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Lawyers, other representatives, expert(s), tribunal’s secretary


Acronyms and Abbreviations

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)
PwC PricewaterhouseCoopers
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


This award is handed down in the arbitral proceedings initiated by Renée Rose Levy de Levi (hereinafter the Claimant) against the Republic of Peru (hereinafter the Respondent or Peru) concerning the alleged violation of the Agreement concluded on October 6, 1993 between the Republic of Peru and the Republic of France on the Promotion and Protection of Investments, which entered into force on May 30, 1996 (APPRI)
Generally speaking, the dispute arose because, according to the Claimant, Peru arbitrarily and illegally subjected Banco Nuevo Mundo (BNM), the shareholders of which were initially the father of the Claimant, Mr. David Levy Pesso, and then the Claimant herself, to a process of intervention, followed by its dissolution and liquidation. The Claimant contends that, by these actions, Peru violated several principles of the APPRI and the rights granted to her by that Bilateral Investment Treaty.
In drafting this Award, the Arbitral Tribunal took into account, analyzed, and carefully evaluated all the arguments of the parties, including their claims and defenses, as well as the documents, witness statements, expert reports and any further evidence produced by them. In formulating their allegations, the parties introduced and cited a number of awards and decisions on issues relevant to the decision on jurisdiction and to the merits of this case. The Tribunal considers it important to note that it is required to settle the dispute initiated by the Claimant by means of an independent analysis of the APPRI, of the ICSID Convention, of the ICSID Arbitration Rules, and of the particular circumstances of this case, which do not preclude the Tribunal from taking into consideration the conclusions reached by other international Arbitral Tribunals.
In this Award, the Tribunal makes particular reference to the arguments of the parties that it considered to be most relevant for its decision on jurisdiction and, subsequently, for its decision on the merits of the case. Even when it does not explicitly refer to all of the arguments put forward by the parties, the Tribunal’s decision is based on all of them, as regards the factors considered by the Tribunal to be decisive in reaching its decision.


On June 22, 2010, ICSID or Centre received a Request for Arbitration (the "Request") from Claimant against Respondent. On June 24, 2010, ICSID acknowledged receipt of the Request and transmitted a copy of the Request and its accompanying documentation to the Respondent and its Embassy in Washington, D.C.
On July 20, 2010, pursuant to Article 36(3) of the ICSID Convention and in accordance with Rules 6(l)(a) and 7(a) of the Institution Rules, ICSID’s Secretary-General registered the Request, and on the same date, notified the parties of the registration, inviting them to constitute the Arbitral Tribunal as soon as possible.
On September 9, 2010, the Claimant filed a request for provisional measures. On September 14, 2010, the Secretary-General fixed time limits for the parties to present observations on the Claimant’s request for provisional measures pursuant to Rule 39(5) of the ICSID Arbitration Rules.
On September 23, 2010, the Claimant invoked Article 37(2)(b) of the ICSID Convention and appointed Prof. Joaquin Morales Godoy, a national of Chile, as arbitrator. Prof. Morales accepted his appointment on October 5, 2010.
On October 1, 2010, the Respondent appointed Prof. Bernard Hanotiau, a national of Belgium, as arbitrator. Prof. Hanotiau accepted his appointment on October 5, 2010.
On October 7, 2010, the Claimant filed a second request for provisional measures. On September 15, 2010, the Secretary-General fixed time limits for the parties to present observations on the Claimant’s second request for provisional measures, pursuant to Rule 39(5) of the ICSID Arbitration Rules.
Between October 5 and November 11, 2010, the parties exchanged submissions on the Claimant’s requests for provisional measures.
By letter of October 25, 2010, the Claimant informed the Centre that 90 days had elapsed since the registration of the Request for Arbitration and the parties had been unable to reach an agreement on the appointment of the President of the Tribunal. As a result, the Claimant requested that the Chairman of the Administrative Council appoint the President of the Tribunal, pursuant to Rule 4 of the ICSID Arbitration Rules.
On November 15, 2010, the Claimant filed a withdrawal of its second request for provisional measures.
By letter of January 11, 2011, the Centre informed the parties that the Chairman of the Administrative Council had appointed Mr. Rodrigo Oreamuno, a national of Costa Rica, as President of the Tribunal.
On January 19, 2011, the Centre informed the parties and the Tribunal that the Arbitral Tribunal was deemed constituted by (i) Prof. Joaquin Morales Godoy, (ii) Prof. Bernard Hanotiau, and (iii) Mr. Rodrigo Oreamuno, President of the Tribunal, and that Mrs. Anneliese Fleckenstein, Legal Counsel, would serve as the Secretary to the Tribunal.
On March 21, 2011, the First Session and a hearing on the Claimant’s request for provisional measures were held at the seat of the Centre in Washington, D.C. During that session, a procedural calendar for the conduct of the proceedings was agreed upon by the parties. The parties further submitted their oral arguments on the Claimant’s request for provisional measures.
On June 17, 2011, the Tribunal issued a Decision rejecting the Claimant’s request for provisional measures.
On July 11, 2011, the Tribunal issued Procedural Order No. 1 concerning production of documents.
On July 12, 2011, the Tribunal issued Procedural Order No. 2 concerning production of documents.
On August 2, 2011, the Tribunal issued Procedural Order No. 3 concerning the procedural calendar.
On August 25, 2011, the Respondent filed its Memorial on Jurisdiction. On the same day, the Claimant filed its Memorial on the Merits.
On January 30, 2012, the Claimant filed its Counter-Memorial on Jurisdiction. On the same day, the Respondent filed its Counter-Memorial on the Merits.
On May 2, 2012, the Tribunal issued Procedural Order No. 4 concerning production of documents.
On May 14, 2012, the Tribunal issued Procedural Order No. 5 concerning production of documents.
On May 29, 2012, the Claimant filed a Reply on the Merits.
On September 26, 2012, the Respondent filed a Rejoinder on the Merits.
On October 18, 2012, pursuant to paragraph 13 of the Minutes of the First Session, the Tribunal issued a Decision joining the objections to jurisdiction to the merits of the proceeding. By letter of the same date, the Respondent withdrew its request for the bifurcation of the proceeding.
From November 12 to 20, 2012, the Tribunal held a hearing on jurisdiction and merits at the seat of the Centre in Washington D.C. Present at the hearing were, for the Tribunal: Mr. Rodrigo Oreamuno, President; Prof. Bernard Hanotiau; Prof. Joaquin Morales Godoy; and Mrs. Anneliese Fleckenstein, Secretary of the Tribunal. For the Claimant: Mr. Carlos Paitán; Mr. Christian Carbajal; and Mr. Danny Quiroga, from Estudio Paitán & Abogados S. Civil. R. Ltda,; Ms. Renée Rose Levy de Levi; and Mr. Jacques Levy. For the Respondent: Mr. Stanimir A. Alexandrov; Ms. Jennifer Haworth McCandless; Ms. Marinn Carlson; Ms. Mika Morse; Mr. Gavin Cunningham; Ms. Maria Carolina Durán; Mr. Trey Hilberg; Ms. Kerry Lee; Ms. Eloise Repeczky, from Sidley Austin LLP; Drs. Ricardo Puccio and Aresio Viveros, from Estudio Navarro, Ferrero & Pazos; H.E. Walter Alban, Peru’s Permanent Representative to the Organization of American States; Dr. Daniel M. Schydlowsky; Mr. Carlos Cueva; Ms. Erika Lizardo; Mr. Carlos José Valderrama, Representatives of the Republic of Peru; and Ms. Maria Esther Sanchez, from the Embassy of Peru in Washington, D.C.
On January 22, 2013, the parties filed simultaneous Post-Hearing Briefs. On February 21, 2013, the parties filed simultaneous submissions on costs.
On December 20, 2013, the proceeding was declared closed, pursuant to ICSID Arbitration Rule 38(1).


