The New Political Risk Insurance: An End to Corporate Nationality and a Substitute for Investment Arbitration – Vol. 32, No. 2

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Author: Rebecca Lamb

Published: October 2021

United States
Investment Disputes
Nationality of Parties


The International Center for Settlement of Investment Disputes (ICSID) was once seen as a substantial innovation for cross-border investment protection. It established investor-state dispute settlement (ISDS), a form of arbitration in which a private investor can bring a claim directly against a state. States consent to investor-state arbitration by signing bilateral investment treaties (BITs). For instance, Country A consents to arbitration with investors of Country B’s nationality by signing a BIT with B. As corporate structures have become increasingly transnational, the definition of “nationality” for legal entities has grown similarly complicated.

Despite this growing complexity, ICSID’s definition of nationality relies solely on formulaic standards like country of incorporation to designate firms’ nationality. It inadequately addresses beneficial ownership of an investor-corporation—a problem this Note calls the investor nationality gap. Through treaty shopping, beneficial owners or shareholders can effectively choose the nationality of their investor-corporation in order to access a specific BIT. This gap renders state consent to arbitration meaningless, thereby amplifying the uncertainty facing both countries and investors. Uncertainty, which ICSID was intended to reduce, deters investment.

This Note proposes a solution to the investor nationality gap: the replacement of ISDS with a modernized political risk insurance (PRI). PRI is a similar investment protection mechanism, but the investor does not have any direct claim against the host country of its investment. Instead, Country A’s government insures the investor for an investment in Country B. Although this process has existed parallel to ICSID since the 1960s, only recently has it gained the potential to replace ISDS.  In 2018, the Better Utilization of Investments Leading to Development (BUILD) Act modernized the U.S. agency responsible for PRI and opened the door for a more flexible risk insurance. The Act removed the agency’s previous nationality requirements for “eligible investors,” thereby avoiding the complex beneficial ownership questions plaguing ICSID. This PRI model can erase the investor nationality gap and replace investor-state arbitration. Only through such a reversal will international investment law adapt to the next generation of corporate multinationalism.

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* J.D., University of Virginia School of Law, 2021.