treaties protect investors of one treaty party (or the “home state”) when investing in the other treaty party’s territory (or the “host state”).  Most investment treaties grant investors and their investments certain protections under international law from harm caused by the host state, including for example:

  • Fair and equitable treatment by the host state’s government, such as protection of investors’ legitimate expectations of a predictable and stable economic environment, ensuring due process, and preventing arbitrary and discriminatory conduct;

  • Protection from direct and indirect expropriation, nationalization, and similar conduct;

  • Non-discrimination when compared to host country investors and third country investors and their investments; and

  • In some treaties, the host state’s adherence to commitments and undertakings concerning investments and investors, often in the form of contracts with foreign investors.

Many Investment Treaties provide protections to a broad category of foreign investors, including individuals who are nationals of a home state and companies with the nationality of the home state.  Investment Treaties usually determine a company’s nationality by its place of incorporation, and also sometimes through its principal place of business activities, place of corporate seat, and/or place of control.  It is important to assess each Investment Treaty to ensure the scope of protections.

Funds have successfully structured foreign investments and received compensation under investment treaties

Funds’ structures can be a dispositive factor when tribunals consider jurisdiction because treaty protection typically depends on the nationality of the investor, the investor’s control, and the nature of the investment in the host state.  Multiple funds have successfully invested abroad, including through restructuring investments, and received compensation under Investment Treaties.

In Gramercy Funds Management LLC and Gramercy Peru Holdings LLC v. Republic of Peru, two U.S. investors brought claims against Peru regarding their Peruvian agrarian bonds.6 Peru objected to jurisdiction under the U.S.-Peru Free Trade Agreement (FTA) for several reasons including alleging abuse of process.7 In its 2022 award, the tribunal held that the claimants did not engage in abuse of process, because restructuring an investment to protect from possible future disputes amounted to legitimate investment planning, and was thus not abusive.8

Hedge fund Elliott Associates successfully arbitrated a case against South Korea under the Korea-USA Free Trade Agreement (“KORUS FTA”).9 Elliott Associates filed for arbitration in 2018, alleging that South Korea breached the KORUS FTA’s investment chapter by facilitating a controversial merger between Samsung C&T and Cheil Industries in 2015.10 South Korea argued that the claim should be dismissed, because Elliott Associates allegedly structured its investment to gain treaty protections at a time when the dispute was foreseeable.11 The tribunal rejected South Korea’s argument, because Elliott Associates was unaware of South Korea’s intended interference in the merger at a time when Elliott Associates acquired additional shares to prepare for a potential proxy fight as a minority shareholder.12 In its 2023 award, the tribunal held that South Korea was liable for breaching the treaty and ordered South Korea to pay $54 million in compensation to Elliott Associates plus costs and interest, totaling $108.5 million.13 Elliott Investment Management described this victory as “the first [successful] Investor-State Dispute case in Asia in which an investment firm engaged in shareholder activism.”14 This case shows how timely restructuring to achieve treaty protection is an essential part of securing foreign investments.

In The Carlyle Group L.P. and others v. Kingdom of Morocco, the Carlyle Group and six affiliates (all U.S. entities) sued Morocco under the U.S.-Morocco Free Trade Agreement’s investment chapter regarding investments they made in a Moroccan oil company.15 Morocco challenged the jurisdiction of the tribunal for various reasons including arguing that the claimants lacked standing because they made their investments through Cayman special purpose vehicles.16 Though the details of the agreements have not been disclosed, according to public reports the Carlyle Group and Morocco negotiated an agreement leading to the discontinuance of the dispute and Morocco agreeing to pay $14 million to the Carlyle Group.17

When is corporate restructuring impermissible?

Investors, including funds, can arrange their investment structure, and restructure their investments, to take advantage of the most favorable investment treaty protections; however, Investment Treaty tribunals have imposed some limitations on the types of permissible investment restructurings.  Therefore, investors should seriously consider structuring investments at the outset, or at minimum before any harm incurred at the hands of the host state, to maximize investment treaty protections.  However, restructuring at a later time is also possible.

For example, some tribunals have deemed it impermissible for investors to restructure their investments to gain treaty benefits when a dispute with the host state is reasonably foreseeable.18 Tribunals will consider all of the relevant circumstances to determine whether a dispute existed or was reasonably foreseeable at the time of restructuring.  As a result, investors are advised to ensure strong investment treaty protections are in place before any disputes with the host state are reasonably foreseeable, and in any event before any disputes actually arise with the host state.

Some tribunals have found that evidence of business reasons to restructure can show that there is no abuse of process for a restructuring that takes advantage of more favorable Investment treaty protections.  For example, in Cervin Investissements & Rhone Investissements v. Costa Rica, the tribunal held that to show abuse of process the state must prove that the sole purpose of the restructuring was to obtain an inappropriate procedural advantage under an investment treaty.19 There are many reasons to restructure foreign investments other than for Investment Treaty Protections.  For example, better tax structures, state incentives to establish investment through the particular host state, a preferable political climate for investment, better economic and political relations with the host state, and better availability, or pricing, of financing in the host state are, among others, all reasonable business-minded bases for restructure.20

Tribunals generally differentiate between a restructuring in advance of a future investment dispute and a restructuring to bring a claim based on a pre-existing dispute.21 In Philip Morris International v. Australia, the tribunal held that it had no jurisdiction to decide the claim under the Hong Kong-Australia Bilateral Investment Treaty because Philip Morris engaged in an abuse of process.22 Specifically, the tribunal held that Philip Morris changed its corporate structure to gain the protection of an investment treaty at a point where the dispute was foreseeable.23 When Philip Morris decided to change its corporate structure, the tribunal found that there was no uncertainty about the government’s intention to introduce the legislation which led to the dispute.24 Thus, investors should evaluate and adjust their corporate structure before a dispute is foreseeable. 

