Depoliticizing Sovereign Wealth Funds through International Arbitration

AbstractSince their inception in the 1950s, Sovereign Wealth Funds (SWFs) have dramatically expanded with the purpose of investing government revenue and maximizing returns for states with surplus funds. While SWF investments benefit their sovereign owners and can bring stability and growth to the economies they invest in, concerns about the use of investments for political gains and about the defense of national security have led to calls for regulation of SWF investment worldwide. But rather than entangle these investments in a series of varied and complex domestic law solutions, this Comment argues that SWF investment can be effectively monitored through international arbitration. If SWFs are held accountable in international arbitration, they will increasingly behave as private investors and politically motivated investing will be more easily identified and prevented. The International Centre for Settlement of Investment Disputes (ICSID) provides just the forum for resolution of disputes regarding SWF investments. Through ICSID arbitration, international standards can be developed and enforced to protect commercially minded investing and to condemn politically motivated investing.Table of ContentsI. Integrating a New Class of International Investors 650II. Current Legal Structure of SWFs 654A. Origin 654B. The Modern Conceptualization and International Definition of SWFs. ..655C. The Santiago Principles 658D. An Overview of International Investment Law Applicable to SWFs 6601. The growth of BITs and their depoliticization of SWFs 6602. A role for the WTO 6633. Progressing domestic law regimes 665III. The International Centre for Settlement of Investment Disputes 667A. Origin and Jurisdiction 667B. ICSID's Current Function in Administering International Arbitration.... 669IV. Sovereign Wealth Funds in the International Centre for Settlement of Investment Disputes 670A.Jurisdiction 671B. Benefits of ICSID for SWF Arbitration 673V. Alternative Dispute Resolution Mechanisms for Sovereign Wealth Funds 677A. Alternatives in International Arbitration 677B. Possibilities for Policy 678C. Domestic Law Approaches to SWF Disputes 6781. Domestic law solutions 6792. Domestic law pitfalls 680VI. Conclusion 682I. INTEGRATING A NEW CLASS OF INTERNATIONAL INVESTORSIn an economic climate defined by the passage of Dodd-Frank1 and drastically increased spending on monitoring and enforcement in the financial sector, regulation has become an expected and accepted tool of national governments to sustain and protect the economy. However, regulation is not always the most effective means of stabilizing or stimulating investment. Rather than deter foreign investors like Sovereign Wealth Funds (SWFs) with the threat of increased and uncertain regulation, nations should rely on a well-established alternative dispute resolution body such as the International Centre for Settlement of Investment Disputes (ICSID) to monitor and enforce accepted practices of foreign investors.SWFs are a diverse class of investors. Some are familiar and accessible, such as the Alaska Permanent Fund, established by the state constitution and managed by the Alaska Permanent Fund Corporation with legislative oversight to invest the profits from mineral leases and sales and pay out dividends to Alaska residents. …