The Arbitral Tribunal will describe below only those events that are of importance for the resolution of this case and will try to reproduce them in chronological order, whenever possible.
The Respondent ratified the ICSID Convention on August 9, 1993; the Convention entered into force on September 8, 1993.1
The Respondent approved the APPRI by the Presidential Decree No. 4-94-RE, published in the Official Gazette El Peruano on March 13, 1994. This Bilateral Investment Treaty entered into force on May 30, 1996.2

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

According to the Claimant, BNM’s overseas investment companies are:

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

In the Report on Resources and their Use, dated June 14, 2001, SBS stated:

"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]

In 1998, the FONAFE relaxed the existing policy on deposit placement and permitted State-owned companies to place deposits in private banks.6
The Minutes of the Extraordinary General Shareholders’ Meeting of Corporation XXI Ltd. held on January 28, 1999 show that its shareholders Mr. Isy Levy Calvo and Mr. Jacques Levy Calvo assigned to their father, Mr. David Levy Pesso, their legal rights derived from their shares of stock in that company. The assignment "was extended to (i) any transfer of Corporation XXI Ltd.’s shares in NMH, the controlling shareholder of BNM, to any other overseas investment companies in the corporate structure of Grupo Levy; and (ii) the presence of Mr. David Levy Pesso as shareholder in any future overseas investment companies that may purchase the Corporation XXI Ltd.’s shares of stock in any family business."7
On May 28, 1999, the BNM General Shareholders’ Meeting authorized a merger project whereby BNM would take over Banco del Pais, Nuevo Mundo Leasing Sociedad Anónima, and Coordinadora Primavera Sociedad Anónima. On August 6, 1999, by Resolution No. 0718-99, SBS authorized the merger.8 This merger created a goodwill of S/. 47.5 million, which "included primarily the premium paid for the purchase of Banco del Pais in excess of the fair value of its identified assets and liabilities, which was recorded as a credit to a [sic] especially reserved account within net equity."9SBS allowed the amount to be credited to a special reserve account within net equity, to be amortized over a five-year period. On December 31, 1999, this goodwill amounted to S/. 43.5 million.10
On June 18, 1999, the President of the Respondent issued Presidential Decree No. 099-99-EF, which:

"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

On August 31, 1999, the BNM General Shareholders’ Meeting agreed to reduce the Bank’s equity capital by S/. 23,591,550.00 for the purpose of increasing the provisioning level, and to request SBS’s permission to do so. SBS gave its permission in its Resolution No. 0894-99 of September 29, 1999.14
The Inspection Visit Report No. ASIF "A" 172-VI/99 (hereinafter "the 1999 Report"), submitted by SBS to BNM concerning the visit conducted from July 9 to August 20, 1999, stated that on September 27, 1999, there were discrepancies in the classification of the loan portfolio:

"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 1999 Report of SBS also indicated:

"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.


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

In that Report, SBS also stated:


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

SBS also found current account overdrafts and made the following recommendation in the 1999 Report:

"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

In the 1999 Report, SBS also noted the concentration of BNM’s liabilities and recommended to "Stimulate the incentive for attracting alternative lower cost deposits, given that one of the risks the Bank faces is liquidity, to which it is vulnerable do to the excessive concentration of liabilities in few debtors. The Bank must continue with the reduction process of this concentration that has begun recently."19

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

On October 25, 1999, the management of BNM was informed that "the accounting and financial records of Banco del Pais [with which BNM merged, as stated in paragraph 39 above], and in particular its loan portfolio figures, did not clearly reveal its economic and financial situation."21
On October 26, 1999, BNM sent a letter to SBS in response to the 1999 Report. On the subject of the current accounts, it stated:

"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

On November 24, 1999, BNM submitted for the consideration of SBS a plan for participation in the amount of US$34.5 million in the Loan Portfolio Exchange Program approved by Presidential Decree No. 099-99-EF (mentioned in paragraph 40 above).24 On December 15, 1999, in the Official Letter No. 13214-99, SBS approved the plan and stated that "qualifies this company as a potential beneficiary of Public Treasury Bonds Programs..."25 The Program allowed BNM to exchange millions of dollars in loans from the commercial portfolio and the consumer portfolio for an equivalent amount in Treasury bonds. BNM would reacquire this transferred portfolio beginning in 2001.26
On January 17, 2000, SBS started another inspection visit to BNM, which was concluded on February 18 of that year. Following that visit, it prepared the Report No. ASIF "A"-028-VI/2000 (hereinafter "the Report of April 2000").27 The parties discussed the type of visit conducted on those dates.28 In this connection, the Report stated: "In accordance with Article 357 of Law 26702, by virtue of Memorandum No. 0529-2000 of January 17, 2000, the Inspection Visit to Banco Nuevo Mundo took place..."29 [Tribunal’s translation] (The article in question reads: "INSPECTIONS. Without prior notice and at least once a year and when it deems so convenient, the Superintendency shall make general and special inspections, directly or through auditing companies it authorizes, with the purpose of examining the situation of the companies supervised, determining the content and scopes of such inspections").30
The Report of April 2000 indicated that the goals of the visit included assessing and rating BNM’s consumer loan portfolio on December 31, 1999 and verifying the provisioning and the implementation of corrective measures, in accordance with the recommendations in the 1999 Report. The section of the executive summary entitled "Financial Accounting Aspect" indicates that there is a deficit of S/. 3,947,000 in the assets assigned, because BNM followed a procedure that did not comply with Circular No. B-2017-98 on provisions.31 This section also indicates that there were no policy and procedure manuals and that 44.7 percent of the recommendations made by SBS in the previous Report were pending or in process of implementation.32SBS noted the high concentration of public deposits, which on February 28, 2000 accounted for 38.9 percent of total deposits "representing a potential liquidity risk."33 [Tribunal’s translation] The Report recommended that procedure manuals for the Consumer Loan Division, Nuevo Pais, should be approved, and that BNM should establish provisions in accordance with the above-mentioned Circular No. B-2017-98. It also recommended that BNM should supervise implementation of the pending recommendations and prepare a deposit plan to avoid concentration of short-term deposits.34
On April 25, 2000, Mr. Martin Naranjo Landerer, the Superintendent of Banking and Insurance, sent the Official Letter No. 4383-2000 to Mr. Jacques Levy Calvo, Chairman of the Board of BNM (who received it on May 9), in which he stated:

