EMPEA Guidelines – 7
7. Transparent and reliable rules for expropriation
As expropriation poses a direct danger to the preservation of capital in an investment, private equity investors require very clear rules around the specific circumstances in which the state is permitted to expropriate private property and the way in which investors must be compensated when such expropriation occurs. Any such laws should be consistent with a country’s multilateral and bilateral investment treaty obligations, as well as international norms.
7.1 – Minimal risk of expropriation
Expropriation by the state must be limited to justifiable instances of national security, public health and safety or other similar examples, consistent with international norms and investment treaty obligations.
7.2 – Clear and fair rules
Expropriation must be based on transparent, explicit and well-defined terms and conditions.
- Private property should be enshrined as a constitutional right, and any encroachment on private property by the state, including by way of expropriation, should occur only where the state is permitted by law to do so.
- Expropriation should occur only where it is in the public interest, which has been pre-defined in a transparent and clear manner by the legislature.
- Expropriation should be non-discriminatory and based on rules that define the terms and conditions for the expropriation and the process to be followed, including the determination of the compensation.
7.3 – Right to compensation
Investors should have a right to fair compensation in cases where expropriation occurs.
- The determination of fair compensation should be made by an independent party acceptable to both parties.
- Compensation for expropriation should not be calculated based on general and abstract conditions, but should take into account the individual context, including the actual loss, the loss of lawful gains, and the economic implications of the expropriation for the public interest.
- Fair compensation should not be limited to an asset’s purchase price, but should also take into account reasonable damages incurred due to of the expropriation process itself.
7.4 – Right to independent review
Investors should have a right to an independent review of any expropriation and any such review should be fair and timely.
- Investors subject to expropriation should be able to contest the legitimacy of the expropriation and the terms of the proposed compensation before a court or other independent judicial body.
- The state should not exercise any influence over bodies carrying out valuations, or over any judicial body assessing the legitimacy of the expropriation or the adequacy of compensation.
Continue to 8. Stable and fair framework for property rights
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