On 21 February 2017, the Paris Court of Appeal set aside an award rendered by a UNCITRAL arbitral tribunal (Kaj Hobér, Niels Schiersing, Jan Paulsson, President) on 24 October 2014 in the case of Valeri Belokon v Republic Kyrgyz Republic. The Court overturned the arbitral panel’s decision, which had found Kyrgyzstan liable for unlawful expropriation the Latvian investor. The French judges ruled that the investor’s acquisition and operation of a bank in Kyrgyzstan in 2007 aimed at covering money laundering practices.
The claim was brought in 2011 by the investor, a Latvian national, under the 2008 Latvia-Kyrgyz Republic Agreement for the Promotion and Protection of Investments. The arbitral tribunal ruled that the Kyrgyz Republic had “indirectly expropriated Manas Bank by imposing an arbitrary and unjustified series of administrative regimes on it in violation of Article 5 of the BIT” and “breached Articles 2(2) and 2(3) of the BIT by failing to provide Fair and Equitable Treatment to the Claimant and acting in a manifestly arbitrary and unreasonable manner”, and consequently awarded financial compensation to the claimant.
The arbitral tribunal was unconvinced by allegations of money laundering against the investor. It conceded that
“If probative and substantial evidence of Manas Bank having being actively involved in money laundering had been produced and presented to the Tribunal, the claim under the BIT may have been defeated. It scarcely needs to be said that investment protection is not intended to benefit criminals or investments based on or pursued by criminal activities” (Award, para. 158).
However, it found that
“From the evidence presented to it, the Tribunal is unable to deduce or infer that the Respondent state has proved that Manas Bank was involved in money laundering activities. Consequently, the Tribunal finds that the Claimant is entitled to avail himself of the remedies of the BIT” (Award, para. 170).
The Court of Appeal of Paris, relying to a large extent on the findings of the award itself, considered the context of the acquisition of the bank. It had occurred few year before the 2010 unrest and regime change in Kyrgyzstan which forced Kyrgyz President Kurmanbek Bakiev to resign. The Court stressed the existence of close financial links between the former president and the investor. It also found that the bidding process leading to the investor’s acquisition of the bank was irregular, and that this bank (Manas Bank) had ties to another bank owned by the same investor in Latvia, that was found by the Latvian authorities to have conducted operations in violation of money laundering regulations. Most of all, the judges based their ruling on an (audacious?) determination that the volume of Manas Bank’s activities, being out of proportion with the state of the Kyrgyz economy (it actually exceeded Kyrgyzstan’s GDP) and 80% of which involved non-resident companies, constituted evidence of “unorthodox” banking practices.
This decision, which highlights the need for arbitrators to conduct a robust assessment of allegations of investor’s misconduct, is to be evaluated against the background of a rising number of cases involving such allegations of misconduct, mainly related to corruption (see e.g. Mohamed Abdel Raouf, ‘How Should International Arbitrators Tackle Corruption Issues?‘ (2009) 24 ICSID Review-FILJ 116-136 – which encompasses corruption issues related to both commercial arbitration and ISDS) but also money laundering (see e.g. A. de Lotbiniére McDougall, ‘International Arbitration and Money Laundering‘, (2005) 20 American University International Law Review 1021-1054). It raises inter alia intricate issues of evidence and the burden of proof.