|APPRI||Agreement between the Republic of Peru and the Republic of France on the Reciprocal Promotion and Protection of Investments|
|Banking Law||General Law on the Financial and Insurance Industry and Organic Law of the Superintendency of Banking and Insurance|
|Bank of America||Bank of America Securities LLC|
|BCP||Banco de Crédito del Perú|
|BCR||Banco Central de Reserva del Perú|
|BNM||Banco Nuevo Mundo|
|CAF||Corporation Andina de Fomento|
|CEPRE||Comisión Especial de Promotion para la Reorganization Societaria (Special Commission for the Promotion of Corporate Reorganization)|
|COFIDE||Corporation Financiera de Desarrollo S.A.|
|CONASEV||Comisión National Supervisora de Empresa y Valores|
|COMEX||Sociedad de Comercio Exterior del Perú|
|Congressional Commission||Monitoring and Supervisory Commission to Investigate Possible Irregularities in the Process of Intervention and Liquidation of Banco Nuevo Mundo|
|ICSID||International Centre for Settlement of Investment Disputes|
|ICSID Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings|
|ICSID Convention||Convention on the Settlement of Investment Disputes between States and Nationals of Other States|
|Institution Rules||Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings|
|FONAFE||Fondo National de Financiamiento de la Actividad Empresarial al Estado|
|MEF||Ministry of Economy and Finance|
|NMH||Nuevo Mundo Holding S.A.|
|PCSF||Programa de Consolidation del Sistema Financiero (Financial Industry Consolidation Program)|
|SBS||Superintendency of Banking, Insurance, and Pension Fund Administration|
|SUBCOMMISSION||Working Subcommission of the Economic Commission of the Congress of the Republic to Evaluate the Intervention by the Superintendency of Banking and Insurance of NBK and Banco Nuevo Mundo|
BNM (originally known as Banco Iberoamericano SAEMA - BANIBERICO) was incorporated in Peru on January 31, 1992 and changed its name to Banco Nuevo Mundo on October 6, 1992. By SBS Resolution No. 1455-92 of December 30, 1992, SBS authorized the start-up of BNM’s financial operations, which commenced on January 25, 1993.3
Ibid., ¶¶ 5 and 7.
a. Corporation XXI Ltd., incorporated in the Bahamas on January 27, 1997.
b. Burley Holding S.A., incorporated in Panama on April 1, 1999; its change of name to Nuevo Mundo Holding S.A. was registered on July 16, 1999.
c. Holding XXI S.A., incorporated in Panama on July 12, 2000. Under the Stock Transfer Agreement dated August 29, 2000, Holding XXI S.A. acquired 52 percent of the shares held by Corporation XXI Ltd. in Nuevo Mundo Holding S.A. Effective June 25, 2008, Holding XXI S.A. changed its name to Corporation XXI Ltd. S.A. (Panama).4
"Banco Nuevo Mundo S.A. is part of the Economic Group consisting of the following:
Banco Nuevo Mundo S.A., Nuevo Mundo Holding, NMB Limited, Inversiones NMB SAC, Nuevo Pais S.A., Nuevo Mundo SAFI S.A., Holding XXI S.A., Corporation XXI Ltda,, GREMCO S.A., CIA. Hotelera Los Delfmes S.A., De Fábrica S.A., Apart Hotel S.A., GREMCO Publicidad S.A., Inmobiliaria Las Colinas S.A., Inmobiliaria Renerose S.A., Parques Comerciales S.A., and Peruvian Mining Corporation S.A.... it is established that within the Nuevo Mundo Economic Group there is a ‘financial conglomerate’ consisting of the following: Banco Nuevo Mundo S.A., Nuevo Mundo Holding S.A., NMB Limited, Inversiones NMB SAC, Nuevo Mundo SAFI S.A., and Nuevo Pais S.A., and the firms in this conglomerate are indirectly owned by four families, through Holding XXI S.A. (Levy Calvo family), Strategic Finance Corporation (Franco Sarfaty family), Mariola S.A. (Porudominsky Gabel family), and Pragati Investment (Herschkowicz Grosman family)...."5 [Tribunal’s translation]
