“Próspera” was supposed to be an investment that would bring growth and jobs to Hondurans. Then it disrupted a neighboring town’s water supply, and Honduras decided that Próspera should be governed like any other company. Now, backed by billionaire investors like Peter Thiel, Marc Andreessen, and Sam Altman, it is suing Honduras for 31% of the country’s Gross Domestic Product.
Próspera is a self-proclaimed libertarian “startup city” carved out of some of the most beautiful beaches in Honduras. The views are so scenic that popular Netflix show “Love is Blind” filmed a portion of a recent season on the same island as Próspera. The “city” is a ZEDE, a zone for employment and economic development, a new legal concept that lets a private company become the government over an area of land.
Próspera is a space not for ordinary Hondurans but for wealthy individuals who want to avoid laws, regulations, or taxes in their home country — often the United States. Its unwelcome presence has already interrupted the lives of people in Crawfish Rock, an Afro-Carribean village on the island of Roatan, where Próspera’s unchecked growth has disrupted the local water supply.
The entity has rapidly expanded on the small island and has even added hundreds of acres of new territory on the Honduran mainland around the port of La Ceiba. Villagers who have lost access to their traditional water supply risk becoming dependent on Próspera’s privatized utilities and face the threat of being surrounded by Próspera and its privatized governance model.
Since its establishment in 2017, Próspera has paid no taxes to Honduras and has denied the applicability of all Honduran law and regulation except basic criminal and constitutional law. Próspera markets itself as “one of the most Bitcoin-friendly jurisdictions in the world,” though Bitcoin and other cryptocurrencies are banned from Honduras. Now the entity is suing the entire country of Honduras for $10.8 billion in damages. This lawsuit could crush the nation’s economy — and it’s being decided by an unaccountable arbitration tribunal in Washington, D.C.
Credit: OpenStreetMap, licensed under Open Data Commons Open Database License
This conflict is not just about water or land; it is about the future of Honduras and the Global South. Próspera and its investors openly advertise their goal to create new “startup cities” in more countries. Honduras’s history is one of struggle against colonialism, coups, and economic exploitation. Próspera is the latest iteration of colonialism. ZEDE-like entities have been proposed or have started developing in California, Guatemala, El Salvador, Nigeria, and other places around the world. This struggle is a microcosm of a global trend: the use of trade treaties and investor-state arbitration as a ratchet for recolonizing the world, from California to the Caribbean and back.
What is Próspera?
Próspera is a libertarian colonial experiment going wrong. Founded by a U.S.-educated libertarian named Erick Brimen, and backed by tech and finance elites like Sam Altman, Marc Andreessen, Balaji Srinivasan and Peter Thiel, Próspera offers corporations minimal taxation, a privatized government and the ability to choose their own regulations. Próspera claims its investors have put over $100 million into the project since 2017.
- Minimal taxation. Investors and residents pay no taxes to Honduras. They pay minimal taxes to the managers of Próspera, unburdened by the costs of infrastructure and social development in the society that surrounds them and from which they claim to draw labor. In October 2024, the mayor of Roatan ordered a temporary closure of Próspera for failure to pay a local tax bill of approximately $470,000.
- Privatized government. The government in Próspera is determined by land and wealth, not by people. Votes are allotted according to land ownership and residency, both of which require investment. Services like health care and education are entirely privatized, as is the police force. Civil disputes within Próspera are decided by three private arbitrators in Arizona, fully removing any involvement of Honduras’s public legal system.
- Effectively no regulation. Most importantly, Próspera claims it is not subject to Honduran laws and regulations. Próspera therefore operates without any of the oversight required of other corporations, leaving it free to ignore worker protections, construction safety requirements, environmental protections, and any other attempt to ensure the wellbeing of Hondurans who are not investors in the colony. Businesses can choose their own regulations from any country in the world, though the regulators who enforce them have no authority in Próspera .
- Cryptocurrency schemes. Próspera markets itself as a haven for cryptocurrency enthusiasts in a country where the central bank has banned the digital assets. Common uses of cryptocurrency–as the reasons why some countries like Honduras prohibit them–include financial speculation, money laundering, and tax evasion.