"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

Starting in July 2000, State companies began to withdraw funds from BNM.36
On August 11, 2000, SBS made what the Claimant called a second inspection visit to BNM, which lasted until October 13 that year.37 The Respondent stated that this was the regular visit and not a second annual visit.38
On August 29, 2000, Corporation XXI Ltd. transferred its shares in NMH to Holding XXI S.A., the shareholder of which was Mr. David Levy Pesso.39
Starting in August 2000, the withdrawal from BNM of privately-owned deposits reached over US$70 million.40
In September 2000, BNM was rated by Class & Asociados and by Apoyo & Asociados Internationales S.A.C.; they gave it B+ and B ratings respectively.41 The B+ rating "is granted to financial or insurance companies with sound financial strength. They are companies with a high business level, with good results in their key financial indicators, and a stable environment for the growth of the business."42 The B rating is "granted to companies having good payment capacity of liabilities in the terms and conditions agreed, but it may deteriorate slightly with potential changes in the company, the industry it belongs to, or the economy."43 Apoyo y Asociados Intemacionales S.A.C. stated that "The development of its product portfolio during its seven-year operations and the recent merger with Nuevo Mundo Leasing and Banco del Pais, have led BNM to rank sixth in terms of loans granted and deposits received (seventh by the end of 1999), with a 4.5 percent and 2.8 percent market share, respectively."44
On September 12, 2000, BNM’s General Shareholders’ Meeting agreed to increase its equity capital by S/. 17.49 million, and to create an optional reserve with the issuance of capital premiums for S/. 8.8 million.45
Also on September 12, Mr. Carlos Quiroz Montalvo, the head of the SBS visiting team, sent the Memorandum No. 21-2000/VI0/NM to Mr. Carlos Schroth Parra, BNM’s Acting Risk Manager, consulting him about the composition of the consumer portfolio until June 30, 2000 because "includes loans other than consumer loans..., in which 165 debtors with a balance equivalent to S/. 1,449 thousand, report arrears greater than 100 days and they have a Normal risk classification." It also consulted him about a number of discrepancies in the classification of borrowers with consumer loans and the provision deficit of S/. 383 thousand.46 On September 19, 2000, Mr. Schroth replied to SBS that he would coordinate with the Systems Unit to "adequately identify those loan facilities that do not correspond to Consumer Banking debt. We will also manually classify those clients that have expired loan debt according to the list you attached." He also indicated that the consumer loan automatic classification program would be implemented in one month’s time and that, in the future, the requirements of SBS Resolution No. 572-97 would be met. Regarding the other discrepancies, he said that an automatic classification program had been designed and was operational, "the discrepancies of the existing classifications can be overcome."47
On September 19, 2000, Mr. Carlos Quiroz Montalvo sent Memorandum No. 25-2000-VI0/NM to Mr. Edgardo Alvarez Chávez, BNM Division Manager for Business Operations, stating: "... we have become aware that some in the Bank’s loan portfolio have acquired participation shares from the Multirenta Fund, through loan operations received (including leaseback)..."48 On September 25, Mr. Alvarez sent a lengthy reply to Mr. Quiroz, basically stating that the Fund was financially and administratively independent of BNM; it included stocks registered in the Public Register of Securities and listed on the Lima Stock Exchange and the stock transactions on the secondary market complied with the rules of the Exchange.49
On September 28, 2000, Mr. Carlos Quiroz Montalvo transmitted Memorandum No. 27-2000-VIO/NM to Mr. José Castañeda Trevejo, BNM Operations Manager, concerning overdue lending operations recorded in the accounts as Current portfolio until June 30, 2000.50 On October 2, 2000, Mr. Castañeda transmitted BNM’s reply, stating that he had instructed the Systems and Quality Department to make the change; he also stated that the due dates given in the report were not correct and that the leasings mentioned in the SBS memorandum were reported to the Institute National de Defensa de la Competencia y de la Protection de la Propiedad Intelectual (INDECOPI) (National Institute for the Defense of Competition and the Protection of Intellectual Property).51
On October 4, 2000, Mr. Carlos Quiroz Montalvo transmitted Memorandum No. 28-2000-VI0/NM to Mr. José Castañeda Trevejo, informing him that in some operations interest not charged was recorded as income, in violation of SBS Resolution No. 572-97.52 On October 12, 2000, Mr. José Castañeda and Mr. Edgardo Alvarez, of BNM, informed Mr. Quiroz that they had coordinated with the Systems Unit regarding the relevant change in "Account administration application... the corresponding department will make the classification, taking regulation 527/97 and its modifications into consideration."53
On October 12, 2000, Mr. Carlos Quiroz Montalvo sent Memorandum No. 32-2000-VI0/NM to the General Manager of BNM, Mr. José Armando Hopkins Larrea, stating that SBS was concerned about refinanced operations that were not identified as such but as "Current Portfolio."54 Mr. Eduardo Alvarez Chávez, Risks and International Manager, and Mr. Luis Gygax, Manager, replied that BNM was making arrangements to record refinanced and restructured operations correctly.55

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

In late November 2000, SBS was monitoring BNM’s financial indicators on a daily basis. One such indicator was the liquidity ratio (the ratio of liquid assets to shortterm liabilities, indicating whether the Bank has sufficient liquid assets to cover its immediate payment obligations), which was calculated by BNM and reported to SBS. Banks are required under Peruvian law to maintain liquid assets equal to 8 percent of their short-term liabilities in local currency and to 20 percent in foreign currency.57SBS also took into account the adjusted liquidity ratio, excluding from liquid assets short-term loans such as interbank and BCR loans. In BNM’s case, in November and December 2000, this ratio fell sharply to 6.5 percent in November and 1.89 percent in December in local currency; in foreign currency, it was 9.2 percent in November and 6.01 percent in December.58
On November 22, 2000, Mr. Jorge Mogrovejo González, Intendent, and Mr. Carlos Quiroz Montalvo, Chief of Visit, both from SBS, issued the Inspection Visit Report No. DESF "A"-168-VF2000 (hereinafter "the Report of November 2000") relating to the visit to BNM from August 11 to October 13, 2000. According to this Report, the purpose of the visit was "to assess and determine the Bank’s actual equity and to check and assess the procedures used by the Bank to identify and manage its lending risks. In addition, spot checks were made of the definition of earnings and compliance with regulations, among other important issues."59 [Tribunal’s translation] In section B of the executive summary, entitled Liquidity risks, the Report of November 2000 states:

"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]

In the Report of November 2000, SBS also stated:

"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 same SBS Report noted:

"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...

Portfolio overconcentration...

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]

The Report also noted:

"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...


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]

In the conclusions of the Executive Summary of this Report, SBS indicated:

"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

In section V, entitled "Solvency risk," this Report stated:

"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

On November 24, 2000, Mr. Jacques Levy Calvo, Executive Chairman of BNM, and Mr. José Armando Hopkins Larrea, Vice-Chairman and General Manager of BNM, transmitted Official Letter GG-169/2000 to Mr. Luis Cortavarría Checkley, Superintendent of Banking and Insurance, which stated:

"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

Because it considered that the land was not an appropriate substitute for a cash infusion of capital, SBS rejected the proposal of BNM.67
On Sunday, November 26, 2000, the Minister of Economy and Finance convened an emergency meeting with the SBS Superintendent and the CEOs of ten banks in Peru; BNM was not invited to that meeting.68
On November 27, 2000, Emergency Decree No. 108-2000 was promulgated, creating the Financial Industry Consolidation Program (PCSF).69 This program was "... aimed at facilitating the corporate restructuring of companies operating in the multiple sector of the national financial system, a program in which the State shall participate by means of issuing Public Treasury Bonds and granting a line of credit in favor of the Deposit Insurance Fund, whenever this does not imply profit to the shareholders of companies in question."70
On December 4, 2000, several emails (the Tribunal could not ascertain the identity of the sender) announced the intervention of BNM and suggested that depositors should withdraw their money from the Bank.71
On December 5, 2000, the CEO of BNM asked BCR for a loan of about US$10 million; in the Official Letter 225-2000-PRES of the same date, BCR agreed to lend US$1.2 million.72
On December 5, 2000, in the Official Letter 226-2000 PRES, BCR informed SBS that BNM had been excluded from the Electronic Clearinghouse because it had not settled its multilateral liability. This Official Letter indicated that "... Banco Nuevo Mundo had a multilateral liability position of US$9.2 million in foreign currency and S/. 4.1 million in national currency, so that its current accounts balances amounted to US$0.1 million and S/. 1.8 million, respectively. As a result, Banco Nuevo Mundo had a deficit of US$9.1 million and S/. 2.3 million."73 [Tribunal’s translation]
In Resolution No. 885-2000 of December 5, 2000, SBS declared that BNM was subject to the intervention regime and appointed Mr. Carlos Quiroz Montalvo and Ms. Manuela Carrillo Portocarrero as intervenors.74
In 1999 and 2000, SBS intervened in Banco Banex, Banco Orion, Banco Serbanco, and NBK Bank75 and announced the dissolution and liquidation of those Banks.76
In Resolution No. 900-2000 of December 11, 2000, SBS resolved to submit a criminal complaint to the State Prosecutor against the persons responsible for the announcement of the intervention of BNM and who suggested the withdrawal of their deposits from that bank. On the same day, SBS submitted complaint No. 081-00.77
Mr. Jorge Mogrovejo Gonzalez, Assistant Superintendent for Risks stated that: "when the SBS team arrived on BNM’s premises around 15:00 hrs. on December 5, 2000 to notify BNM’s officers that BNM had been intervened and to close the Bank, they discovered that BNM had voluntarily closed its doors before."78
On December 27, 2000, PwC (the firm hired to conduct the audit of BNM) submitted to the Management of that Bank a progress report on the audit of the financial statements for the year ending December 31, 2000 (hereinafter "the Progress Report"). It conducted "a preliminary review of the loan portfolio evaluation on September 30, 2000, as well as accounting observations identified preliminarily during our visit made in the second half of the month of October 2000... the accounting observations were identified with reference to balances on September 30, 2000 and, therefore, this progress report does not express a total or partial opinion on the soundness of the Bank’s financial statements at that date."79
The Progress Report states:

