International Diversified Corporation (IDC) owns assets in Tagistan, a new country in Asia. The government of Tagistan wants to nationalize all assets owned by foreign firms and investors. What can IDC do? Can it at least obtain payment for the assets?

Question

What will be an ideal response?

Answer 1

If a government decides to seize property within its borders, and not to pay for it, there are few remedies available. This is of course a confiscation, which results when a government takes private property for an illegal purpose without paying just compensation. (An expropriation, by contrast, occurs when a government seizes private assets or a private business for a legal purpose and pays for the seizure.) Under most circumstances, it is unlikely that a confiscating nation's courts would order its government to pay just compensation, even if the court had the authority to do so. In a case alleging that a foreign government has wrongfully taken a business firm's property, the defendant government has the burden to prove that the taking was an expropriation, not a confiscation. But the act of state doctrine can prevent a firm's recovery in a court in the firm's home country. Under that doctrine, a court in one country will not review the validity of a public act of a recognized foreign government within it own territory. (Some nations guarantee compensation to foreign investors in their constitutions, statutes, or treaties. Others (such as the United States) provide some insurance for their citizens' investments abroad. Claims are often resolved by lump-sum settlements after negotiations, as between the United States and the confiscating nation.)