"Authorizing issue of Peruvian treasury bonds and authorizing companies with multiple operations under the financial system to transfer part of their portfolio to the MEF".11 This program allowed Banks "to temporarily exchange their under-performing loans for Treasury bonds. However, the loan portfolio exchange program did not allow banks to transfer loans rated as losses ("pérdida"}— the highest risk rating through this exchange, the banks that participated could postpone recording loan loss provisions for their underperforming loans until they reacquired the loans over the course of four years under the program (plus one-year grace period). BNM benefited from this program by exchanging a portfolio of loans for US$33.7 million in bonds... "12 The Decree itself "...Authorize the Ministry of Economy and Finance to issue Treasury Bonds up to a total amount of US$400,000,000.00...Companies with multiple operations under the Financial System may transfer to the Ministry of Economy and Finance a portion of their portfolio, receiving in exchange the bonds... Neither the portfolio of credits classified as losses nor financial leasing arrangements may be subject to transfer... companies with multiple operations under the Financial System shall meet the following requirements: a)... have a Development Plan approved by the Office of the Superintendent of Banking and Insurance, which shall contain, among other elements, commitments for capitalizing earnings, reinforcement of internal controls and, if applicable, a commitment to make capital contributions in cash."13
"Discrepancies in the Loan Portfolio Ratings towards greater risk categories regarding than that assigned by the Bank totaled 127 debtors with liabilities amounting to S/. 206,880,000, which represented 53.3% of the number of evaluated debtors and 34.4% of the amount of the evaluated portfolio.[...] the General Management through unnumbered document dated September 2, 1999, informed that it had begun to re-rate the credits reported as discrepant."15
"The following has been determined resulting from the evaluation and rating of the Loan Portfolio at June, 30, 1999.
a. CRITICIZED LOANS: Loans subject to Critics amounted to S/.320.804,000 which represented 53% of the sample evaluated and 19% of the Loan Portfolio. The Criticized Credits with relation to the evaluated sample are comprised by Potential Problems S/. 138,805,000 (23%), Deficient S/. 152,522,000 (25%), Doubtful S/.25.866 (4%) and Loss S/.3.611,000 (1%)... In the future, the Bank must act pursuant to Resolution SBS No. 572-97 of August 20 of this year.
c. BAD DEBT PORTFOLIO...
d. PROVISION DEFICIT: The Loan Portfolio rating result determined a specific provision deficit for uncollectable risk of 125 loans subject to critics for a total of S/. 21,536,000... At the closing of July 1999, new provisions have been constituted for S/.2.393,000 for observed loans, reducing the provision deficit to S/.19.143,000."16
"2.2.2. REFINANCED LOANS
From the review made on a sample of 218 debtors, it was determined that most of them do not fit properly in the accounting registry and risk rating; not-complying with what is established in the Chart of accounts for Financial Institutions, Resolution SBS No. 572-97 and the own Bank standard named NOR-NEG-010/98.
a. It was verified that the Bank performed refinanced transactions with 35 debtors which balances at July 31, 1999, amount to S/. 1,842,000 and US$4,583,000, in some cases with interest capitalization, which were not registered in accounting as refinanced transactions. Likewise, the risk rating assigned to the mentioned debtors pertains to "Normal" category...
b. It is also worth noting that, in certain cases such transactions are created by the unusual practice of amortizing or paying loan installments with charge to past due current accounts, increasing the debt balance given (sic) no payments are received, sufficient to face new charges, evidencing that the notes or loans are reduced with the own Bank’s resources.
The mentioned status was informed to the General Management through Memorandum No. 12-99-VII.BNM dated 99.08.11, specifying that the observation is reiterative. On 99.08.19, the General Management reports it has given instructions so that the active standards on the matter must be fulfilled, indicating also, having complied with the register of refinanced transactions observed in the years 1997 and 1998.