"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

Regarding refinanced operations, PwC stated in the progress report: "At September 30, 2000, certain leaseback operations aimed at refinancing past-due loans are presented on the Bank’s financial statements as active loans."82
The PwC report of March 5, 2001 on the audit of BNM general balance statements on December 31, 2000 and December 31, 1999 (hereinafter "the Final Audit Report") indicated that the Bank had S/. 167,821,000 in refinanced and restructured loans for 2000, compared with S/. 33,545,000 in 1999. In addition, in 2000 it had S/. 394,187,000 in overdue loans and subject to judicial collection, compared with S/. 62,686,000 in 1999.83
The Final Audit Report was delivered to SBS on July 11, 2001.84 Concerning the chronology of the conducted audit, Mr. Arnaldo Alvarado, a partner in PwC, stated the following:

"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

According to section 15 of the Final Audit Report, entitled "Net earnings (loss) for the year," the net loss on December 31, 2000 was S/.328.875,000.86
On April 11, 2001, Emergency Decree 044-2001 (hereinafter "the Special Transitional Regime") added to Article 3 of Emergency Decree No. 108-2000 a paragraph to the effect that companies in the financial system subject to the Intervention Regime and recommended for asset transfer by CEPRE would be placed by the SBS under a Special Transitional Regime.87
On April 18, 2001, by Resolution No. 284-2001, SBS placed BNM under the Special Transitional Regime.88
On May 30, 2001, BNM, represented by the SBS, signed with Banco Interamericano de Finanzas (BIF) an "Agreement for Final Transfer of Corporate Equity Block as Part of the Corporate Reorganization Process".89 Under the PCSF regulations, BIF would use funds from this program to cover losses that it had sustained as a result of the transfer. Section 3 of this Agreement indicated that the transfer would be conditional on the findings and the valuation by the auditors Medina, Zaldivar, y Asociados regarding BNM. Section 8 provided that BIF could withdraw from the Agreement after the auditors had submitted their report, if PCSF resources were insufficient to cover the equity deficit.90
On June 28, 2001, SBS adopted Resolution No. 509-2001 (published in the Official Gazette El Peruano of July 13, 2001) amending Article 5 of BNM’s bylaws to read: "The equity of the company is S/. 0.00 (zero and 00/100 Nuevos Soles)."91

[Tribunal’s translation]

In an extra-judicial interim measure requested by NMH against the MEF and SBS, the 26th Civil Court of Peru appointed Mr. Carlos Roberto Cardoza Maúrtua, Mr. Luis Esteban Sánchez Cáceres, and Mr. Tomás Alejandro Morán Ortega as Receivers of BNM from July 21 to August 6, 2001. The Receivers submitted their Report on August 29, 2001, in Resolution No. 56.92
The Receivers’ Report can be summarized as follows: the General Manager of BNM and the Chairman of the Board of Directors remained in their posts during that period and the Bank basically kept the same staff, with monthly payroll costs of US$900,000, so the Receivers terminated the employment of some staff. The Bank kept all its branches open, although some of them could have been closed temporarily to save on administrative costs. The Receivers added that the description of the losses for the fiscal year of 2000 and the adjustments made to record them as of July 17, 2001 appeared to be contrary to accounting and auditing practice, which does not allow retroactivity. The Report also indicated that, at the end of the Receivers’ intervention, BNM had US$87.3 million in available funds. The Receivers criticized the policy of paying interest to depositors at higher rates than those paid in the national financial system and noted that, starting in March 2001, there had been a reduction in collection rates and a deterioration of credit indicators. They also criticized the controls related to the granting, refinancing, valuation, and rating of portfolio loans and concluded that "... inadequate measures were applied at BNM in recent months, creating a high level of provisions."93
On September 17, 2001, the shareholders of BNM published a statement in the newspaper El Comercio containing "... a proposal for an integral solution which implies for us to continue working towards the country’s development which is less costly for the States, allows for refund of deposits to our savers to be completed, avoids losing line of credits granted to us by our foreign banker..., allows to return the investments entrusted to us by friends and clients... which, ultimately, is better in economic and social terms, than the intended Banco Nuevo Mundo’s equity block transfer to BIF, since it represents saving for the State in an amount of US$ 277.3 million... includes the ability of the State to recoup its investment in subordinated bonds in an amount of US$63.3 million."94. In this statement, the shareholders proposed that Peru should, by various means, provide US$192.6 million and that the shareholders would proceed through "repayment/ refinancing of debt to local and foreign banks and reinstatement of credit lines..." The proposal also included incorporation of an international banking company, which, in exchange for assignment of a share in the Bank’s equity, would contribute a total of US$342.4 million.
On September 23, 2001, Mr. Jacques Levy Calvo, on behalf of NMH, submitted a proposal to the MEF "for a solution to the problem created by the intervention of Banco Nuevo Mundo."95 [Tribunal’s translation] This proposal included "the termination of BNM’s intervention and resuming operations, with BNM’s shareholders being responsible for BNM’s entire debt. This would allow savers to recover their money, and the State to recover state companies’ deposits and its investment in BNM’s subordinate bonds... BNM’s shareholders would pay in US$342 million and would incorporate an international banking company into the BNM’s share ownership structure... The State would have to issue 10-year subordinate bonds—redeemable from the fifth year or convertible in BNM preferred shares—for US$63 million, and US$126 million would be used out of the fund established by Urgency Decree 108-2000 for the Financial Industry Consolidation Program, which BNM’s shareholders would repay later."96
On October 18, 2001, the auditors Medina, Zaldivar, y Asociados submitted their "Report on certain items in the general balance sheet of BNM under the Special Transitional Regime as of April 30, 2001".97 This Report indicated that the procedures applied did not constitute an audit of the financial statements of BNM, a valuation of the Bank’s assets and liabilities, or a review of the Bank’s internal controls.98
On October 18, 2001, by Resolution No. 775-2001, SBS ordered the dissolution and liquidation of BNM.99 In the preambular paragraphs of that Resolution, SBS referred to the valuation of BNM made by the auditors Medina, Zaldivar, y Asociados and reviewed by PwC, in which it was determined that BNM had a negative balance of US$222,517,000, which exceeded by 1.5 times the limit of its accounting equity on November 30, 2000. That amount should have been covered by funds from the PCSF, but it was US$5,678,000 above the maximum limit.100
On October 19, 2001, SBS issued a communiqué announcing that "two audit firms of international reputation have completed a valuation of Banco Nuevo Mundo as of April 30, 2001, in order to determine the Bank’s equity and therefore to estimate the share of the State and the Deposit Insurance Fund (FSD) in such process... The result of the valuation prepared and reviewed by both audit firms is a negative amount of minus US$217 million... increasing to US$222.5 million when operating losses are included... consequently, as required by law, SBS has ordered the liquidation of Banco Nuevo Mundo."101 [Tribunal’s translation]
On October 29, 2001, SBS issued Report No. DESF "A" 105/OT-2001 entitled "Deposits with Banco Nuevo Mundo, Liquidity Report" (hereinafter "the Deposit Report").
The Deposit Report indicated that BNM "... recorder total deposits in Dec.’ 99 in the amount of US$287.1 million USD, which rose strongly due to the aggressive policy of Banco Nuevo Mundo in attracting new deposits. Thus, in March-00 deposits rose to $327.8 million USD and in July ‘00 they reached the highest figure in its history, $366.9 million USD."102
This Report also notes that BNM requested a rediscount from BCR "beginning on 11/13/2000 for $70 million US in order to be able to cover its cash requirements."103 "During 99 and Mar ’00, the public deposits in Banco Nuevo Mundo showed a growing trend, going from $91.7 million US in Dec. ’98 to $128.4 million US in Mar ’00. Beginning in March ’00, the public deposits moved into a band between US$90 million and US$125 million, but they always represented more than 30% of the Banco Nuevo Mundo deposits, their historic average being 32%."104
Regarding public-sector deposits, the Deposit Report noted: "In Oct ‘00 and Nov. ’00 they dropped by $24.7 million US and by $7.7 million US respectively."105 It also states: "... in Aug ‘00, Banco Nuevo Mundo concentrated 8.4% of the total funds of the public sector and in Nov. ’00 the concentration was at 8.1%, a difference of just 0.3%... The private deposits, however, showed a growth trend from February ‘00 to July ‘00, when it reached a peak of $257.2 million US... private deposits contracted sharply, especially in Sept. ’00 (by $25 million US). In Nov. ’00 they shrank by $60 million US and the first three days of December saw private withdrawals of $27 million US."106 "Consequently, between July 31 and December 5, 2000, private deposits shrank by $109 million US and public deposits by just $13 million US."107
The Congress of the Republic of Peru conducted an investigation of the BNM affair. With that aim the Subcommission was created and released its final Report on January 21, 2002.108
The conclusions of the Subcommission’s Report can be summarized as follows:

