The Greek crisis might prevent foreign investors in Greece from transferring their funds to their home country. If that turns out to be a lasting problem, foreign investors in Greece are not defenseless.
Current developments in the modern Greek drama could not be more suspenseful: The Greek Prime Minister, Alexis Tsipras, caught everyone in Europe by surprise announcing a Greek referendum about the latest bailout terms for 5 July 2015. The Finance Ministers of the Eurozone refused to prolong the financial assistance to Greece and the European Central Bank did not extend its emergency liquidity assistance. The ultimate result is that Greek banks needed close this Monday for a week, and the Greek government introduced capital controls. Companies and individuals have to apply to a commission at the Ministry of Finance if they want to make a bank transfer to a foreign bank account. Only in exceptional cases, a bank transfer will be approved. Depending on the outcome of the Greek referendum, the capital controls might stay in place.
Not only Greeks but also foreign investors in Greece might be affected by the current developments. Foreign investors might be unable to freely dispose over their funds in Greece. The capital controls, thus, conflict with international investment agreements which Greece has signed and which guarantee the free transfer of capital. Therefore, the capital controls imposed by the Greek government might give rise to claims of foreign investors under international investment agreements.
In today’s globalized world, over 2.500 international agreements guarantee the protection of foreign investments. In particular, Bilateral Investment Treaties (BITs) protect foreign investors against measures of the host state which affect their investment. Greece has concluded 39 BITs with countries from all over the world (see table below) and is also a member to different multilateral treaties such as the Energy Charter Treaty.
BITs, by standard, include material guarantees on which foreign investors can rely upon. One example is the guarantee to accord foreign investors “at all times […] fair and equitable treatment”. The ambit of this so called FET-clause is extremely wide. Another guarantee, and the one which is of particular interest now, is the guarantee of free transfer of capital and returns. Such guarantee is contained in almost every BIT. To give an example: Article 4 of the Greece-Germany BIT from 1963 reads:
“Jeder Vertragsstaat gewährleistet den Staatsangehörigen und Gesellschaftern des anderen Vertragsstaates den Transfer des Kapitals und der Erträgnisse sowie im Falle der Liquidation den Transfer des Erlöses.“
“Each Contracting State shall guarantee the investors and shareholders of the other Contracting State the transfer of capital and returns and in case of liquidation the transfer of proceeds”
Investors might be able to argue that the capital controls imposed by the Greek government restrict their ability to “transfer … capital and returns” and therefore violate the BIT guarantees. On the other hand, Greece might argue that it is exempt from liability. Greece might rely on the internationally recognized state of necessity defence which played a controversial role in earlier state financial crises (cf. the ICSID cases: CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8; LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. The Republic of Argentina, ICSID Case No. ARB/02/1).
How can an investor invoke a violation of the BIT guarantees? Most BITs provide that investors can initiate international arbitration proceedings. As can be seen in the table below, the investor usually has the choice to bring an arbitration under the UNCITRAL Rules or under the auspices of ICSID. Only the Greek BIT with Germany does not contain an arbitration clause. However, that does not mean that German investors necessarily have to initiate state court proceedings in Greece. German investors might be able to initiate investment arbitration proceedings relying upon the most favored nation provision in Article 3.5 of the Greece-Germany BIT and an arbitration clause in a BIT between Greece and a third country.
The Greek capital controls were only put in place on Monday and still apply. It is too early to predict when capital controls will be lifted and what will happen thereafter. Therefore, it remains to be seen whether investors will raise claims against Greece. However, as this article shows, if the capital controls were to prevent a foreign investor from freely using its funds, this investor might be able to initiate arbitral proceedings against Greece and claim damages.
|BIT: Greece – …||In force since||Dispute Resolution Clause|
|Albania||4 Jan 1995||UNCITRAL, ICSID|
|Algeria||21 Sept 2007||UNCITRAL, ICSID|
|Armenia||28 Apr 1995||UNCITRAL, ICSID|
|Azerbaijan||3 Sept 2006||UNCITRAL, ICSID|
|Bosnia and Herzegovina||15 June 2007||UNCITRAL, ICSID|
|Bulgaria||29 Apr 1995||UNCITRAL|
|Chile||27 Oct 2002||UNCITRAL, ICSID|
|China||21 Dec 1993||UNCITRAL, ICSID|
|Croatia||21 Oct 1998||UNCITRAL, ICSID|
|Cuba||18 Oct 1997||ICC, UNCITRAL|
|Cyprus||26 Feb 1993||UNCITRAL, ICSID|
|Czech Republic||30 Dec 1992||UNCITRAL, ICSID|
|Egypt||6 Apr 1995||UNCITRAL, ICSID|
|Estonia||7 July 1998||UNCITRAL, ICSID|
|Georgia||3 Aug 1996||UNCITRAL, ICSID|
|Germany||15 July 1963||NO DISPUTE RESOLUTION CLAUSE|
|Hungary||1 Feb 1992||SCC, ICC, ICSID|
|India||10 Apr 2008||UNCITRAL, ICSID|
|Islamic Republic of Iran||9 Jan 2009||UNCITRAL, ICSID|
|Jordan||8 Feb 2007||UNCITRAL, ICSID|
|Republic of Korea||4 Nov 1995||ICSID|
|Latvia||9 Feb 1998||UNCITRAL, ICSID|
|Lebanon||17 July 1999||UNCITRAL, ICSID|
|Lithuania||10 July 1997||UNCITRAL, ICSID|
|Mexico||26 Sep 2002||UNCITRAL, ICSID|
|Republic of Moldova||27 Feb 2000||UNCITRAL, ICSID|
|Morocco||28 June 2000||ICSID|
|Poland||20 Feb 1995||UNCITRAL, ICSID|
|Romania||11 June 1998||ICSID|
|Russian Federation||23 Feb 1997||UNCITRAL|
|Serbia||13 March 1998||UNCITRAL, ICSID|
|Slovakia||31 Dec 1992||UNCITRAL, ICSID|
|Slovenia||11 Feb 2000||UNCITRAL, ICSID|
|South Africa||5 Sep 2001||UNCITRAL, ICSID|
|Syrian Arab Republic||27 Feb 2004||UNCITRAL, ICSID|
|Tunisia||21 Apr 1995||ICSID|
|Turkey||24 Nov 2001||UNCITRAL, ICSID, ICC|
|Ukraine||4 Jan 1997||UNCITRAL|
|Uzbekistan||8 May 1998||UNCITRAL, ICSID|