In this regard, we must indicate that even if the Bank complies with the recommendations made by this Superintendency, it is necessary to indicate that given incurred recidivism it deserves to be sanctioned pursuant to the Ruling of Sanctions of Resolution No. 310-98."17
"The Bank must reformulate the current politics about debtors which keep overdrafts in current account for long periods and created by cancellation of their Credit Cards or by charges to corresponding payments of their loans, to avoid, in the first place, the practice of charging loan payments on past due current accounts and in the second place, apply the last paragraph of Article 228 of the General Banking Law that facilitates the executive action on past due balances in current accounts."18
On October 22, 1999, SBS adopted Resolution No. 0950-99 imposing a fine on BNM, because in the 1999 Report SBS had noted that BNM:
"... repeatedly omitted to register loan operations with evident signs of refinanced operations as such in its accounting records... both the Inspection Visit Report No. ASIF "A" 034-VI/97 corresponding to 1997, and the Inspection Visit Reports Nos. ASIF "A" 164-VL98 and... corresponding to 1998 and 1999 respectively, inspectors observed that Banco Nuevo Mundo had carried out refinanced operations that were not registered as such in its accounting records;
Such operations are being registered as new loans, thereby avoiding increasing the high risk portfolio and a bad rating; furthermore, interests and commissions are being registered in the accounting records as business income thereby infringing the Chart of Accounts for Financial Institutions, Resolution SBS No.572-97 and the Bank’s own rule called NOR-NEG-OlO/98."20
Respondent’s Exhibit R-145.
"Close monitoring of checking accounts has been implemented at various levels in order to avoid situations such as those observed by the Inspection Team."22 The letter also referred to refinanced loans and stated: "The accounting has been brought up to speed for loans considered by the Superintendency to be refinanced during the 1997 and 1998 annual visits. Furthermore, instructions have been given to implement the most advisable approach for those specified by the Superintendency during the last visit."23
"As a result of the Inspection performed [from January 17 to February 18, 2000], the following aspects must be highlighted, among others:
The Administration’s failure to abide by the rulings contained in articles 206 to 209 of the General Law, given that loans have been granted for amounts that exceed the 10% legal limit of cash equity, in Grupo Miyasato for S/. 9,626,000, since it has not included the company Del Pilar Miraflores Hotel as part of the group. At February 10, 2000, it exceeded the 10% legal limit of cash equity, without having sufficient collaterals to cover the amount of loans S/. 162,000.
A reserve deficit in awarded assets for S/. 3,947,000 was determined, since the Bank used a proceeding that is not consistent with numeral 5) of Circular No. B-2017-98 which establishes that reserves must be provisioned for 20% of the net book value at the time of the awarding.
The evaluation of the level of implementation of the recommendations contained in the 1999 report issued by this Superintendency showed that 44.7% of what has been observed are pending and/or in correction process. Likewise, inspectors noticed that there is no consolidated supporting information that would allow the confirmation of the implementation of the recommendations indicated by the Bank.
The Bank shows a high concentration of liabilities through public institutions deposits and COFIDE lines; this situation represents a potential liquidity risk. Likewise, inspectors observed that despite its network of branch offices, the Bank has failed to diversify such concentration; 70% of the Bank’s deposits are concentrated in the Headquarters."35
In November 2000, BNM obtained overnight loans from BCR; Mr. Germán Suárez Chávez, the Chairman of BCR, informed Mr. Luis Cortavarría, the Superintendent of Banking and Insurance, in the Official Letter EF-No. 225-2000-PRES of December 5, 2000, that:
"... the aforementioned banking company has been appealing to the Central Reserve Bank since November 13th, 2000 to cover its reserve requirement in foreign and domestic currency. Thus, for the aforementioned month, the amount of granted loans has been, on average, $63.7 million US for a total of twelve days and S/. 97.5 million for two days (Sols). On December 4th, 2000 a loan to cover its reserve requirements in foreign currency for $73.0 million US was granted to Banco Nuevo Mundo."56
Respondent’s Exhibit R-123, page 1.
"1. The Bank has a high liquidity risk because of the large withdrawals in recent months, mainly by State-owned companies, which forced the Bank in November to perform rediscounting operations amounting to US$70 million over six days and to obtain interbank loans of US$266.6 million (a daily average of US$12.6 million), in order to meet reserve requirements. According to the latest reports, the Bank has a critically low level of available funds, which would not allow it to pay depositors and meet other liabilities due immediately.