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

The Subcommission made several recommendations. These included recommendations that the Executive should appoint a new Superintendent to impartially investigate what had happened and that the Congressional Economic Commission should consider the advisability of asking the MEF to halt the BNM liquidation process.110
On April 16, 2002, SBS issued Report No. 01-2002-DESF-A concerning the removal of liens on certain properties of GREMCO S.A. This Report indicated that, in September 2000, GREMCO S.A. requested cancellation of a mortgage on a building it owned and that the General Manager and first Vice-Chairman of BNM partially removed the lien; on September 6, 2000, the deed cancelling and removing the mortgage was signed. The Report adds that the Board of Shareholders of BNM agreed to cancel several mortgages on other property of GREMCO S.A. and that the mortgage on land located between La Herradura and La Chira beaches in the amount of US$14,942,088.96 could also be used as collateral for some debts of the Compañía Hotelera los Delfmes S.A. and the firm Fábrica S.A.111
On October 23, 2002, the 63rd Civil Court of Lima issued Resolution No. 18 in Case No. 3787-2001, concerning amparo proceedings brought by NMH against SBS and Mr. Luis Cortavarría Checkley. The Court overruled Resolution No. 509-2001 (referred to in paragraph 93 above) and stated that SBS should adopt a new resolution in accordance with its powers and as indicated in that ruling.112
SBS selected the consortium "Defme-Dirige-Soluciones en Procesamiento" to serve as BNM’s liquidator and signed a contract with it on February 3, 2003. On February 4, 2009, when the contract expired, SBS appointed Mr. Yuri Martinez to perform the same function.113
On August 11, 2003, the Third Civil Chamber of the Supreme Court of Justice of Lima issued a resolution in Case No. 1794-02, confirming the Court’s ruling (paragraph 109 above) but cancelling the item ordering SBS to issue a new resolution.114
On July 12, 2005, Mr. David Levy Pesso assigned his shares in Holding XXI S.A., without charge, to his daughter, the Claimant in this case, Ms. Renée Rose Levy.115
On July 26, 2005, Mr. Isy Levy Calvo and Mr. Jacques Levy Calvo signed the document entitled "Ratification of the Assignment of Legal Rights," which in its preambular paragraphs stated:

"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 second part of the second clause in this document states:

"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]

On November 11, 2005, the Permanent Civil Chamber of the Supreme Court of Justice of Peru issued ruling 473-2000 invalidating the claim brought by NMH against Resolution 775-2001 that ordered the dissolution and liquidation of BNM (paragraph 99 above).118
On October 11, 2006, the Permanent Constitutional and Social Chamber issued ruling No. 509-2006 confirming the ruling mentioned in the preceding paragraph.119
In the following section, the Tribunal will set out the positions of the parties regarding the jurisdiction of the Centre and the competence of this Tribunal. It will refer first to the arguments advanced by Peru and then to Claimant’s response; it will then rule on the positions of the two parties.


A. Respondent’s Position

The Respondent submitted its Memorial on Jurisdiction, setting forth the following arguments:

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

Regarding the first argument mentioned in the preceding paragraph (the Claimant is not a protected investor under the APPRI), Peru referred to the case of Phoenix Action against the Czech Republic, in which it was found that "bilateral investment treaty claims cannot be based on acts and omissions occurring prior to the claimant’s investment."124Peru stated that the Claimant was not a protected investor when BNM was intervened on December 5, 2000.125 In addition, on January 27, 1997, Mr. David Levy and his sons incorporated Corporación XXI in the Bahamas to serve as a holding company for BNM, but the Claimant did not directly or indirectly own any shares in BNM at that point126 or in NMH, which owned 99.99 percent of BNM shares.127 It was on July 12, 2005 when Mr. David Levy decided to endorse his shares for free to the Claimant.128 In addition, the Claimant waited five more years before initiating this arbitration.129 In conclusion, the Claimant was attempting to seek protection under the APPRI for events that occurred when she was not an investor in BNM and therefore not a protected investor under the APPRI130
Concerning the second argument (the acquired interest does not qualify as a protected investment under the APPRI), Peru alleged that, although the APPRI does not define the word "asset," it is commonly understood to be something of value, and thus, the APPRI requires the Claimant to hold something of value in order to have an investment covered under that Agreement.131Peru noted that "the Bank in which the Claimant allegedly had an indirect interest no longer had any value, either as a going concern or in terms of its remaining assets. Likewise, the Claimant does not own a valid operating license for a banking and finance entity, because, when BNM was intervened, SBS ended BNM’s operations."132 Moreover, the fact that the Claimant received her interest in BNM for no consideration underscored BNM’s lack of market value at the time; according to Peru, the "Claimant and her father were well aware that BNM had no value in 2005."133 Thus, since the Claimant’s interest was not an asset protected by the APPRI, the Tribunal lacks competence to hear this dispute.
In relation to the third argument (the interest is not an investment under the ICSID Convention), Peru stated, based on the case of Salini Costruttori S.p.A, and Italstrade S.p.A v. Kingdom of Morocco, that an investment under Article 25 (1) of the ICSID Convention must meet the following criteria: a substantial commitment of the investor’s own resources; an assumption of risk; a certain duration of the activity; and a contribution to the economic development of the host country.134 Additionally, Peru added that in the case of Fedax N.V. v. Republic of Venezuela, the Tribunal referred to an investment involving a certain duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host State’s development.135 Moreover, when the Claimant acquired her indirect interest in BNM, the Bank was not operating, was in liquidation, and had no hope of reviving its economic activities; consequently, the Claimant made no contribution, took no risk, held nothing of any duration, and did not contribute to Peru’s economic development.136
Based on the decisions in other arbitrations, Peru stated that, in order for an investment to exist, there had to be investment of the investor’s own resources and a real intention to engage in economic operations.137 In this case, "[t]here is also absolutely no sign of a real intention on Claimant’s part to develop BNM’s economic activities... would have been impossible... since the liquidator was in charge of the liquidation process. The Claimant knew all of this before she received her indirect interest and could have had no expectation that she could develop economic activity in Peru."138
With regard to the fourth argument (abuse of process), Peru stated that the principle of good faith had long been recognized in public international law and that several ICSID tribunals had concluded that there was no jurisdiction when a claimant had not acted in good faith or had in some way abused the process under the ICSID Convention.139
Peru further stated that the conclusion of the Arbitral Tribunal in the Phoenix Action case is applicable to this case. The Tribunal in that case stated that the transfer of shares had been not an economic investment but "a rearrangement of assets within a family to gain access to ICSID jurisdiction."140Peru emphasized that, when the Claimant received her indirect interest, she had no plans and no possibility of any plans to revive BNM as a going concern. According to Peru that "[t]he only logical explanation for the endorsement of Holding XXI shares from her father is that it was a transaction designed to manufacture ICSID jurisdiction for this dispute by keeping the indirect ownership of BNM in the hands of a French national."141
Peru also claimed that the Tribunal could not rule in the present case, because in essence the Claimant was asking the Tribunal to second-guess Peru’s reasons for the regulations that it issued and for the actions taken in line with those regulations. "Claimant is asking the Tribunal to step into the shoes of Peru’s prudential regulator and second-guess its legally-mandated actions to stabilize the banking system during an economic crisis."142Peru stated that SBS had acted reasonably to protect BNM’s depositors, the public and the banking system, had taken the necessary measures to prevent the kind panic with respect to other banks and followed the explicit mandate of the law.143
Peru further stated that, if the Tribunal decided that it did have jurisdiction and analyzed the merits of the case, it would be setting a serious precedent and opening up the possibility of hundreds of claims by failed banks, thus effectively expanding ICSID jurisdiction beyond investment disputes.144
Peru concluded:

