Asset protection: unlocking the power of Bilateral Investment Treaties for private investors
Insight
In an era of deglobalisation and international political instability, international business and asset owning families are increasingly using Bilateral Investment Treaties (BITs) alongside traditional asset protection structures, such as trusts, to safeguard their wealth.
BITs were once seen as legal tools reserved for large corporations with physical assets in politically unstable jurisdictions. That perception has shifted. Today, many BITs offer gold-standard legal protections that private investors can strategically leverage to safeguard their assets.
This article outlines the potential benefits BITs offer to private individuals and family offices. We also explain how Farrer & Co can structure trusts and investments to help clients access those protections.
What is a Bilateral Investment Treaty?
A BIT is an agreement between two countries that sets out reciprocal terms under which nationals and companies from one country can invest in the other (the host state). In return, foreign investors receive legal guarantees that would not otherwise be available to them.
BITs provide substantive rights to foreign investors. Common protections include:
- Fair and equitable treatment by the host state;
- Most favoured nation treatment, ensuring foreign investors are treated no less favourably than domestic ones.
What makes BITs particularly valuable is the recourse they offer when things go wrong, especially when the fault lies with the host state's Government. Most BITs include consent to international arbitration, allowing investors to bypass potentially biased local courts.
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A foreign investor funds an infrastructure project in a developing country. A military coup occurs, and the project is nationalised. Without a BIT, the investor’s only recourse is the local courts – unlikely to rule against the new regime. With a BIT, however, the investor can initiate international arbitration, typically seated in a neutral jurisdiction that upholds the rule of law. These proceedings are generally private, with only the parties’ names disclosed. If successful, the investor can enforce the award against the host state's assets globally. If the award is issued under the International Centre for Settlement of Investment Disputes (ICSID), enforcement is even more straightforward. |
How do BITs protect private individuals structuring their assets?
Private individuals and trust structures can also benefit from BIT protections. These investors face similar risks to corporations when investing abroad: political instability, regulatory shifts, or asset seizure.
BIT protections apply to:
- Direct investments (eg a factory or mine).
- Structured investments via third countries.
BITs typically protect against:
- Direct expropriation: formal seizure of property.
- Indirect expropriation: regulatory actions that erode the economic value of an investment without formal seizure (eg new taxes and revoked licenses).
Because BIT protections supersede national law, regulatory actions can be challenged if they violate international standards. Host states cannot easily escape their BIT obligations.
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An individual holds a significant international portfolio, including an operating business primarily in jurisdiction A (the host state). In the event of political upheaval leading to expropriation, local courts may offer little recourse. The individual would like to put in place an asset protection structure that will:
The individual could use a combination of a private trust company structure and reliance on the BIT to achieve their objectives as follows:
The operating business in jurisdiction A is held on discretionary trust by a private trust company (PTC) established in jurisdiction B. A PTC is a corporate entity established specifically to act as trustee for one or more trusts, typically for a single family or group. It is commonly used for ownership of family business structures and is usually privately owned and controlled. If the Government in jurisdiction A takes adverse action (and assuming for this example that there is a robust BIT in place between jurisdictions A and B) the PTC – now a jurisdiction B investor – can invoke protections under the BIT between jurisdictions A and B, including:
Additional benefits of a PTC structure and discretionary trust include:
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What happens if a dispute arises?
If a dispute arises between the parties, the following process is usually followed:
- The investor provides a notice of dispute to the host state;
- There is usually then a cooling-off period to allow for settlement discussions;
- If no settlement, a panel of arbitrators will be appointed, with one arbitrator appointed by each state and a neutral appointee to serve as the president of the tribunal;
- Once constituted, the tribunal will set the rules and timetable of the process, including written submissions and oral hearings;
- After the hearing, the tribunal will publish an award, which can then be enforced against a state's assets.
Practical considerations
- BITs vary in scope: Each treaty defines what qualifies as an 'investor.' Some accept special purpose vehicles, others require substantial business ties.
- Third-country structuring is accepted: Investors often analyse multiple BITs to identify the most favourable. Mexico, for example, has 31 BITs in force – including with Switzerland, Luxembourg, Singapore and France.
- Timing matters: If a dispute is already foreseeable when restructuring, BIT protections may not apply. Careful attention to treaty wording is essential.
- Retroactive structuring may be possible: Even after an investment is made, restructuring might still enable BIT protection.
- Election of forum: Many BITs require investors to choose between local courts and arbitration, not both. Arbitration is typically preferred.
- ICSID reforms: Recent changes have made arbitration more accessible for smaller claims, with streamlined procedures and reduced costs.
- Tax and regulatory matters: Before establishing any trust or asset protection structure it will be essential to take tax and regulatory advice in the relevant jurisdictions, to ensure that there are no unforeseen tax consequences and that any local regulatory requirements are complied with.
- Governance: Where using a PTC, careful consideration will need to be given to its ownership and governance.
Conclusion
BITs are no longer the exclusive domain of multinational corporations. With careful structuring, private individuals and family offices can unlock powerful protections for their international investments.
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"Reliance on BITs is particularly on the rise in Latam countries including Chile; Mexico; Brazil and Argentina which have all concluded a BIT with Switzerland. Although Switzerland has no trust law itself, it is a very popular jurisdiction for trust and fiduciary services for international wealth. We are seeing an increase in the use of English law or Anglo-Saxon trusts with Swiss based fiduciaries for this type of structuring." |
Farrer & Co is well-positioned to advise on all aspects of the design and implementation of international trust and asset holding structures and investment strategies that leverage both international wealth planning tools and BITs – ensuring clients are protected, wherever they choose to invest.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2025