- Medical experimentation. Próspera is a playground for medical experimentation, including “longevity biohacking” and unproven treatments. For $25,000, one can even participate in DNA editing experiments trumpeted by Bryan Johnson, a wealthy anti-aging fanatic who regularly took elective blood transfusions from his teenage son in an effort to reclaim youth. In Honduras, where per capita healthcare spending is around $250 per year–one hundredth of the cost of a DNA editing experiment–Próspera’s medical system represents a gross misallocation of resources without regard for human needs.
Próspera is not just a Honduran problem — it is a global threat to people everywhere. The founders of Próspera envision a world where privatized “Freedom Cities,” “Charter Cities” or “Network States” operate independently of national governments. The ultimate goal is to replicate this model globally, including in international waters or in the United States, where like-minded groups have proposed autonomous zones within states like California. This vision reflects a disturbing trend of tech and finance capital seeking to dismantle public institutions and replace them with privatized, profit-driven governance.
How did this happen?
Próspera represents yet another U.S. imperial intervention against Honduran sovereignty. The U.S. government first invaded Honduras in 1903 to protect the investments of United Fruit in what became known as the Banana Wars. U.S. and other foreign interests have fundamentally shaped Honduran society and its economy around cash-crop exports, labelling Honduras the first “banana republic,” installing the largest U.S. military base in Central America, and making the region safe for U.S. capital. This prioritization of profits over people rhymes with the old slogan of United Fruit’s shipping line: “Every banana a guest, every passenger a pest.”
In the years since, the United States has turned to measures like free trade agreements to interfere in others’ economies.
Free trade favors strong economies over weaker ones. It prevents underdeveloped countries from protecting their domestic industries against takeover by U.S. corporations. Free trade agreements bring down barriers to trade and investment like tariffs and labor protections, key tools that underdeveloped countries use to develop an industrial base and workforce.
In the early 2000s, the U.S. pressured Honduras to adopt the Central American Free Trade Agreement. This legalized the basis for market domination. Several years later, the U.S. backed a coup against the democratically-elected president Manuel Zelaya. This cleared the way for the presidency of U.S.-educated Juan Orlando Hernández , a deeply unpopular right-wing politician. The Hernández regime oversaw the creation of Zones for Employment and Economic Development, the vehicle that would be used by Próspera. The ZEDE law allowed foreign companies to carve out pieces of Honduran territory and exercise authority over them.
When the Honduran Supreme Court struck down a similar law, the National Congress, headed by Hernández, fired the justices and pushed through the ZEDE law, paving the way for Próspera’s founding in 2017. Social and mass movements for democracy finally ousted Hernández from the presidency in 2022 and elected Xiomara Castro as their first woman president and first left-leaning president since Zelaya. Castro’s platform promised to repeal the ZEDE law.
Hernández was extradited to the U.S. on charges of drug trafficking in 2022 and is serving a 45-year sentence in a U.S. prison.
The popular administration and legislature took action and required companies like Próspera to pay taxes, abide by Honduran laws, and submit to Honduran courts like any other corporation. But Próspera’s investors see these basic measures as infringements on their supposed sovereign rights. Próspera’s investors decided to fight back, not through democratic processes or the Honduran judicial system, but through another carve-out of Honduran sovereignty: CAFTA. This means that three unelected lawyers based in Washington, D.C., will judge whether Hondurans have a right to set their own laws and how much they will have to pay to aggrieved investors for exercising that right.
Free trade: colonialism in disguise
Imperialists and their advocates claim free trade leads to industrial development and employment because of increased foreign investment. In practice, however, developmental gains are limited and short-lived, and colonial dynamics of exploitation continue or worsen.
Tellingly, investors’ countries of origin — colonial powers like the U.S., the UK and France —have typically taken the opposite approach to developing themselves: erecting heavy trade barriers until domestic industry matures, and only then preaching free trade in an effort to open up foreign markets for domination.
Free trade agreements like CAFTA make developing countries stable for capitalist investment. Disputes go through a process called arbitration. Unlike a trial, the parties involved must agree to the result of the arbitration panel and cannot appeal the decision. Free trade arbitration works outside of national courts in a system known as Investor-State Dispute Settlement. Each free trade agreement sets its own terms on how these disputes are managed.