"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

B. Claimant’s Position

The Claimant stated that the share transfer was a legitimate act performed in good faith, owing to the progressive deterioration of Mr. David Levy’s health;147 it was done not with the aim of obtaining access to ICSID but in order to ensure continuity of the foreign nationality protected by the APPRI.148
The Claimant considered that the analysis of the status of a protected investor focuses on verifying whether the Jus Standi requirements are met in terms of: analyzing whether a protected investor existed when the investment was affected; analyzing the existence of a legitimate assignment of the right already held (power to file a claim before ICSID by virtue of the APPRI) to a third party and verifying whether there has been abuse of process.149 In her post-hearing submission of January 22, 2013, the Claimant also stated that the APPRI established no requirement or limitation whatsoever to the effect that the initial investor necessarily had to be the claimant before ICSID, that rights to an investment can be validly assigned—including the power to submit a request for arbitration for injury suffered by the initial investor and assignor— since Jus Standi may be assigned.150
The Claimant also noted that "in those cases where no abuse of process has been found, the Arbitral Tribunals are competent to settle disputes arising out of State’s measures that took place before the assignment, as well as those that took place after the transfer of the investment."151
The Claimant denied that her investment had no value: on the date when the investment was affected, it had considerable economic value and her claim was based on its impairment, since it was the Respondent’s actions themselves that substantially affected the value of the investment.152
Concerning the value of the assignment of BNM’s shares, the Claimant mentioned the need to take into account the fact that the transaction was of an intrafamily nature and the fact that the transfer was free of charge did not imply that the investment was valueless, "as it is only natural that no price was paid for such shares of stock."153
The Claimant stated that the jurisdictional requirements of Salini Costruttori v. Kingdom of Morocco154 are fully met in the present case, as the existence and operation of a banking institution such as BNM for about eight years confirms the provision of funds,155 risk taking, the existence of a project of a certain duration, and the contribution to the economic development of Peru.156
On the subject of the statements made by Peru concerning good faith, the Claimant affirmed that "it is not possible to create access to international jurisdiction in bad faith when such an access had already existed, both for the assignor of rights, David Levy, a French national, and for BNM itself, which has always been and continues being a juridical person of French nationality."157 In addition, in this case there is continuity in French nationality of the investment; pre-existence of the right to ICSID arbitration before the transfer of shares of stock and assignment of rights to the Claimant; and preexistence of the claims against the State’s measures in the court lawsuits filed by NMH since 2001. Therefore, according to Claimant it is not possible in this arbitration to allege abuse of process based on a bad faith action.158
The Claimant further rejected Peru’s objection that the Tribunal cannot rule on the present claim; the Claimant did not ask the Tribunal to step in the shoes of the regulatory agency but requested that it determine whether the actions and omissions by agencies of the Peruvian State infringed principles and standards of international law and of the APPRI; the Claimant was not objecting to Peru’s banking and financial regulations and was not disputing the worthiness and validity of domestic banking laws and regulations.159 In addition, when considering the merits of this dispute, the Tribunal should consider whether the Respondent’s institutions acted in accordance with Peruvian law or whether, on the contrary, by intervening, dissolving, and liquidating BNM they abused their powers and infringed international principles or standards.160 The Claimant also stated that Peru’s arguments meant that "... specific State’s actions... should remain untouched and unrevised, taking sovereignty to the extreme of not being able even to assess its legitimacy."161
The Claimant also stated that neither the APPRI nor the ICSID Convention established rules relating to objections to the admissibility of a claim and that a number of arbitral precedents and doctrine considered it inadequate to analyze objections to the admissibility.162
In the following section, the Tribunal will analyze the objections submitted by Peru and the arguments put forward by the Claimant concerning ICSID's jurisdiction and and the admissibility of the Claimant’s claims.


The Tribunal considers it necessary to reproduce the provisions of the ICSID Convention and of the APPRI, upon which the Tribunal’s competence is contingent:

"Article 25

(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."

The Tribunal first notes that Peru did not deny having consented to ICSID arbitration; this point will therefore not be analyzed in this award. Nor was there any discussion between the parties on the direct negotiations they had undertaken prior to the submission of the request for arbitration.
With regard to Article 25, paragraph 2(b), of the ICSID Convention, the Tribunal states that, as will be explained below, while the Claimant affirmed in various ways that her claim was made on behalf of BNM and that BNM is a party to the proceedings, she did not provide any evidence of her alleged representation and thus, BNM has not been considered a claimant in these arbitral proceedings.
The Claimant asserted that her own and her father’s French nationality had been indisputably proved; she also stated that she had never had the Peruvian nationality. Her French nationality has been substantiated on three separate occasions: on June 14, 2010, when the 6-month period of amicable negotiations lapsed, on 20 July, 2010, when the Claimant’s request for arbitration was registered, and before December 5, 2000, the day of SBS’s intervention in BNM, which gave rise to the present dispute.163 In addition, pursuant to Article 8(3) of the APPRI, for those companies incorporated in Peru, which were under the control of French nationals before the events related to the dispute took place, the French control should have remained until the date of consent to ICSID arbitration, which is the case here.164
The Claimant also noted that none of the provisions of the ICSID Convention or of the APPRI required that the investor who made the initial investment be the only one able to invoke the protection of the APPRI to defend the investment. Claiming otherwise would mean that the title of the investment should have remained unchanged throughout the investment life and this would not be consistent with the very aim of the APPRI, which is to foster and encourage the normal flow of investments.165
In the opinion of the Tribunal, the Claimant substantiated her French nationality166 and, contrary to the allegation of the Respondent,167 the fact that she has other nationalities does not prevent her from claiming protection under the APPRI.
The Respondent alleged that what the Claimant received was an indirect and minority interest (paragraph 118(a) above). Several Arbitral Tribunals have repeatedly stated that investors with an indirect interest, including a minority interest, may on the basis of the ICSID Convention request protection of the rights accorded to them by an investment treaty.168 In addition, the Tribunal points out that Article 1 of the APPRI is very clear in defining the concept of investment and stating that it includes shares "...whether minority or indirect, in the corporations constituted in the territory of one of the contracting parties."169
The Respondent also affirmed that the Claimant received her indirect interest too late, that is, five years after BNM had been intervened (paragraph 118(a) above). The Tribunal considers that shares may be assigned at any time with no effect on the rights of the assignee. The transmission of legal rights and endorsement of the shares could occur without affecting protection of the investment under the APPRI, provided that the other requirements of that treaty were met.
The Respondent also argued that the Claimant acquired her rights to the investment without charge (paragraph 118(c) above), since they were assigned to her by her father, Mr. Levy, in 2005. This Tribunal considers that the monetary value of assignments of rights and endorsements of shares does not affect the status of the initial investment. This was recognized by the Arbitral Tribunal in the case of Pey Casado v. Republic of Chile.170 In light of the paragraphs above, the Tribunal will reject the first argument on jurisdiction advanced by Peru.
The Respondent also alleged that the interest acquired by the Claimant cannot qualify as an investment under the the APPRI, since on July 12, 2005 it had no value because BNM had been illiquid and insolvent since December 5, 2000, so that "the Claimant’s indirect interest in BNM never had any value" (paragraph 118(b) above).171
It is clear that the Claimant acquired her rights and shares free of charge.

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.