Next steps

Corporate restructuring to ensure treaty protection is an essential part of protecting foreign investments, as evidenced in recent ISDS cases. Investment funds should seek counsel at the earliest opportunity to carefully structure and restructure their investments to maximize treaty protections.



Authored by Michael G. Jacobson, Maria A. Arboleda, and Orlando Cabrera.

Jessica Valdes Garcia, a 2023 Summer Associate in our Washington, D.C. office, contributed to this article.

See Elliott Associates, L.P. v. Republic of Korea, PCA Case No. 2018-51, Award, June 20, 2023 (“Elliott Associates v. Korea”), paras. 498-501,; Gramercy Funds Management LLC, and Gramercy Peru Holdings LLC v. The Republic of Peru, ICSID Case No. UNCT/18/2, Final Award, Dec. 6, 2022 (“Gramercy v. Peru”), para. 375, (holding that the timing of investment does not support the proposition that Gramercy engaged in abuse); Cascade Investments v. Republic of Turkey, ICSID Case No.ARB/18/4, Award, para. 335 (Sept. 20, 2021), (stating that as numerous tribunals have observed, there is nothing inherently inappropriate in structuring an investment through an entity with a particular nationality); Strabag et al. v. Poland, ICSID Case No. ADHOC/15/1, Partial Award on Jurisdiction, para. 7 (Mar. 4, 2020), (holding that it is undisputed between the parties that an investment may be legitimately restructured and accordingly render a new investment treaty applicable).
Transglobal v. Republic of Panama, ICSID Case No. ARB/13/28, Award, para. 103 (June 2, 2016).
Orlando F. Cabrera C., The US-Mexico-Canada Agreement: the new gold standard to enforce investment treaty protection?, Perspectives on Topical Foreign Direct investment Issues, para. 2, (Jan. 13, 2020).
Weiss & Akhtar, U.S. International Investment Agreements (IIAs), Congressional Research Service, (Apr. 1, 2022), at 1,
M. Angeles Villarreal, U.S.-Mexico-Canada (USMCA) Trade Agreement, Congressional Research Service, (Jan. 11, 2023), at 2,
Gramercy v. Peru, para. 5.
Id., para. 146.
Lisa Bohmner, Analysis: icsid tribunal hearing claim brought by us hedge fund in Peruvian land reform bond dispute splits on abuse of process and existence of protected investment; tribunal deems domestic compensation process arbitrary – but awards only a fraction of the damages claimed, IA Reporter, (Jan. 26, 2023),
Elliott Associates v. Korea; see also Lisa Bohmer, South Korea is held liable for treaty breach in arbitration dispute over Samsung-Cheil merger, IA Reporter, (Jan. 20, 2023), The Korean Ministry of Justice recently moved to challenge this decision.
10 Id.
11 Elliott Associates v. Korea, para.131.
12 Id., paras. 498-501.
13 Id.  The Korean Ministry of Justice recently moved to challenge this decision.  See Susannah Moody, South Korea challenges hedge fund’s treaty award, Global Arbitration Review, July 18, 2023,; Elliott Issues Statement Regarding Successful Outcome of Republic of Korea Arbitration Case, June 20, 2023,
14 Elliott Issues Statement Regarding Successful Outcome of Republic of Korea Arbitration Case, June 20, 2023,
15 Carlyle Group and others v. Kingdom of Morocco, ICSID Case No. ARB/18/29, Request for Arbitration, para. 3 (July 31, 2018).
16 Carlyle Group and others v. Kingdom of Morocco, ICSID Case No. ARB/18/29, Respondent’s Application for Bifurcation of Proceedings, para. 47 (Oct. 11, 2019).
17 Lisa Bohmer, Oil and gas storage arbitration against Morocco is discontinued, IA Reporter, (Sept. 14, 2022),
18 See, e.g., Philip Morris Asia v. Commonwealth of Australia, PCA Case No. 2012-12, Award, Dec. 17, 2015 (“Philip Morris v. Australia”), para. 585.
19 Cervin Investissements & Rhone Investissements v. Costa Rica, ICSID case No. ARB/12/2, Decision on Jurisdiction, (Dec. 15, 2014) ¶292.
20 See Alan Franklin, Treaty Shopping and Denial of Benefits Clauses – What Investors Should Know, Surrey, BC Canada, at 4, (Apr. 2018).
21 Mobil Corporation et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, para. 204 (June 10, 2010), (holding that the disputes that arose after the restructuring were independent of the disputes that already existed before, and thus the tribunal had jurisdiction over the disputes arising after the restructuring but not over the ones before the restructuring).
22 Philip Morris v. Australia, para. 585.
23 Id. at para. 586-7 (holding that “The record indeed shows that the principal, if not sole, purpose of the restructuring was to gain protection under the Treaty in respect of the very measures that form the subject matter of the present arbitration. For the Tribunal, the adoption of the Plain Packaging Measures was not only foreseeable but actually foreseen by the Claimant when it chose to change its corporate structure.”).
24 Id.


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