2. It has a high concentration of deposits by public companies, amounting to S/. 319 million (at August 31, 2000) or 25.5 percent of the Bank’s total deposits.
This creates a potential liquidity risk because of the possibility of deposit withdrawals in significant amounts, as occurred in recent months."60 [Tribunal’s translation]
"A large number of past-due, refinanced and restructured loans were identified as being recorded as ‘Current Portfolio’, totaling S/. 141.7 million (US$40.6 million), thereby contravening the stipulations of the Chart of Accounts for Financial Institutions... It is worth noting that this is a recurring observation, since the Report on Inspection Visit... corresponding to year 1997, as well as the... corresponding to years 1998 and 1999, respectively, included the observation that the Bank had refinancing operations that were not recorded as such. As a consequence of this situation, through Resolution SBS No. 0950-99 of October 22, 1999, the Bank was fined 20 Tax Units (Unidad Impositiva Tributaria- UIT)"61
"The Evaluation and Classification of the Loan Portfolio found:
Criticized loans totaling S/. 728,494 thousand, representing 57 percent of the loans examined and 35 percent of the total portfolio...
Loan portfolio classification discrepancies, requiring placement in higher-risk categories than those assigned by the Bank for 141 debtors owing S/. 587,406 thousand, representing 46 percent of the portfolio examined and 48 percent of the number of debtors reviewed. This was evidence of incorrect portfolio classification by the Bank, in violation of the relevant regulations. The discrepancies concerned 94 debtors, of which 50 were classified as having potential problems and 44 were classified as being deficient; those two categories accounted for 85 percent of the discrepancies... It should be noted that, of the 141 debtors affected by discrepancies, 22.3 percent (45 debtors) were two or more levels below the correct classification, according to the regulations in force. This is a higher percentage than was found during the 1999 Inspection Visit (12.8 percent)."62 [Tribunal’s translation]
"E. EARNINGS: At June 30, 2000, income from interest on overdue lending operations recorded in "Current portfolio" and from current accounts with amounts overdue more than 60 days was overestimated in the amount of S/. 3,877 thousand (50 percent of net profits at that date), because of inappropriate system procedures applied to those operations, recording income in the financial statements that had not actually been received...
F. INTERNAL AUDIT:
The Internal Audit Office did not perform its control functions, in view of the serious observations made by the Superintendency in evaluating the portfolio: overdue, refinanced, and restructured operations all recorded in "Current Portfolio" for a total amount of S/. 141.8 million and income of S/. 3,877 thousand relating to overdue operations recorded as being current (50 percent of net profits)."63 [Tribunal’s translation]
"The Superintendence has determined that the loan portfolio classification performed by the Bank does not meet, in general terms, the criteria established in Resolution No. 572-97 and complementary standards, giving rise to a loan loss reserves requirement for difficult to collect loans totaling S/. 79,182,000. However, as a consequence of loan loss reserves recorded in the following months with respect to the loan portfolio, the deficit at September 30 for this portfolio would be S/. 52,975,000.
When the total referred to in the preceding paragraph is added to the loan loss reserves requirement to cover debtors now classified as loss as a consequence of the transfer ordered buy the Supreme Decree 099-99-EF for S/. 13,038,000 and for the consumer portfolio requirement of S/.454.999 the result portfolio deficit of S./66,467,000. Once incorrectly recorded interest of S/. 3,877,000 is added, the final result is a total loss of S/. 70,344,000, meaning that the Bank’s regulatory capital at September 30, 2000 is reduced by 25.7%. Consequently, in the short term, the Bank’s Board of Directors must adopt actions, within the permitted legal limits, to bring about the reversal of this equity situation to ensure that growth of Bank operations is not affected."64
"The Bank’s solvency, measured through risk-weighted assets and loans against the Bank’s effective equity on September 30 of this year provides a leverage ratio of 8.25. Compared with previous months, this leverage decreased as a consequence of the Bank increasing its share capital in that month.