Article 1 of the APPRI states:

"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

In the opinion of the Tribunal, BNM was an investment made in accordance with the Peruvian legislation on banking matters, as confirmed by Resolution No. 818-91 of December 20, 1991, through which SBS authorized the operations of BNM. In addition, the APPRI entered into force on May 30, 1996, so that the requirements established in the first part of its Article 1 are met. For these reasons, the Tribunal will also reject Peru’s second argument on jurisdiction.
As to Peru’s third argument—that the Claimant’s interest in BNM does not qualify as an investment under the ICSID Convention (paragraph 118(c) above) —the Tribunal considers that the initial investment made by the Claimant’s relatives meets all the requirements described by the Respondent: it provided resources to establish the Bank and make it operational; risk was incurred in each of the operations, which were typical bank operations; the investment was of some duration and it contributed to the development of Peru, through the various services provided by BNM to the public and private sectors.
In addition to the points made in the preceding paragraph, the question whether BNM was an investment is clearly relevant to the merits and has no part in a discussion on jurisdiction. Here the Tribunal agrees with Professor Schreuer that:

"These features should not necessarily be understood as jurisdictional requirements but merely as typical characteristics of investments under the Convention."173

Regarding Peru’s fourth argument—that there is abuse of process (paragraph 123 above) and that the assignment to the Claimant of the shares in Holding XXI does not constitute a good-faith investment (paragraph 124 above)—the Tribunal fully agrees with the Respondent about the importance of good faith in international law and specifically in investment arbitration issues. However, it considers that the Respondent did not succeed in proving the alleged bad faith of the Claimant and it is a well-known and accepted fact that bad faith cannot be presumed. Therefore, the Tribunal will also reject this argument on jurisdiction advanced by Peru.
With regard to the intention behind Mr. Levy Pesso’s assignment of his shares to his daughter, the Claimant, the Tribunal considers that the fact that this transfer took place without charge does not demonstrate that it was an attempt "to manufacture jurisdiction,"174 as the Respondent states. Firstly, because this is a transfer between very close family members and, secondly, because the transfer occurred in July 2005 and it was not until five years later that the Claimant decided to resort to ICSID arbitration. In conclusion, it is impossible to determine from the precise circumstances of this case that the assignment of shares in 2005 was an attempt to "manufacture" ICSID jurisdiction.
Lastly, the Respondent argued that the Tribunal is not competent to rule on the Claimant’s claims because that would oblige the Tribunal to examine actions taken by the authorities of Peru (paragraph 125 above). The Tribunal will refer in the subsequent paragraphs to this argument of the Respondent.
As indicated in paragraph 125 above, Peru stated that SBS acted reasonably to protect BNM’s depositors, took the necessary measures and followed the mandate of the law. Similarly, at the hearing, the representatives of Peru emphasized that "Peru’s regulators acted at all times in accordance with Peruvian law. Indeed, their actions were required by Peruvian law. Given the high stakes involved during a financial crisis, the legally sanctioned actions of a banking regulator must be given the highest possible degree of deference."175
The Tribunal considers it important to reproduce Article 4(1) of the International Law Commission’s draft articles on Responsibility of States for Internationally Wrongful Acts, which reads:

"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

In the Tribunal’s view the fact that SBS is a banking and insurance regulatory body should not prevent it from analyzing and resolving the present dispute.
It is also important to consider the opinion of the Arbitral Tribunal in the case of LG&E Energy Corp. and others v. Argentine Republic:

"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

In the Tribunal’s opinion, Peru cannot argue that its organs— SBS, the MEF, or any other organ—acted in compliance with Peruvian law and that the Tribunal is therefore not competent to settle this dispute. On the contrary, it is the responsibility of the Tribunal to analyze whether the Peruvian State, through those or other organs, violated international norms and the APPRI.

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.


In light of the foregoing, the Tribunal rejects all of the Republic of Peru's objections to jurisdiction and declares that this Tribunal has competence to analyze the merits of the claim brought by Ms. Renée Rose Levy de Levi.
The Tribunal will decide later about the costs of this proceeding.
In the next chapter, the Tribunal will endeavor to describe the positions of the parties on the merits of the case, in order to analyze them and settle the dispute between them.


As identified in the Memorial on the Merits, the Claimant alleged that Peru infringed the standards of fair and equitable treatment, national treatment, and full protection and security; the Claimant also stated that in this case there was an indirect expropriation.179 The Tribunal will now analyze the Claimant’s position regarding each of these standards and will then summarize the Respondent’ s counter-arguments in each case.

A. Infringement of the Standard of Fair and Equitable Treatment

1. Claimant’s Allegations

The Claimant cites Article 3 of the APPRI concerning the principle of fair and equitable treatment, whose paragraph 1 reads as follows:

" 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."

The Claimant argues that, pursuant to Article 2 of the International Law Commission’s draft articles on Responsibility of States for Internationally Wrongful Acts, a State’s act infringing upon the principle of fair and equitable treatment can consist of an action or an omission.180 The Claimant further asserts that the intention of the State is irrelevant to determine whether this standard has been infringed or not. The Claimant also lists the elements comprised in this principle:

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

a. Legitimate expectations

The Claimant states that legitimate expectations involve enabling the investor to make rational decisions based on the assurances provided by the host State guaranteeing a predictable regulatory framework and a consistent and transparent behavior; stability means that the host State will not unduly thwart legitimate expectations.182
The Claimant alleges that her legitimate expectations and those of BNM derive from the APPRI and from the operation start-up authorization (license) granted to BNM by SBS in Resolution No. 1455-92 of December 30, 1992,183 "an administrative action that created legitimate expectations of stability and return of investment."184
Relying on a quotation from Professor Schreuer, the Claimant notes that "... the investor’s legitimate expectations [are] based on [a] clearly perceptible legal framework and on any undertakings and representations made explicitly or implicitly by the host State."185 Based on the considerations of the Arbitral Tribunal in the case of Total S.A. v. Argentine Republic,186 the Claimant submits that expectations may be based on regulations that are not specifically aimed at investors, such as long-term investment projects where regulatory certainty is required.187
The Claimant lists the following acts and omissions of Peru as violations of the standard of fair and equitable treatment, specifically with regard to legitimate expectations:

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

The Claimant also alleges that the measures adopted by the State do not meet the minimum requirements of proportionality, reasonableness, and predictability.202 As an additional element, the Claimant mentions that, in order for the investor’s legitimate expectations to be protected, the investor has to have acted in good faith. BNM and its shareholders had always acted in good faith203 and their expectations had been affected in an abrupt, unpredictable and unexpected manner.204

b. Juridical stability

On the basis of doctrine, the Claimant affirms that the main elements of juridical stability are the publication and notification of new laws, regulations, and policies; the opportunity to comment on them; and their fair and transparent application. Additionally, prior participation of those potentially affected by future State measures is also necessary.205 The Claimant stresses that she does not question the sovereign power of the State to amend regulations but states that any changes must be reasonable, non-discriminatory, made in good faith, and ensuring clear and predictable rules, with attention to the legitimate expectations of investors and without violating fundamental rights.206
The Claimant cites the following actions as violations of the guarantee of juridical stability: i) regulatory approach of the State to face liquidity problems (imposition of merger mechanisms through PCSF); ii) lack of transparency in the substantial change of current regulations; iii) violation of the creditor priority to payments; iv) contempt of court; and v) extra-legal actions against BNM.207
The Claimant stated that PCSF neglected the interest of and economic impact on all the parties involved and in particular, on BNM. In this respect, she added that once the meeting at the MEF, from which BNM had been excluded, was over and the public found out about the regulatory changes "the flight of private deposits in BNM intensified."208 She reiterated that by making payments to foreign banks in the wrong order of priority (see paragraph 172(vii) above), SBS affected the public interest protected by banking regulations.209 In the Reply on the Merits, the Claimant also states that nothing could justify discriminatory treatment consisting of inviting some banks to a meeting and excluding BNM, which was financially sound and had justified expectations of continuing to operate successfully.210
The Claimant also notes that "[t]he PCSF violated the expectations of rehabilitation of the banking institutions intervened, since the program forced intervened banks to transfer their assets en bloc. Entities that chose not to do it entered necessarily into a dissolution process, no longer being entitled to rehabilitation, unlike the regular regime."211
The Claimant also alleges that SBS had not obeyed the judicial decisions overturning Resolution No. 509-2001, which determined that BNM’s capital was S/. 0.00 (zero and 00/100 Nuevos Soles) (paragraphs 109 and 93 above), since "These Court decisions, even though they were effective and in force, were not obeyed by SBS, insofar as [it] kept on validating the reduction of capital to zero (S/. 0.00) to justify the continuance with BNM liquidation and dissolution process, with the ensuing direct damage to the investment."212
The Claimant also affirms "... the existence or occurrence of State’s actions with surreptitious, extra-legal intent."213 She states that certain senior officials of the Executive Power of Peru intended to force the disappearance of the so-called small banks and that "... with a reasonable interpretation of the domestic law pre-existent to the temporary liquidity crisis at BNM, the investor could not have predicted a change of that nature in the regulatory framework, or the erratic behavior of senior officials of the Republic of Peru towards the investor."214

