President Hugo Chavez is making plans to exit from the International Centre for the Settlement of Investment Disputes or ICSID, which is a unit of the World Bank in Washington. There are more than $40 billion in claims against Venezuela for nationalizing various industries.
Chavez has given the orders to withdraw from the organization and to bring home or redistribute billions of dollars in assets in order to prevent them from being seized. Analysts believe Chavez has seen assets belonging to his friend Gaddafi seized around the world as were the assets of Mubarak when he left power in Egypt. The world has no sympathy for dethroned dictators.
Chavez has nationalized the assets of 988 companies with 401 of those taking place in 2011. Many companies file grievances with ICSID in hopes of getting paid for those assets. Last week Venezuela announced it was transferring $6 billion in cash reserves held in U.S. and European banks to Russian, Chinese and Brazilian banks. He is also moving 211 tons of gold valued at $11 billion and held in foreign banks back to Venezuela.
If he moves his liquid assets out of the reach of the world's judicial system he believes they will be safe from future seizure. China and Russia don't honor the laws and judicial processes used by the developed nations to maintain world order.
When companies like Conoco or Exxon invest billions of dollar in a country like Venezuela they have to have some protection to prevent their assets from being confiscated. Up until now that was the ICSID. If Venezuela pulls out of that organization the country will find it very difficult to secure investment by foreign companies in the future.
Unfortunately for Venezuela the current bilateral investment treaties bind Venezuela to ICSID arbitration for a period of between 10-15 years after the cancellation of an agreement. This is in Venezuela's own documents. They can?t just say I am taking my assets and going home.
Venezuela is currently the defendant in 18 cases at the ICSID. Conoco Phillips has the largest claim at $30 billion. Exxon has a claim for $7 billion. Mexican cement maker Cemex and Swiss cement maker Holcim are both suing for damages after Chavez seized their plants in 2008. Crystallex, a Canadian gold miner, recently filed a $3.8 billion action seeking compensation for a gold mining project that was seized.
Foreign direct investment in Venezuela was a negative $3.1 billion in 2009 and -$1.4 billion in 2010 as existing companies pull up stakes and run to safety rather than be subject to Chavez and his desperate attempt to raise money to stay in power by nationalizing businesses. If Chavez pulls out of the ICSID he would have to negotiate separate investment protection treaties with 23 nations including European nations. Those new documents would not be worth the paper they would be printed on.