Investments are inherently risky, but when you choose to make an investment in a foreign country, your risk may go up. So, how can you insure your foreign direct investment (FDI) and also mitigate potential risks? Here are some factors to consider:
1. Insuring your Investments with Political Risk Insurance
If you are investing in something and are concerned about losses stemming from political violence, expropriation, breach of contract, currency inconvertibility, or other political events, political risk insurance may help to protect you. Political risk insurance is usually offered by either private insurers that specialize in it or by government agencies. This will insure your foreign direct investment.
2. Multilateral Investment Guarantee Agency
Multilateral Investment Guarantee Agency (MIGA), which is part of the World Bank Group, provides political risk insurance to investors. Such coverage, which is usually available for investments made in developing countries, offers coverage against political violence, breach of contract, currency inconvertibility, and expropriation. Dr. Srilal Perera, international arbitrator at Transnational Matters, is the former Chief Counsel of MIGA and is available to consult on any matters involving the agency. See MIGA – General Inquiries (worldbank.org)
3. Private Insurance Companies can Insure your Investments
In addition to government agencies, private insurance companies can also insure your investment. This coverage may be for credit risk insurance, political risk insurance, or other needs of investors. The most important thing is that you research and ensure that the insurance provider you choose is reputable and experienced in the country/industry related to your investment.
4. Export Credit Agencies
Export Credit Agencies (ECA) commonly provide either insurance or guarantees for foreign investments in order to promote them. ECA generally offers coverage for political and commercial risks commonly associated with FDI. You should look into whether your home country’s ECA offers these services.
5. Bilateral Investment Treaties and Double Taxation Treaties
Bilateral Investment Treaties (BIT) and Double Taxation Treaties (DTT) are signed agreements between countries that are intended to protect and promote investments. BITs and DTTs commonly include provisions related to dispute resolution and protections against expropriation. If you have a solid understanding of these treaties you can better protect yourself and your investment.
6. Diversification and Due Diligence
In addition to the many types of investment insurance, one of the best things that you can do to protect your FDI is to diversify your portfolio across countries and industries in order to reduce your risk. Put simply, be sure not to put all of your eggs in one basket. Finally, by conducting due diligence on the host country’s economic, political, and investment environment, you can make better decisions upfront.
Before making an FDI, it’s in your best interest to consult with a qualified attorney who has experience with international investments and can help to assess your needs and explain to you all of the options in order for you to make an informed decision.
U.S. Counsel Services for Foreign Businesses
If your business is located outside of the United States but you engage in U.S.-based operations, it’s critical that you seek legal counsel from an attorney who understands the complex issues involved. Whether you have ongoing legal issues related to a business expansion or are simply engaged in a singular transaction, the lawyers at Transnational Matters can assist with all of your American and international endeavors.
When it comes to foreign and domestic businesses, we can assist with your transactions and general corporate needs. Contact our experienced transnational litigation and arbitration attorneys today! Contact Our Office – Transnational Matters