However, when taking into account the deficit in loan (sic) loss reserves found during the visit, the adjustment at September 30 for loan loss reserves performed by the Bank totaling S/. 57,306,000, incorporation of the portfolio corresponding to D.S. 099-99-EF that would result in an additional deficit of S/. 59,813,000 and finally goodwill for S/. 45,138,000, effective equity would rise to S/. 114.4 million, meaning that the Bank would require capital of S/. 111.5 (US$32 million) in order to be able to achieve a leverage ratio of 10 that would enable it to perform under normal conditions."65
"Following up with several conversations we have had with the Superintendency in the last few weeks, we hereby submit our proposal to perform a significant reinforcement of Banco Nuevo Mundo.
Banco Nuevo Mundo... along with the company "Inversiones NMB S.A.C."... will purchase, as an investment, a real property of approximately 200 hectares...
The Bank would purchase a first and preferential participation in that property for an amount of US$37 MM, which would be paid to Gremco S.A. by the Bank by a cashier’s check.
This investment would allow our shareholder Nuevo Mundo Holding... to increase the capital of the Bank in US$37MM, which consists of US$20 MM in preference shares...
After this increase of capital is performed, the capital of the Bank will be approximately US$73MM and the reserves will be approximately US$34MM."66
"1.1. Discrepancies in debtor ratings-
In our preliminary evaluation of the Bank’s loan portfolio at September 30, 2000, with a sample of 110 clients, we have determined discrepancies in the ratings of 52 debtors. This situation could create a provision deficit for loans at that date of approximately S/. 47,816,000."80 In this same report, PwC stated: "In December 2000, the reserve for loans has been adjusted, increasing the corresponding provision by S/. 80.9 million, thereby addressing the observations of the Superintendence of Banking and Insurance (SBS) in its report of the inspection visit No. DESF "A"-168-VE2000 dated November 27, 2000."81
"Pursuant to ISA 560, PwC assessed new events and information that arose subsequent to the end of BNM’s fiscal year. If those subsequent events or information revealed the true condition of BNM’s assets during the fiscal year 2000, we determined that this information should have been reflected or disclosed on BNM’s December 2000 financial statement. When our fieldwork ended on March 5, 2001, we completed our in-depth review of BNM’s assets and also ended our investigation into subsequent events or information. Therefore, we included in our final audit report subsequent events or information that occurred between January and March 2001; but after March 2001, our review was limited to verifying that the SBS intervenors had made the adjustments that we recommended. We were not informed by BNM’s management of the existence of any subsequent events or information after March 5, 2001."85
1. The information provided by the Superintendent to the Subcommission and the SBS Visit Report of November 22, 2000 are inconsistent; 2. The Superintendent contradicted himself when referring to Bonds DU-108-2000; 3. The Superintendent did not explain why he used the media to avoid financial panic at BNM; 4. SBS rushed to intervene in BNM; in addition, it could have sponsored and coordinated the use of monetary regulation funds to help BNM or could have encouraged BCR to support it with a rediscount of US$15 million; 5. The Receivers reported that the intervenors in BNM were affecting the economic value and the recovery process of BNM assets; 6. Between December 5, 2000 and September 30, 2001, BNM recovered portfolio worth US$139.8 million; 7. The Superintendency was not transparent with the Subcommission, it did not provide information or did so in a partial and untimely manner; 8. "The book assessment ordered by the Superintendent of Banks and Insurance Companies may be objected from a technical standpoint"; 9. "Enforcing such unusual and inappropriate accounting principles and the discretional and discriminatory behavior of the Superintendency of Banks and Insurance Companies as regards Banco Nuevo Mundo have resulted in a contingency for the Peruvian State reaching several dozen million dollars and may even preclude the reimbursement of depositors’ funds..."; 10. "The Superintendency... acted with negligence when it failed to meet its obligation to undertake the consolidated oversight of financial conglomerates, such as Banco Nuevo Mundo."109
"As recorded in the Minutes of the Extraordinary General Meeting of Shareholders of Corporation XXI Ltd. of January 28, 1999, THE ASSIGNORS [Mr. Isy and Mr. Jacques Levy Calvo] agreed to transfer their legal rights to THE SHAREHOLDER, Mr. David Levy Pesso.