CAFTA lets foreign investors sue governments–and not vice-versa–before tribunals accountable to no sovereign state. That means a company can threaten an entire country, but that country has no way to sue those foreign capitalists.
This concept of ISDS gives capitalists a menu of claims they can bring against countries where they invest: freedom from expropriation, most-favored-nation treatment, fair and equitable treatment and full protection and security. These legal terms all but ensure handsome profits for the rich. Indeed, among the parties to free trade agreements, it is always the wealthy investor countries that demand ISDS provisions, not the countries in want of investment. Pro-imperialist advocates say ISDS is critical for countries to get foreign direct investment. Many studies, however, show no significant difference in levels of foreign direct investment received by countries that agree to ISDS provisions compared to countries that do not.
When both the investor’s country and the host country have signed separate a separate treaty called the Washington Convention, as have the United States and Honduras, arbitration takes place in Washington, D.C., under special institutional rules that make arbitration awards even more difficult to appeal or overturn in any court. This means that investors can fully bypass national courts and evade public control. Honduras has withdrawn from the Washington Convention in an attempt to recover a degree of sovereignty, but it remains entangled in arbitration cases like Próspera’s that were filed before the withdrawal.
What’s at stake for Honduras
Próspera claims that Honduras violated its rights under CAFTA. At base, each of Próspera’s legal claims arise from the fact that Honduras repealed the unpopular ZEDE law.
The audacity of Próspera’s case is made clear in its claim for breach of most-favored-nation treatment. If one country signs a favorable deal with Honduras, then Próspera can claim it should also be entitled to that same deal. So, because Honduras provided a 50-year stability guarantee to investors from Kuwait in a completely separate trade agreement, Próspera says it automatically gets the same. Honduras supposedly breached their agreement guarantee by not providing 50 years of stability to Próspera — never mind that Próspera points to no actual Kuwaiti investment that Honduras treated more favorably. Próspera’s claims show the one-way operation of free trade law: once an advantage is granted to an investor, it can never be taken away without triggering an obligation to pay damages.
Próspera is claiming $10.8 billion in damages — an astronomical sum that represents two thirds of Honduras’s annual budget and one third of its GDP, and perhaps one hundred times what investors have actually put into Próspera. To put this in perspective, it would be as if a single company sued the United States for $4 to $9 trillion.
What happens now?
It’s no surprise that the investor-state arbitration process is heavily skewed in favor of investors. Arbitrators are often corporate lawyers or former judges with close ties to the industries whose investment arbitration claims they get to decide. Many engage in “double-hatting,” simultaneously representing investors in some cases while serving as arbitrators in others. In other countries this overt corruption is illegal.
Arbitrators are neither selected nor removable through any type of democratic process. The selection process for arbitrators is hidden to the public, and their decisions are virtually immune to appeal, even when they are blatantly incorrect or biased. This system incentivizes arbitrators to rule in ways that will lead to future appointments and perpetuate the system’s expansion, with each new case generating many millions in lawyer, arbitrator, and expert fees, charged at rates often exceeding $1,000 per hour.
Perhaps even more influential is the draw of prestige: investor-state arbitrators can count themselves among a small handful of powerful elites who sit as super-sovereigns with the power to judge the actions of states with respect to foreign capital. States like Honduras are left with little recourse, forced to spend millions on legal fees while facing debilitating damage awards.
An investor who wins a damage award can pursue enforcement in any other country where the state has assets — from a New York bank account to a national airline’s passenger jet. But when a state prevails in arbitration and wins a fee award, losing investors can more easily hide assets, play corporate shell games, or declare bankruptcy.
Honduras has hired specialty ISDS lawyers to defend itself at great cost and has appointed an arbitrator who has a respectable record ruling in favor of respondent states. Honduras is mounting a valiant and early defense but has not found success so far. Honduras objected to Próspera’s appointment of David W. Rivkin, a U.S. national, as one of the arbitrators, arguing that his shared nationality with Próspera created a conflict of interest. An unelected business executive who chairs the supervising arbitration institution in Washington, DC, rejected Honduras’s objection.
Once the tribunal was formed, Honduras objected that Próspera should have first tried its claims in Honduran courts. How can you resort to arbitration before even trying to work within the Honduran legal system? Próspera conceded that it made no effort to pursue remedies through the Honduran legal system but argued that Próspera had no legal obligation to do so. The arbitration tribunal rejected this objection as well, fully adopting Próspera’s argument.
