Wednesday 21 April 2021

Treaty loophole opens door to international lawsuits by shell companies


International companies are setting up shell companies in the Netherlands in order to launch cross-border compensation claims.

In the past four years, 22 foreign firms have taken advantage of Dutch investment treaties to take legal action against other countries. Many of them have little presence in the Netherlands other than a registered business address, broadcaster NOS said on Thursday.

The Netherlands has clauses in treaties with 75 countries intended to protect investors against intervention by foreign governments. But some companies have taken advantage of the loose definition of what constitutes a Dutch investor to take legal action against the governments of countries where they operate.

In some cases, the shell company appears to have been set up specifically to contest a claim. For example, Indian company Arka Energy is demanding compensation from Albania via a Dutch BV set up in 2019 with an address at a co-working office in Amsterdam, NOS said.

Successive ministers, including caretaker foreign trade minister Sigrid Kaag, have described the situation as ‘undesirable’ but have taken few concrete steps to revise the definition of an investor.

‘International treaty discussions are long-term processes,’ a foreign affairs spokesman said. ‘Careful negotiation is needed on a lot of technical details and treaty partners do not always agree with the Dutch position.’

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