1. Introduction
The advantages and efficient performance of sovereign wealth funds (SWFs) have led to their widespread adoption across various countries, particularly oil-rich nations. However, countries have adopted different legal approaches to the legal nature and status of these funds, giving rise to uncertainties regarding their legal implications. These uncertainties range from the jurisdiction of International Centre for Settlement of Investment Disputes (ICSID) over disputes to questions concerning judicial and enforcement immunity.
In Iran, the approach adopted with respect to the legal nature of the National Development Fund of Iran (NDFI) presents not only significant ambiguities but also numerous practical challenges, particularly in the current environment of sanctions. It is thus essential to interpret the relevant regulations to determine the legal nature of the NDFI, assess its legal status under current circumstances, and ultimately develop an appropriate legal model in this regard.
The present study sought to answer the following questions: What is the legal nature of sovereign wealth funds? What approaches and methodologies have been adopted internationally in this regard? What are the legal implications of this nature in international disputes? What is the legal nature and status of the National Development Fund of Iran? What are the implications thereof? And what effective strategies for legal reform can be adopted in this area?
2. Literature Review
Research on SWFs in Iran remains limited and relatively sparse. There are a few attempts with a financial and economic focus, such as “Sovereign Wealth Funds, Sovereign Risk, and External Financing Costs of Financial Intermediaries” (Feghikashani & Yahyavi, 2018). Moreover, a number of studies have specifically addressed the NDFI, such as “Governance Model and Resource Allocation in the National Development Fund of Iran” (Mahmoudi et al., 2020). Published in 2024, the Persian translation of Truman’s well-known monograph titled Sovereign Wealth Funds: Threat or Salvation? (Truman, 2010) also deal with SWFs and their implications. Furthermore, several studies have been undertaken by public institutions in Iran. These include the report entitled An Introduction to the Currency Reserve Account and the National Development Fund (Pilehforoush, 2012) and The National Development Fund and the Outlook for Achieving New Governance in Addressing Seven Fundamental Challenges published by the NDFI in 2023.
Nevertheless, the existing literature predominantly focuses on the economic and financial dimensions of SWFs and pays comparatively limited attention to their legal aspects. Accordingly, the novelty of the present research lies in its focus on examining the legal implications of SWFs in international disputes, analyzing the legal nature and status of the NDFI, and proposing potential legal reform strategies in this area.
3. Materials and Methods
This study employed a descriptive–analytical approach and a library research method. It first identified and analyzed the various approaches to determining the legal nature of SWFS in the international context, drawing on reports and materials published by international organizations. It then examined the implications of the legal nature of SWFs in light of legal doctrines and ICSID arbitral practice concerning its personal jurisdiction. Particular attention was given to the implications of such legal characterization for judicial and enforcement immunity, based on records of international disputes, relevant international instruments, and the laws of various countries. Finally, the study analyzed the legal and regulatory framework governing the NDFI and identified the model adopted with respect to its legal nature. On this basis, it went on to propose corrective and reform strategies within the NDFI’s desirable legal framework.
4. Results and Discussion
SWFs, regardless of their particular form, satisfy the technical and legal requirements of the international financial system and the Santiago Principles. In this respect, there is no significant distinction between SWFs that lack an independent legal personality separate from the state and those that possess such independent legal personality.
Concerning the implications of the legal nature of SWFs for the personal jurisdiction of ICSID, the consolidation of the Broches criterion in ICSID arbitral practice, together with the principles embodied in the Santiago Principles, indicates a shift away from structural criteria toward an emphasis on the state’s control and managerial role, as well as the fund’s financial and legal independence from the state. Consequently, the legal nature of an SWF has become a secondary factor in determining the jurisdiction of ICSID over investment disputes brought against host states.
With respect to the impact of the legal nature of SWFs on judicial and enforcement immunity, no significant distinction appears to exist between funds possessing independent legal personality and those lacking such personality. Nevertheless, in cases of uncertainty, the fund’s management structure and the extent of oversight exercised by the state may serve as secondary indicators in determining whether the fund is engaged in commercial or non-sovereign activities. It should also be noted that national legislative systems and practice of arbitral tribunals generally tend to adopt a more flexible approach when determining the criteria of statehood for the purposes of immunity.
The NDFI is regarded as a pool of state-owned assets and does not possess an independent legal personality. To establish an optimal legal model for SWFs under the Iranian law, it is first necessary to recognize and clearly define the NDFI’s independent legal personality and the specific legal implications arising from such status. Furthermore, given the increasing number of SWFs, the necessary legal and executive powers should be provided to establish appropriate legal frameworks for private investment based on a non-sovereign model. Priority should also be given to portfolio investments.
5. Conclusion
There are deficiencies and ambiguities surrounding the Broches criterion, particularly with regard to the concept of representation and its interpretation in a manner that is inconsistent with the prevailing understanding of the term across various legal systems and under international law. It is thus necessary to develop an effective interpretation of this concept and to clearly delineate its scope and dimensions.
In determining whether judicial and enforcement immunity, as well as other limitations and privileges accorded to states in the context of foreign investment and international trade, apply to SWFs, the general principle should be that—where reasonable efforts by arbitral tribunals or the relevant authorities of the host state fail to establish the legal nature of the fund with sufficient certainty—its subject and actions, and consequently the assets associated with them, should not be presumed to be sovereign in nature.
The development of an effective strategy concerning the legal nature and regulatory framework of SWFs under the Iranian law currently requires legislative reform. In this regard, it is recommended that Article 16 of the Law on Permanent Provisions of National Development Plans be amended to recognize the independent legal personality of the NDFI and the specific legal implications arising from such status, particularly its independence with respect to assets and management. Such reform should also provide a legal basis for establishing other national investment entities and for creating a chain of investment companies in which private shareholders hold controlling interests, ultimately allowing foreign individuals and entities to participate in such companies. Furthermore, with respect to surplus revenues derived from oil and other natural resources, and taking into account monetary and fiscal policies as well as national development priorities and budgetary considerations, additional national investment entities should be established pursuant to a unified legislative framework or dedicated enabling legislation.