Not so friendly foreign direct investment (March 28, 2011)

Robert Amsterdam has carved out a reputation as a go-to lawyer for executives feeling the wrath of a hostile government.

His battles with regimes in Russia, Nigeria and Venezuela, to name a few, have given him a unique perspective on the state of foreign direct investment in the world today.

It’s a perspective that has been hardened by his witnessing of how Western democracies too often stand idle as their corporate citizens suffer abroad from political brinkmanship.

Perhaps most known for his defense of Russian oligarch Mikhail Khodorkovsky, Amsterdam is currently defending London-based gold miner Oxus Gold (OXS-L) in Uzbekistan against actions by the state to seize assets illegally.

It’s a trend that Amsterdam believes is growing.

“It is a global phenomenon,” he says. “Some countries have taken the view that the West is a paper tiger and if they can achieve financing from Korea, Brazil, India, China or Russia then they can be less cautious about how they treat assets.”

He traces a deterioration in the rule of law in such countries back to the collapse of Khodorkovsky’s Yukos Oil Co. in 2003. It was then that the company was effectively bankrupted by a tax re-assessment from the government of US$27 billion. That re-assessment is widely held to have been politically motivated.

Amsterdam contends that the Russian government’s success in destroying Yukos had a knock-on effect that emboldened some other countries in their drive to seize desirable assets.

Such a disturbing attitude was furthered by the 2008 economic crisis, and soaring commodity prices.

“It all has led to states to becoming increasingly predatory, and arbitrary in how they deal with the resource industry,” he says. “And now there’s a far wider palette of players emerging as financing options. Countries that don’t give a damn about the rule of law unless it’s aimed at their own interests.”

One remedy, in his estimation, is the beefing up of bilateral investment treaties signed between two foreign governments so that they demand equity in terms of judicial protection.

Coupled with that, governments need to have closer and more open communication with their own nation’s business communities.

Such dialogue is currently lacking, he says, leading to mixed signals.

He cites the case of the Dominican Republic, which recently signed a bilateral trade agreement with Canada. In Amsterdam’s opinion, such an agreement sends a false signal that it is safe to do business there, when that is not
the case.

Amsterdam, who was born in the United States and raised and educated in Canada, now resides in England. He has no shortage of scorn for the Canadian government’s track record in supporting Canadian businesses abroad.

“There is no government worse than Canada for representing its companies,” he says. “Particularly under the previous Liberal regime.”

He explains that, generally, Canadian embassies are beholden to the elite of the host country and don’t advocate for corporate citizens in a structured way.

“We need a revamp of the Canadian foreign service,” he says. “We need it to be far more active in advocating for ongoing protections and it can only do that by redefining the relation between business and state and by restructuring the way we do trade agreements.”

He envisions such a redefinition as being done with an eye towards the longer term success of a company in a foreign domain.

“Our embassies are great at assisting a company at first, at the entry point of investment, but they get a hell of a lot weaker if you get into problems later on down the road,” he says.

He adds that all too often when issues arise, such as around royalties or permitting, Western governments are quick to distance themselves, fearing that it would appear that they are interfering in the host nation’s affairs.

Amsterdam says many host nations are aware of this, and act accordingly, knowing that a given Western country will back away even in the face of creeping appropriations.

He offers a simple antidote to get governments to be more accountable.

“We need to grade countries, not just on how they attract investors, but how they treat them five years in,” he says.

He insists that Canadian companies can offer huge advantages to a host nation on the community service and environmental side of things. But so long as we don’t promote those advantages, Brazilian, Russian, Chinese and Korean entities will continue to land the bigger deals.

Amsterdam also offers some tips on how executives can stay out of hot water.

“The way to avoid trouble is to have a really multi-layered, ongoing political monitoring system in these countries,” he says. “You have to have your ear right on the ground…  and every time you get in a crisis, you go and you hire the best law firm you can hire to cover your own ass.”

He has a tip for any managers who already find themselves sitting inside a bubbling cauldron.

“Hire the oldest criminal lawyer still functioning in that country,” he says. “It doesn’t matter if he doesn’t speak English. Don’t hire people that speak English and graduated from Harvard because those people are the wrong people if you’re in a jam.”

He cites a case he worked recently where he managed to free a prominent businessman in Venezuela. The case involved visiting the man in a Venezuelan prison.

“No one speaks English in jail,” he says. “All of these good-looking guys from Princeton and Yale aren’t worth anything if you’re up against it in some jail in Venezuela.”

Such a pragmatic attitude is born out of 30 years of legal experience, and so is his cynicism towards international bodies meant to make global trade and better business practices a universal truth.

Amsterdam says organizations such as the World Trade Organization along with international courts offer zero help to companies in distress at the hands of a foreign government.

“One thing companies have to understand is just how alone they are,” he says. “That’s why it is so important to structure yourself properly early on, with an early detection system and by having the right local or regional partners in place so that you can leverage off of their political connections.”