In addition, in assigning their legal rights, THE ASSIGNORS agreed that THE SHAREHOLDER, as the head of the Grupo Levy... would retain and enjoy said legal rights not only in Corporation XXI Ltd. but also in any other existing and/or future companies in which the three shareholders participate in the family businesses.
Subsequently, on July 12, 2005, Mr. David Levy Pesso assigned without charge all his shares and rights in Holding XXI to Ms. Renée Rose Levy, who thus assumed ownership of the legal rights on the same terms as those on which they were granted to her father Mr. David Levy Pesso."116 [Tribunal’s translation]
"THE ASSIGNORS expressly and irrevocably express their agreement and their wish to ratify and maintain the agreements entered into concerning the scope of the assignment of legal rights as holders of shares owned by them in firms and companies in the Grupo Levy to the controlling shareholder, Ms. Renée Rose Levy.
The parties reiterate that THE SHAREHOLDER [Ms. Renée Levy] thus enjoys without restriction or any condition and for an indefinite period all the legal rights pertaining to the total block of shares held by each of them in the Grupo Levy companies."117 [Tribunal’s translation]
a. The Claimant is not a protected "investor" under the APPRI, because she acquired her indirect interest in BNM "too late," almost five years after the events on which the claim is based took place. When BNM was intervened, the Claimant had no connection whatsoever to the Bank or to the dispute between the parties. Ms. Renée Levy came onto the scene five years after BNM was intervened, when she received a minority, indirect interest in that Bank for free.120
b. The interest acquired by the Claimant did not qualify as an "investment" under the APPRI. On July 12, 2005, BNM had no value and it was found to be illiquid and insolvent on the day that SBS intervened—December 5, 2000. The Claimant’s interest in BNM "never had any value."121
c. Nor does the Claimant’s interest in BNM qualify as an "investment" under the ICSID Convention. In order for it to qualify as an investment, the Tribunal must find that certain fundamental elements exist: the Claimant must have contributed resources to the alleged investment, assumed risk, participated in a project of some duration, and contributed to the host country’s economic development.122
d. Peru also considers that the Claimant has committed an abuse of process. In its view, whatever interest the Claimant did acquire had absolutely no value by 2005. The assignment of the shares in BNM was nothing more than an attempt to "manufacture jurisdiction over the claim."123
"The Tribunal has before it a case in which it is being asked to substitute its own judgment for the technical decisions made by Peru’s regulator to manage a widespread liquidity and solvency crisis that was affecting several banks at the time. The Tribunal cannot hear this case without impermissibly encroaching on the discretion of Peru’s banking regulator to take necessary action to prevent a full-blown collapse of Peru’s banking system."145
"The banking regulator in this case was acting in strict compliance with Peruvian law—indeed, its actions were mandated by law. Therefore, if this case were found to be admissible, in addition to judging whether the regulator acted in accordance with Peru’s laws, the Tribunal would, in essence, have to examine whether Peru’s banking laws and regulations constituted a de jure treaty violation."146
(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.
(2) "National of another Contracting State" means:
(a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and
(b) any juridical person that had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person that had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.
(3) Consent by a constituent subdivision or agency of a Contracting State shall require the approval of that State, unless that State notifies the Centre that no such approval is required.
(4) Any Contracting State may, at the time of ratification, acceptance, or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes that it would or would not consider submitting to the jurisdiction of the Centre. The Secretary-General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1)."
Article 8 of the APPRI states:
"(1) Any dispute arising with regards to an investment between one party and a national or company of the other Contracting Party shall be amicably resolved between the parties to the dispute.
(2) If such dispute has not been resolved within a period of six months from the time in which any of the parties to the dispute asserted it, it shall be submitted, at the request of any of the parties, to arbitration at the International Center for Settlement of Investment Disputes (ICSID), created under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, done in Washington on 18 March, 1965.
