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I. Definition


It is generally considered that the right to restrict transfer of funds falls within the sovereignty of States under general principles of international law.1 This means that, in the absence of treaty provisions to the contrary, imposing restrictions on the transfer of funds is not an internationally wrongful act since it forms part of the government’s right to regulate and protect its financial and monetary system. 


Transfer provisions are therefore aimed to protect the investors’ expectations of free and unrestricted transfer of funds into and out of the host State to maintain their operations. They are designed to guarantee the investor’s ability to transfer funds in a convertible currency without undue delay.2 

II. General treaty practice


The majority of existing modern investment treaties contain transfer provisions. Some treaties guarantee transferability for both inbound and outbound transfers.3 When not specified, it is reasonable to presume that transferability is also guaranteed for both inbound and outbound transfers. However, some treaties guarantee only outbound transferability.4


The wording of the transfer provisions could significantly differ in various investment protection treaties. For example, some treaties contain rather short formulations of transfer provisions:

“Each Contracting Party shall in respect of investments guarantee to nationals or companies of the other Contracting Party the unrestricted transfer of their investments and returns. Transfers shall be effected without delay in the convertible currency in which the capital was originally, invested or in any other convertible currency agreed by the investor and the Contracting Party concerned. Unless otherwise agreed by the investor transfers shall be made at the rate of exchange applicable on the date of transfer pursuant to the exchange regulations in force”.5


On the other hand, some treaties contain rather extensive provisions on transfer of funds. In such cases they include, in particular, examples of the types of transfers covered,6 as well as various exceptions to the transfer right.7


Transfer provision in NAFTA deserves separate attention. Chapter Eleven of NAFTA is the principal chapter devoted to Investment and violations of its provisions are subject to investor-State dispute settlement. Chapter Fourteen of NAFTA is a special chapter devoted to Financial Services and violation of its provisions is subject to State-to-State dispute settlement. However, Article 1401(2) of Chapter Fourteen incorporates the provisions of Article 1109 of Chapter Eleven (devoted to Transfers). This does not mean that disputes based on Article 1109 of Chapter Eleven should be resolved in State-to-State dispute settlement body. This is because Article 1401(2) of Chapter Fourteen expressly incorporates provisions of Chapter Eleven regulating investor-State dispute settlement (Articles 1115-1138) for breaches arising out of violation of Article 1109 of Chapter Eleven.8

III. Case law analysis


While the regulation of transfers is one of the most important regulatory matters for host States, only a few arbitral tribunals have dealt with claims under the transfer provisions so far. An analysis of available awards shows that there are more cases where the tribunals rejected the claims for breach of transfer provisions.


The tribunals granted the breach of the transfer provisions in following circumstances:

  • when the respondent’s authorities unlawfully arrested the vessels preventing their sale to a third party and froze the bank accounts of an investor;9
  • when respondent refused to release foreign currency to allow the investor to repay the loans, forced the investors to be paid for the goods in respondent’s national currency, forced the investors to exchange US dollars to respondent’s national currency and failed to release US dollars earned by the investors through the sale of goods;10
  • when respondent requested that all returns should be reinvested;11
  • when respondent introduced a ban on distribution of investor’s profits.12

The tribunals rejected a claimed breach of the transfer provisions in following circumstances:

  • when claimant failed to comply with established procedures for requesting a transfer;13
  • when despite the closure of the swap market, the market operators still had access to a centralized exchange control system;14
  • when the tribunal found that implementation of foreign exchange controls falls within the financial and economic sovereignty of states and do not constitute an undue restriction for the purposes of the BIT;15
  • when claimant failed to establish that tax proceedings initiated by respondent prevented claimant from transferring the funds;16
  • when the claim was related to assertion of a contractual right to funds rather than to restrictions on the movement of capital/exchange of currency and was not attributed to respondent;17
  • when transfer did not relate to an investment protection but was a short-term deposit abroad;18
  • when claimant’s complaints concerned contractual matters that fell outside of the tribunal’s jurisdiction;19
  • when claimant argued that its inability to sell the license was covered by the term “transfer of funds”;20
  • when claimant argued that “transfer of funds” protection should guarantee the investor that it would have funds to transfer.21

IV. Relationship with other standards of protection


As the tribunal in AES and Tau Power v. Kazakhstan noted, transfer provisions could be considered as a “specific implementation of the general principle protected under the FET standard that an investor should have the right to earn and transfer reasonable returns of and on its investments”.22


The most important practical result of such qualification is that losses claimed under the transfer provisions will not be considered during the quantum stage since they will be assumed to be covered by losses claimed under the fair and equitable treatment standard in order to avoid double compensation (if the investor also claims the breach of the fair and equitable treatment standard of protection based on the same facts).23


Bonnitcha J., Poulsen L.N.S. and Waibel M., The Political Economy of the Investment Treaty Regime, Oxford University Press, 2017.

Dolzer R. and Schreuer, C., Principles of International Investment Law, Oxford University Press, 2nd ed., 2015.

Dolzer, R. and Stevens, M., Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995.

Sabahi, B., Rubins, N. and Wallace, D.Jr., Investor-State Arbitration, Oxford University Press, 2nd ed., 2019.

Salacuse J.W., The Law of Investment Treaties, Oxford International Law Library, 2nd ed., 2015, Chapter 10.

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