Among the principles ensuring the protection of foreign investments, bilateral investment treaties (“BITs”) typically include the free transfer principle regarding the transfer of funds/returns of the investments into and out of the host State of investment.
One of the primary objectives of BITs is to provide a stable and predictable legal framework that boosts the confidence of foreign investors. By guaranteeing the right to freely transfer funds into and out of the host State, investors are reassured that they can repatriate their capital, profits, interest, dividends, or other related returns without undue interference.
The free transfer principle’s primary goal is to “set forth a host country’s obligation to permit the payment, conversion and repatriation of the funds that relate to an investment.” As noted by the arbitral tribunal in Continental Casualty Company v. Argentina, the principle of free transfer is “fundamental to the freedom to make a foreign investment and an essential element of the promotional role of BITs”.
However, the scope of the free transfer principle must be nuanced. As held by the arbitral tribunal in Biwater Gauff v. Tanzania, this principle “is not a guarantee that investors will have funds to transfer. It rather guarantees that if investors have funds, they will be able to transfer them […]. The free transfer principle is aimed at measures that would restrict the possibility to transfer, such as currency control restrictions or other measures taken by the host State which effectively imprison the investors’ funds, typically in the host State of the investment.”
Content of the Free Transfer Principle
The content of the free transfer principle is not uniform and depends largely on the wording of the BIT at stake. While some BITs contain a rather general formulation of the free transfer principle, other BITs specify the types of funds covered by it. For instance, Article 5(1) of the Argentina-Germany BIT provides a list of several categories of payments covered by the principle of free transfer, which can be translated into English as follows:
(1) Each Contracting Party shall guarantee to nationals or companies of the other Contracting Party the free transfer of payments in connection with an investment, including:
(a) The capital and additional amounts to maintain or increase the investment;
(b) The returns;
(c) Repayment of loans […];
(d) The proceeds from the sale of the whole or any part of the investment;
(e) The compensation provided for by article 4.
Likewise, Article 7 of the Kazakhstan-United Arab Emirates BIT guarantees foreign investors the free transfer of payments related to their investments in accordance with the domestic legislation of the host State, including:
a) the initial capital and any additional capital for the maintenance, management and development of the investments;
c) payments under a contract made pursuant to a loan agreement;
d) proceeds from sale or liquidation of the complete or any part of the investments, including shares;
e) earnings and other remuneration of personnel engaged from abroad in connection with the investments;
f) payments of compensation pursuant to Articles 5 and 6.
The 2015 Japan-Ukraine BIT provides another example of a BIT including the free transfer principle that enumerates the categories of funds that are to be freely transferable from the host State of investment in Article 16:
1. Each Contracting Party shall ensure that all transfers relating to investments in its Area of an investor of the other Contracting Party may be freely made into and out of its Area without delay. Such transfers shall include, in particular, though not exclusively:
(a) the initial capital and additional amounts to maintain or increase investments;
(b) profits, interest, capital gains, dividends, royalties, fees and other current incomes accruing from investments;
(c) payments made pursuant to a loan agreement;
(d) proceeds of the total or partial sale or liquidation of investments;
(e) earnings and remuneration received by nationals of the other Contracting Party who were permitted to work in connection with an investment in the
Area of the former Contracting Party;
(f) payments made in accordance with Articles 13 and 14; and
(g) payments arising out of the settlement of a dispute under Article 18.
Treaty Restrictions to the Free Transfer Principle
Some BITs also envisage circumstances in which the principle of free transfer may be restricted. For instance, Article 7 of the French Model BIT permits the host State to temporarily suspend the principle of free transfer in the case of a threat of a serious disequilibrium to the balance of payments:
When, in exceptional circumstances, capital movements from or to third countries cause or threaten to cause a serious disequilibrium to its balance of payments, each Contracting Party may temporarily apply safeguard measures to the transfers, provided that these measures shall be strictly necessary, would be imposed in an equitable, non discriminatory and in good faith basis and shall not exceed in any case a six months period.