(3) A legal person constituted in the territory of one of the Contracting Parties and that before the emergence of the dispute was controlled by nationals or companies of the other Contracting Party shall be considered, for the effects of Article 25 (2)
(b) of the convention mentioned in paragraph (2) above, as a company of that contracting party.
(4) Each contracting party grants its unconditional consent to submit disputes to international arbitration, pursuant to the provisions of this article.
(5) The arbitral award shall be definitive and binding."
However, this does not mean that the persons from whom she acquired these shares and rights did not previously make very considerable investments of which ownership was transmitted to the Claimant by perfectly legitimate legal instruments. The fact that BNM had been insolvent since December 5, 2000 did not in itself mean that the investment made by her predecessors and validly acquired by the Claimant was valueless. This determination is one of the issues at stake in these proceedings and resolved in this award.
"Such assets [including shares] should be or should have been invested in accordance with the legislation of the Contracting Party in the territory or in the sea areas in which the investment is made, before or after the entry into force of this agreement.
Any modification to the form of the investment of assets does not affect its definition as an investment, provided that such modification is not contrary to the legislation of the Contracting Party in the territory in the maritime zone in which the investment takes place."172
"These features should not necessarily be understood as jurisdictional requirements but merely as typical characteristics of investments under the Convention."173
"The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial, or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State."176
"International law overrides domestic law when there is a contradiction, since a State cannot justify non-compliance of its international obligations by asserting the provisions of its domestic law."177
The Tribunal concludes that its mission is precisely that of determining whether the actions of Peru violated the APPRI. Logically, this is mission reserved for the merits phase of this case; for the above reasons, the Tribunal will also reject this argument on the admissibility advanced by the Respondent.
" Article 3
Each of the Contracting Parties pledges to ensure, in its territory and sea areas just and equitable treatment, pursuant to the principles of international law, to investments of nationals and companies of the other contracting party, so that the exercise of the right thus recognized not be obstructed either in fact or in law."
a. Absence of any effect on legitimate expectations;
b. Guarantee of a transparent and predictable behavior;
c. Juridical stability and guarantees against abuse of power;
d. Guarantees against State acts involving bad faith, coercion, threats and harassment; and
e. Guarantees against court and administrative procedures that violate due process and the right to defense.181
i. Preclusion of the Banco Financiero takeover operation: SBS decided that a capital increase was required but never formally notified BNM.188 In the Reply on the Merits, the Claimant adds that the proposed merger was never formally evaluated by SBS and that, if it had taken place, the merger would have allowed the creation of a larger and more profitable bank. The refusal of SBS to approve the merger prevented BNM from improving its solvency, profitability, and liquidity.189
ii. Lack of transparency to change regulations and exclusion of BNM, specifically from the meeting on the restructuring of PCSF, during which no attention was paid to BNM. A lack of transparency was displayed by failing to consider the interest and economic purpose of all the players directly involved.190
iii. Abrupt and disproportionate withdrawal of State-owned companies’ funds, implying a violation of the investor’s legitimate expectations and of the transparency and predictability of government agencies.191
iv. Refusal to counter financial panic: the State should have countered the rumors of an imminent collapse of BNM; its failure to do so constituted a serious omission.192 In the Reply on the Merits, the Claimant also indicates that the Respondent failed to point out that the rumors "had already been spreading since before October 2000."193 In addition, BNM had never asked SBS to make specific statements about its equity health but had asked it to make general statements about the stability and soundness of the financial system in general.194
v. The refusal by BCR to grant BNM’s request for a monetary regulation bailout loan: the refusal was unreasonable and "affected the investor’s legitimate expectations and the guarantee of a predictable behavior by government authorities, which caused that very day BNM to default on its payments to the Clearinghouse, which was the grounds [sic] for SBS intervention."195 The Claimant adds in the Reply on the Merits that the State had a constitutional mandate to protect the stability of the financial system and that BCR’s unjustified refusal and behavior to act as a private commercial bank departed from best international practice.196
