Interview with Anil Yilmaz: The Nationality of Corporate Investors under International Investment Law – Part I: The trouble with treaty shopping – Stephanie Triefus

International investment law is ostensibly designed to protect investors from unfair treatment when they invest outside their home jurisdiction. The rationale behind such special protections is to encourage foreign direct investment, which is meant to have a positive impact on host state development and economic growth. However, it is common for corporations to engage in ‘nationality shopping’ to gain access to investor-state dispute settlement in their own jurisdiction, or in circumstances where states have not necessarily consented, under bilateral investment treaties. It is often legal for a company to channel investments through overseas shell corporations, with investment tribunals considering such arrangements to be a legitimate means for accessing protection under investment treaties. In her monograph The Nationality of Corporate Investors under International Investment Law, published in 2020 by Hart Publishing, Dr Anil Yilmaz argues that such expansive interpretations of corporate nationality are not warranted by international law and are in fact unduly expanding the reach of international investment law in ways that seriously impact its operation and the local communities affected by investment projects. 

Dr Yilmaz is a Senior Lecturer in the School of Law at the University of Essex and a co-director of the Essex Business and Human Rights Project. Her research bridges the gap between corporate law, international investment law, human rights law, and tort law, examining how these areas can and should interact so as to operationalise human rights standards in the modern business context. She is interested in reimagining business regulation to prevent adverse impacts suffered by communities and workers due to the privileges of capital embedded in the law. She has published works in leading international law journals and in edited collections on parent-subsidiary relationships in the business and human rights context, non-financial reporting, duty of care in supply chain relationships, human rights in investment contracts and the embedded inequalities in the investment treaty regime.

Dr Yilmaz joined Assistant Editor Stephanie Triefus for a conversation about her monograph and why controversial treaty protections should not be extended beyond reciprocity.

ST: I was surprised to learn from your book that the ultimate beneficiaries of the largest investment arbitration award of all time, Yukos v Russia, were actually Russian nationals. How prevalent is it for corporations to use corporate restructuring and shell companies to take advantage of investment treaty provisions that would otherwise not be available to them? 

AY: It’s hard to know how prevalent the issue is in the investment treaty context, as there are no comprehensive statistics on it. We often become aware of such structuring when it comes up in case law, and if a dispute never arises then you never know it’s happening. It’s quite prevalent in corporate law practice for companies to structure in ways that will provide them the best regulatory and tax framework through various corporate structures, using shell companies set up in certain corporate friendly jurisdictions like the Netherlands or in offshore jurisdictions. In the context of investment treaty protections, I think it’s becoming increasingly common for companies to be advised to structure in certain ways. There was a report from SOMO some years ago on how the Netherlands is a gateway to treaty shopping because it’s easy to set up a company there and it has an extensive treaty network. You already have tax reasons to set up your company in the Netherlands so having the additional benefit of the wide investment treaty protections that Dutch treaties offer is something that I’m sure many investors are taking advantage of. While there isn’t any data that I know of that shows the prevalence of the issue, the case law shows that it does happen quite often.  

ST: Some argue that because the purpose of investment treaties is to increase investment flows, and because investment law elevates treatment of investors to an international minimum standard, it shouldn’t matter what the connection to the state is – how would you respond to such arguments? 

AY: This is one of the main arguments in favour of nationality shopping, or similarly in favour of using most favoured nation clauses to extend certain investment treaty benefits beyond what the treaties envisage. The idea is that investment treaties are a good thing, and why shouldn’t more investors benefit from them. While I understand that logic, I think it’s premised on a flawed idea that investment treaties are good for host states and that they increase investment flows. That thesis has been challenged in the literature and it’s a contested argument. There are studies showing that investment treaties don’t necessarily have a positive influence on investment flows. Besides, not every investment is good for the host state. Many foreign investments do not produce positive economic and social benefits within host states which trickle down to communities. In fact, there are many examples of foreign investments that cause negative impacts for communities and the environment in host states. So, the whole premise of the argument that more investors should benefit from investment treaties because it’s a win for the investor and the host state – I don’t think that can stand. 

Now, there’s also another part of the argument, that every investor should be able to benefit from these international minimum standards. And sure, I think that everybody should benefit from robust legal standards. But more and more we are seeing that the investment treaty standards and their interpretation by arbitration tribunals aren’t international minimum standards. I think they are highly controversial standards. Today they are highly criticised. Even people within the system recognise the problematic nature of investment treaty standards, or the way they’ve been interpreted by arbitration tribunals. Examples include, the levels of compensation that are being awarded, the ways in which investment treaties are used as a weapon to attack public policies, attack regulations introduced to protect the environment and tackle climate change. 

So all of the excesses of the investment treaty system should led us to question whether investors should be entitled to greater levels of protection against governmental decisions than any other actor in society. And then there is the more technical argument against expanding investment treaty protections. In the book, I argue that these treaties are meant to be reciprocal – they’re meant to be protecting nationals of the treaty contracting states. And, by expanding the definition of corporate nationality, states end up offering treaty protections to an unlimited number of investors from any country who can afford a lawyer that can set up a company somewhere convenient for them. So, I think that alone is quite problematic because states have chosen not to enter into multilateral treaties in this area, and they have been unable to conclude such multilateral treaties. 

Finally, as states are reforming their investment treaties, the lax approach to interpreting corporate nationality in the case law can make it harder for states to actually implement new standards in response to the backlash against investment law and benefit from the reforms that they introduce, as long as they have older generation treaties still in force. Investors from, for example, Canada to the EU, who are meant to be investing under CETA, could simply invest through a third country to benefit from an old generation EU member state investment treaty with that country. Not that CETA introduces game changing reforms, but there’s still some more restraint in CETA. Yet, investors can sidestep those new treaty standards that attempt to restrain the fair and equitable treatment standard for example. 

This interview is continued in Part II.

Stephanie Triefus is a PhD Candidate at Erasmus University Rotterdam in the field of human rights and international investment law and an Assistant Editor of the ILA Reporter.

Suggested citation: Stephanie Triefus, ‘Interview with Anil Yilmaz: The Nationality of Corporate Investors under International Investment Law – Part I: The trouble with treaty shopping’ on ILA Reporter (11 June 2021) <>

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