Great: Now Wall Street Is Funding Speculative Corporate Sovereignty Claims For A Share Of The Spoils

from the this-is-fine dept

Techdirt first wrote about corporate sovereignty four years ago -- although we only came up with that name about a year later. Since then, a hitherto obscure aspect of trade deals has become one of the most contentious issues in international relations. Indeed, the investor-state dispute settlement (ISDS) measures in both TPP and TTIP played an important part in galvanizing resistance to these so-called "trade" deals, and thus in their defeat, at least for the moment (never say "never".)

Corporate sovereignty may be a tough sell in new trade deals, but it is still lurking in plenty of existing agreements. For example, a post on the Sierra Club blog points out that two countries, Colombia and Romania, are being sued using ISDS clauses because of their refusal to issue mining permits:

Both mines would require huge quantities of cyanide and threaten watersheds used by millions of people for drinking water. One would damage a unique, legally protected ecosystem and the other would destroy an ancient, UNESCO-nominated settlement. Both have been opposed by scientific bodies, protested by tens of thousands of people, and restricted by domestic courts.

The use of corporate sovereignty to trump health and environmental concerns is nothing new. What is noteworthy here is the following:

Both ISDS claims are being funded by the same Wall Street hedge fund -- Tenor Capital Management. Tenor helps cover the companies' legal costs in exchange for a cut of any award. These speculative ISDS bets have already paid off for Tenor. The hedge fund won big in April 2016 when it secured 35 percent of a $1.4 billion ISDS ruling against Venezuela, a return of over 1,000 percent on the $36 million that Tenor had provided for the legal costs of the company that brought the case.

That is, the rewards of winning a corporate sovereignty case are so great that hedge funds are starting to fund them speculatively with no direct connection to the ISDS dispute other than providing money to initiate and pursue the claim. As the Sierra Club points out:

The risks of such arrangements, known as "third-party funding," are clear: When Wall Street speculates on the outcome of ISDS cases, it inflates the number of corporate suits against governments, leading to higher costs for taxpayers and higher risks for policymakers that challenge harmful investments.

Doubtless, defenders of the corporate sovereignty system will claim that the hedge fund's willingness to invest money is actually a good thing, since it means that even impecunious companies can enjoy their "right" to sue a government. But the new interest of Wall Street in ISDS underlines the unfair asymmetry of the system:

Because only corporations, not governments, can launch ISDS cases, governments have no equivalent funding sources, as they have no potential winnings to leverage. In Costa Rica -- which is also on the receiving end of a third-party-funded ISDS case relating to an environmentally destructive gold mine -- the Attorney General's office has an annual budget of only $17 million. In Bolivia -- one of the poorest countries in the Western Hemisphere, which faces a third-party-funded ISDS case relating to a silver mine -- the Attorney General's office has a budget of $12 million.

This is a crucially-important point about corporate sovereignty: governments never win ISDS cases; at best, they just don't lose them. All the upside is with the corporates that bring the claim, and all the downside with nations that are defending their actions and regulations. The new wave of third-party funding will accentuate that skewed nature, and make corporate sovereignty even more of a scourge than it is today, regardless of whether it is ever included again in any new deal.

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Filed Under: corporate sovereignty, isds, litigation finance, nafta, wall street