vi. Impairment of the BNM loan portfolio, following SBS’s intervention, due to decisions taken by the intervenors, since "the investor expected from the State a minimum standard of diligence to ensure an optimal and transparent management of BNM’s equity and loan portfolio."197
vii. Violation of the creditor priority to payments: the violation of the order of priority to payments, as established in Article 117 of the Banking Law, damaged the interest of BNM’s savers and shareholders and violated the investor’s legitimate expectations.198 The Claimant explains in the Reply on the Merits that the payments in question were overseas credit facilities rather than deposits of foreign banks.199 She adds that the liquidators had received three SBS Resolutions ordering them to change the payment priority of the following overseas banks: Discount Bank & Trust of Zurich; Israel Discount Bank of New York, and Discount Bank S.A. of Luxembourg.200 That was an open violation of the public interest and called into question the legitimacy of the State’s actions concerning BNM’s intervention and liquidation.201
a. Lack of access to remedies of challenge or appeal in domestic law, in order to "neutralize" the withdrawal of the State companies’ funds by the MEF and to challenge the SBS intervention commissioners’ financial management, the SBS Resolution declaring BNM’s intervention, the SBS Resolution reducing BNM’s equity to zero and the SBS Resolution declaring the dissolution of the Bank.228 The Claimant indicates that in Peru those actions can be challenged only by a lawsuit, which is not an efficient solution because:229 i) court proceedings are public, which undermines confidence in the market; ii) contentious proceedings last for years; iii) "the judicial ruling given by the Chamber of the Supreme Court of Justice was unfair, inadequate, and ineffective, violating the full protection and security standard"230 [Tribunal’s translation], and iv) according to the Banking Law, the rights and assets acquired by third parties in good faith during the intervention regime may not be subject to a court challenge.
b. Irregular accounting practice in the BNM balance sheet at year end (higher provision requirements with retroactive effect), when the State had exclusive control of BNM management.231
c. Contempt of court constituting government abuse of power: the reduction of equity capital to zero; the failure to restore BNM shareholders’ right to recover an effective participation in the capital equity; and the failure to provide information on BNM’s liquidation process.232
The meeting was held one day before the program was announced publicly, so that the invited banks played no role in its formulation. In addition, the Claimant has not proved that PCSF caused her or BNM’s shareholders any harm.250
"BNM and its investors were denied the possibility to:
(i) Have access to a fair and predictable dispute settlement system;
(ii) Have access to a judicial system whose decisions were fully and timely abided by the Peruvian government agencies; and
(iii) Have access to a judicial system impervious to public pressures exerted by other Powers of the State."317
i. Violation by SBS of the obligation to abide by court decisions concerning the declaration of inapplicability of SBS Resolution No. 509-2001, reducing BNM’s equity capital to zero;
ii. Open and illegal interference by the President of Peru, the President of Congress, and the Superintendent of Banking and Insurance, who in 2007 made statements to the media in order to influence the outcome of the Administrative Contentious Action filed by BNM’s shareholders against SBS Resolution No. 775-2001, ordering BNM’s liquidation and dissolution;
iii. Illegal authorization by Congress to the Executive Branch in relation to a law that would suspend the wage increase of the Supreme Court "Vocales", who would issue the ruling on the action brought by BNM’s shareholders against SBS Resolution No. 775-2001, ordering the dissolution and liquidation of that Bank; and
iv. Lack of analysis and motivation in the ruling issued by the Constitutional and Social Law Chamber of the Supreme Court of Justice on October 11, 2006, concerning the Administrative Contentious Action filed by NMH against SBS Resolution No. 775-2001. In the Claimant’s opinion, that ruling was arbitrary.320
Ibid., ¶ 399 to 400; A WG Group Ltd v. Argentine Republic, (UNCITRAL), Award, July 30, 2010, ¶ 139; Methanex Corporation v. United States of America, (NAFTA), Final Award on Jurisdiction and Merits, August 3, 2005, Part IV, Chapter D, ¶ 7.
"... the moral damages put forward is proposed before the Tribunal under two assumptions, one subordinated to the other... puts forward moral damage to the image and/or reputation caused by the State’s conduct, first to the image of Grupo Levy, under control of Claimant, and if that is not accepted by the Tribunal, consider the objective damage to the reputation of BNM."398