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A heightened level of review of arbitral awards in the context of money laundering allegations
A heightened level of review of arbitral awards in the context of money laundering allegations
11 April 2017
Series
Blogs
11 April 2017
The Paris Appeal Court has annulled an arbitral award rendered against the Kirghizstan Republic for violation of the BIT between Latvia and Kirghizstan on the ground that the enforcement of the award in France would result in allowing the investor to benefit from fraudulent money laundering activities.
Further to a bidding process initiated by the Republic of Kirghizstan National Bank (RKNB), Mr Belokon, Latvian citizen and close to the president of Kirghizstan had acquired a local bank in bankruptcy which he had renamed Manas Bank. In 2010, further to political unrest and change of government, and due to allegedly suspicious transfers of funds, the RKNB took measures which in effect resulted in Manas Bank’s nationalisation. In 2011 Mr Belokon started an arbitration against the Republic of Kirghizstan. The arbitral tribunal composed of Ian Paulsson, Karl Hober and Niels Schiersing ruled that the Republic of Kirghizstan had to pay to Mr Belokon an amount of 15.2 million USD. In particular, the arbitral tribunal denied all the money laundering accusations raised by the Government for lack of evidence.
On 22 January 2015, the Kirghizstan Republic started annulment proceedings against the award for violation of international public policy.
The Paris Appeal Court considered the annulment judge’s control of the award and held (i) that money laundering prohibition was relevant to international public policy (ii) that the fact that the criminal proceedings initiated against Mr Belokon were still ongoing had no impact on the annulment judge’s decision and (iii) most importantly, that the annulment judge had to consider the violation of international public policy without being bound by the evidence presented before the arbitral tribunal or by the tribunal’s findings and qualifications. As long as the conditions for due process were met, additional evidence could be presented to the annulment judge who would make a full review of the award.
In the case at hand, the Paris Appeal Court, considering the factual elements relied upon by the arbitral tribunal as well as other more recent evidence that was presented to it reached a different conclusion from that of the arbitral tribunal and held that:
(1) there were existing ties between Mr Belokon and the former president Bakiyev which could be qualified as inappropriate;
(2) the bidding process was improper;
(3) the audit reports on Manas Bank could not be relied on since the auditor owned seven safe deposit boxes at Manas Bank; and
(4) the volume and structure of the transactions realised by Manas Bank were not compatible with transactions made at a bank in bankruptcy and with the Kyrgyz economic situation.
The Appeal Court concluded that the award should be annulled because there were serious, precise and coherent elements showing that Mr Belokon acquired the local bank to develop laundering activities in a state where he had close ties with the economic leader which protected him from real control over his activities. Mr Belokon would not have been able to conduct these activities in Latvia. Recognition and enforcement of the award in France in this situation could result in Mr Belokon benefiting from the product of its tortious activities and therefore would violate international public policy in a manifest, effective and concrete manner.