Larger questions await later briefing, such as whether the protections of CAFTA can be invoked by an entity claiming sovereign status though not itself a party to CAFTA. In other words, when an investment becomes a state, does it lose the ability to maintain an investor-state arbitration against its former host?
If Honduras loses, the consequences would be catastrophic. The $10.8 billion claim could lead to the seizure of Honduran assets abroad, further impoverishing a nation already struggling with underdevelopment and inequality. On the other hand, if Honduras wins, Próspera’s investments would be subject to Honduran laws and regulations. Yet even in victory, Honduras might struggle to recover the legal fees and costs incurred in defending itself.
A settlement is also possible, though unlikely in the current circumstances. The case of Bechtel v. Bolivia may be a hopeful example. In the late 1990s, Bechtel, a U.S. corporation that profited from the war against Iraq, took over the municipal water system of Cochabamba, Bolivia, through a subsidiary. Bechtel raised water rates beyond what many residents could afford and imposed strict regulations, even prohibiting the collection of rainwater without a permit. This led to widespread protests, known as the Cochabamba Water War, as Bolivians faced restricted access to water, environmental degradation, and economic strain.
The protests resulted in several deaths and forced Bolivia to cancel Bechtel’s contract in 2000. Bechtel then initiated a $50 million investor-state arbitration against Bolivia, arguing that the cancellation violated its rights as an investor. The case drew international attention and sparked global outrage, with activists and human rights groups condemning Bechtel for prioritizing profits over basic human needs. Public pressure, including protests, media campaigns, and advocacy, played a significant role in shaping the outcome. In 2006, Bechtel settled the case for a symbolic payment of 2 Bolivianos (less than $1), dropping its claim for pennies.
Outside of the arbitration, Próspera is seeking to apply maximum pressure on Honduras through the threat of U.S. sanctions or even a coup. Próspera apparently has the ears of several members of Congress, who have threatened Honduras with sanctions if it does not honor Próspera’s self-rule. That Próspera can call on U.S. officials for backup reveals the imperialism at work in the system of capitalist “free trade.” CAFTA does not provide for sanctions but requires the elimination of trade barriers, requirements that U.S. sanctions might violate. Hypocrisy aside, the threat of sanctions underscores the “heads-I-win, tails-you-lose” dynamic of free trade agreements and ISDS in the context of imperialism.
Dismantle and replace systems of legal subjugation
Honduras is spending millions of dollars to defend itself in this arbitration, hiring expensive lawyers to navigate a system designed to subjugate nations to the interests of capital. This case is not just about Próspera, CAFTA, or U.S.-based arbitral institutions; it is about the broader system of legal and economic imperialism that prioritizes profit over people.
In Crawfish Rock, the people are struggling to protect their land, water, and livelihoods from encroachment by new forms of privatization and colonialism. They did not invite foreign capitalists to carve out a new state in their backyards but are bearing the consequences as Próspera spreads its roots, free from the Honduran legal and regulatory systems that previously provided basic protection for all. These Hondurans’ struggle is emblematic of a larger battle unfolding across Honduras, as the nation seeks to reclaim sovereignty from Próspera.
Honduras is a fertile country rich in natural resources capable of satisfying the basic needs of its citizens, but the dictates of foreign capital have imposed underdevelopment and dependency on Hondurans, leading to violence and migration. Honduras’s most popular street food, the baleada, symbolizes these dynamics: literally meaning “shot” after a vendor who was shot while selling them, baleadas are enveloped by a tortilla of wheat, a non-native grain imported from the United States, that squeezes out local ingredients of beans, crema, and cheese when held for consumption.
The struggle of Crawfish Rock and Honduras is a call to action for all who oppose neo-colonialism and privatization. As Honduras battles Próspera and its investors, it is also fighting for a future where nations can determine their own destinies, free from the chains of colonialism. People around the world who reject colonial carve-outs like Próspera must struggle in solidarity with Hondurans to reclaim sovereignty, prioritize people over profits, and develop authentic democracy.
Feature image: A golf resort in Próspera. Credit: Wikipedia.