Other BITs, such as the Canadian Model BIT, enable the host State to set up further restrictions relating to the enforcement of judicial or administrative decisions or the protection of creditors:
Notwithstanding paragraphs 1, 2, 3 and 4, a Party may prevent or limit a transfer through the equitable, non-discriminatory and good faith application of its domestic law relating to:
(a) bankruptcy, insolvency or the protection of the rights of a creditor;
(b) issuing, trading or dealing in securities;
(c) criminal or penal offences;
(d) financial reporting or record keeping of transfers if necessary to assist law enforcement or financial regulatory authorities;
(e) ensuring compliance with an order or judgment in judicial or administrative proceedings; or
(f) social security, public retirement or compulsory savings programmes.
Free Transfer Principle and Investment Arbitration Case Law
When assessing free transfer-related claims brought by foreign investors against host States, arbitral tribunals usually take into consideration several elements, such as:
- whether the matter falls within the arbitral tribunal’s jurisdiction and the measure is attributable to the host State
This issue may arise when the claim is linked to contractual rights that were not contracted by the State or its organs. The arbitral tribunal in White Industries v. India rejected a claim based on the free transfer principle, holding that the calling of bank guarantees, which was a contractual right, by Coal India was not attributable to India:
Apart from the fact that Article 9 is clearly aimed at restrictions on the movement of capital and exchange of currency imposed by a Contracting Party, rather than the assertion of a contractual right to funds provided for in a bank guarantee, the claim is entirely based on the conduct of Coal India.
Accordingly, the Tribunal having determined that the conduct of Coal India is not attributable to the Republic, there is no basis for a claim that India acted in any way in breach of its obligations created by Article 9 of the BIT.
- whether the investor, in fact, complied with the procedure required by the host State in order to transfer funds abroad
For instance, the arbitral tribunal in Metalpar v. Argentina held that the “Claimant, who knew the regulations on this matter well, as indicated in the file, did not comply with the established procedure, which consisted of requesting authorization from the Central Bank […] and that Argentina did not breach article 5(b) of the BIT, which guarantees the transfer of funds abroad.”
Likewise, the arbitral tribunal in Rusoro v. Venezuela concluded that the free transfer principle could be violated only if the investor complied with the procedure to be followed in order to release payments in foreign currency and such a request was denied: 
And the 2010 reform of the Swap Market was a policy decision adopted by the Bolivarian Republic in order to prohibit a parallel foreign currency market, which up to then had been tolerated, after the reform all foreign currency transactions were to be cleared through a centralized exchange control system, controlled by the BCV and based on the Official Exchange Rate.
This reform could only give rise to a breach of Art. VIII if Rusoro could prove that it had requested foreign currency in connection with an investment or a return, and that the authorisation had not been granted as required by the BIT (without delay, in a convertible currency and at the rate of exchange prevailing at the date of transfer) – which Rusoro has not alleged.
In summary, the principle of free transfer in investment arbitration underscores the importance of allowing foreign investors to repatriate their investments and associated profits without undue interference. It is a fundamental aspect of investment protection and is enshrined in many international investment agreements, which provide dispute resolution mechanisms via arbitration when this principle is violated by the host State of investment.
 Transfer of Funds, UNCTAD Series on Issues in International Investment Agreements, New York/Geneva, 2000, p. 1.
 Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008, para. 239.
 Biwater Gauff v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 735.
 See, e.g., Burundi-UK BIT, Article 6: “Each Contracting Party shall in respect of investments guarantee to nationals or companies of the other Contracting Party the unrestricted transfer of their investments and returns. Transfers shall be effected without delay in the convertible currency in which the capital was originally invested or in any other convertible currency agreed by the investor and the Contracting Party concerned. Unless otherwise agreed by the investor transfers shall be made at the rate of exchange applicable on the date of transfer pursuant to the exchange regulations in force.”
 The Kazakhstan-United Arab Emirates BIT was signed on 24 March 2018 but has not yet entered into force as of the date of this note. See update on the UNCTAD website (last accessed on 8 September 2023).
 White Industries Australia Limited v. Republic of India, UNCITRAL (ad hoc), Final Award, 30 November 2011, paras. 13.2.3 and 13.2.4.
 Metalpar v. the Argentine Republic, ICSID Case No. ARB/03/5, Award on the Merits, 6 June 2008, para. 179.
 Rusoro Mining Limited v. the Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, paras. 581-582.