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When Investors Subvert States

The ongoing lawsuit brought against Honduras by an American company underscores the unjust and undemocratic nature of the investor-state dispute settlement system. The Biden administration must intervene on behalf of the Honduran government and eliminate these biased and opaque corporate tribunals.

NEW DELHI – Imagine a scenario where a private company effectively creates and controls its own jurisdiction within a sovereign country. This company introduces its own currency, enacts laws, and establishes courts, prisons, police forces, and even intelligence services. It formulates its own tax, labor, and environmental regulations (or lack thereof), regardless of their compatibility with national laws.

Now imagine that this company adopts bitcoin as its official currency and announces plans to privatize public services. It replaces the existing judicial system with an “arbitration center” and even introduces a fee-based citizenship model that requires signing a “social contract” designed to encourage good behavior. Eventually, the country’s democratically elected government steps in to stop this nonsense and affirm that national laws apply equally to this jurisdiction. But instead of complying, the company sues the government for billions of dollars, citing its projected financial losses.

This scenario, seemingly lifted straight out of a dystopian novel, is precisely what is happening today in Honduras. The Honduran government is currently contending with seven international investor-state dispute settlement (ISDS) claims filed by various private corporations. One US company based in Delaware, Honduras Próspera, is suing the country for a staggering $10.7 billion, which represents two-thirds of the government’s projected budget for 2023.