How Treaties Can Protect Your Home

Financial Shock WavesIn case you missed it, the RG Hotels Bankruptcy case has caused shock waves throughout the Panama financial community. A  Coclé judge backdated the bankruptcy of RG Hotels to July 31, 2012.

RG Hotels is a large developer of condominium properties in the beach area including Ibiza Playa Coronado, Ibiza Playa Corona, Las Perlas (formerly Wyndham and Nikki Beach) and others. The judge held that RG hotels had concealed its insolvency for three years. However by backdating the bankruptcy by three years, hundreds of apartment owners and bondholders have been deprived of their homes and investments. One of my friends who bought and fully paid for a new Playa Blanca apartment will lose it because of this judge’s decision.  How can any new apartment owner be safe from their developer’s insolvency?

What is Expropriation?
One of the biggest fears any foreign investor has is that the government (or a judge) will seize their investment. This is called expropriation. For example, Venezuela and Argentina both expropriated oil fields from foreign investors. Bolivia recently expropriated power companies from Spanish and British investors. Mexico used numerous regulations to deprive an American company of using its land.

Investment Treaty Protection
To allay these fears and to attract foreign direct investment, governments enter into investment treaties with other countries. These treaties give foreign investors significant guarantees that they will receive fair and equitable treatment. One important guarantee is that if an investment is expropriated without full compensation, the investor can sue the country in the International Court for the Settlement of Investment Disputes (ICSID) in Washington DC. This is very unique, that a company can drag a foreign country in to court.

Investors usually win
The vast majority of cases are settled out of court because it’s easy to prove the governments expropriated. In cases decided by the court, investors win 70% of the time. The stakes for governments are much higher than the specific case. Governments fear a backlash if future foreign investors stop investing in their country. This is particularly true in Panama which has a very high amount for foreign direct investment.

Protect Yourself
Treaty protections aren’t just for big companies. If any of the investors in the bankruptcy case are appropriately registered foreign investors, then they have recourse beyond the Panamanian judicial system. They can take the entire country into International Court and likely win. New and existing homeowners can protect themselves against expropriation in case of changes in the political and judicial climate in Panama.  It is surprisingly affordable.

For more information
To learn more how you could benefit from treaty protections, please contact me at clinton@donnelly.red.

About the Author
Clinton Donnelly is an international tax law advisor assisting businesses and individuals seeking greater tax efficiency and wealth retention. This article is informational and not legal advice because everyone’s situation is different.