c. Arbitrary or discriminatory State actions and abuse of power

The Claimant notes the following as being arbitrary and discriminatory actions: i) Irregular accounting methods employed by the SBS intervention commissioners, who applied international accounting standards with respect to BNM’s financial statements retroactively, adversely affecting the Bank’s net worth.215 In the Reply on the Merits, the Claimant adds that: "... it has been substantiated that the auditor released his Opinion dated as of March 5, 2001 and Respondent does not explain why the auditor did not issue a supplementary opinion in June of that year as a result of the substantial changes made by the SBS Intervention Committee, a situation that is of certain formalities, such as establishing International Standards on Auditing, accounting and audit practice also is questionable".216 ii) Deliberate impairment of the loan portfolio during the intervention and lack of technical and legal reports justifying the portfolio reclassifications ordered by the intervention commissioners.217 In her Reply on the Merits, the Claimant also notes that the Receivers (mentioned in paragraph 94 above) corroborated these irregularities and that the Report of Consorcio Define-Dirige, the liquidation firm appointed by SBS, questioned the work of the intervention commissioners in the accounting treatment of BNM.218 iii) Rejection of BNM’s request for a loan from BCR, despite the fact that BCR "has the function to cover temporary liquidity shortages and guarantee the stability of the banking and financial industry."219 According to the Claimant, this rejection was arbitrary because BCR used private banking criteria and did not play its role as industry stabilizer. iv) Arbitrary rejection of the BNM shareholders’ recapitalization proposal designed to strengthen the Bank’s equity and to terminate the Bank’s participation in the PCSF Transitional Regime.220 In her Reply on the Merits, the Claimant adds that BNM shareholders never received a response from the State to their proposal, in contrast to the treatment accorded to Banco Latino and Banco Wiese.221 v) Reduction of BNM’s equity capital to zero, indirectly affecting NMH as a shareholder.222 In her Reply on the Merits, the Claimant alleges that the sole purpose of the capital reduction to zero was to facilitate the disposal of the shareholders’ assets by the State by declaring the dissolution of BNM.223 vi) Declaration of dissolution of BNM, based on the report of Arthur Andersen, which clearly stated that it was not "a valuation of the business."224 The report states: "the procedures applied do not constitute (i) an audit of the financial statements of the Bank, (ii) a valuation of the Bank’s assets and liabilities, and/or (iii) a review of the Bank’s internal controls,"225 vii) "... serious omission by SBS and BCR of their responsibility for giving support and acting diligently to find ways to provide BNM with temporary liquidity; this contrasts with the preferred treatment given to other banks (Banco Wiese and Banco Latino), which... when faced with liquidity shortages, they were benefited with direct bailouts by the Peruvian State,"226 and viii) "... the deliberate refusal no [sic] to face the market and reassure BNM savers, as well as to counter those who spread the groundless rumors."227
In addition, the Claimant lists, among Peru’s arbitrary and discriminatory actions, the following abuses of power:

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

d. Bad faith, coercion, threats, and harassment

The Claimant also refers to the guarantee against State actions involving bad faith, coercion, threats, and harassment against the investor or the investment and mentions the following actions: i) coercion and aggressiveness in the lengthy inspection visit by SBS, which triggered speculation and false rumors about BNM’s solvency and was one of the reasons for the massive flight of private deposits from the Bank;233 ii) reduction of BNM’s equity capital to zero "in order to facilitate the State’s disposal of the property by declaring the dissolution of BNM;"234 iii) coercion by encouraging the sale of an equity block to Banco Interamericano de Finanzas;235 iv) bad faith in the declaration of BNM’s dissolution without a valuation of the entire equity;236 v) coercion and harassment by criminal prosecution of BNM’s shareholders and managers in "numerous and irrational criminal lawsuits."237 Concerning the criminal lawsuits, the Claimant also states that "BNM’s shareholders and managers have been acquitted from more than 25 criminal prosecutions, which shows how arbitrary and groundless the filing of these criminal actions was by SBS."238

e. Violation of due process

Regarding the last aspect of the infringement of the standard of fair and equitable treatment, the Claimant alleges that a guarantee exists against judicial and administrative proceedings that violate due process and the right of defense. To this effect, the Claimant cites the following acts and omissions violating this guarantee: i) lack of transparency and violation of due administrative process by the regulatory change made in PCSF, implying exclusion of the so-called "small" banks, which were neither consulted nor notified; moreover, the opinion of all players in the banking and financial system was not sought; and ii) lack of justification for SBS Resolution No. 775-2001 declaring the dissolution of BNM, based on SBS Resolution No. 509-2001, even though the latter was suspended by the Judiciary, resulting in a violation of due administrative process.239

2. Respondent’s Response

Peru notes that "BNM’s former shareholders expected that the Respondent would guarantee them continued profits, growth through successful mergers, access to public and private deposits, automatic availability of credit, as well as bailouts and other protection if the Bank’s fortunes should sour. However, BITs ‘are not insurance policies against bad business judgments.’ Instead, BNM’s former shareholders ‘should bear the consequences of their own actions as experienced businessmen.’"242
Peru argues that the Claimant has not shown "how she or BNM’s shareholders relied on any of the specific expectations identified in her Memorial in making any investment."245 Indeed, it was inconceivable that the Claimant had such expectations in 2005 and she could not point to any promise or commitment made by the State with respect to her expectations.246
Peru stated that the Claimant asserts that BNM’s shareholders were entitled to a return on their investment, on the basis of an operation start-up authorization granted to BNM by SBS in 1992. It added, that is not a reasonable expectation because "The State cannot and does not guarantee a return on investment. It is incumbent on the investor to make sound business decisions; the BIT and its fair and equitable treatment obligation are not a guarantee of business success."247
As regards the merger with Banco Financiero, Peru affirms that the State never committed itself to approving all proposals for bank mergers but only to reviewing them, by assessing the legality of the proposal and its possible impact on the stability of the banks involved and on the banking system as a whole. SBS informed those concerned that a merger proposal would have to be accompanied by a plan to recapitalize BNM; in addition, the shareholders of that Bank never even submitted a formal merger proposal to SBS.248
Peru denies having made any statement indicating that BNM would be granted the unusual privilege of participating in the Government’s decision-making regarding the promulgation of PCSF.249 It also explains in its Rejoinder on the Merits that, when the meeting referred to by the Claimant was convened, PCSF had already been designed.

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

The Respondent also notes that BNM’s shareholders could not reasonably expect that State-owned companies would keep their deposits in BNM indefinitely. Those deposits had set terms and no guarantee of renewal. In addition, SBS had warned BNM against relying heavily on such deposits and on the need to diversify its deposits and to develop contingency plans.251
Peru indicates that the public deposits were not withdrawn all at once but when their terms expired over a twelve-month period, from January to December 2000. In addition, it was reasonable to expect that the deposits would not be stable, since they were placed through periodic auctions, in which State-owned companies continually shopped around for the highest interest rates.252
Peru states that investors could not have expected that State agencies would refute the rumors circulating about BNM’s solvency. While BNM had a right, under Peruvian law, to request that the Public Prosecutor file criminal charges against anyone who incited financial panic, it failed to exercise such right. Peru also notes that SBS had no legal obligation to make public statements about specific financial institutions.253
Peru also states that the Claimant has provided no evidence of her alleged request to SBS to make statements about the stability and soundness of the financial system and explains that the institutions concerned (SBS or MEF) were reluctant to make specific statements about BNM, not because the Bank was insolvent but because they knew it was in a weak financial situation.254
Regarding the Claimant’s expectation that BNM would receive a loan from BCR, the Respondent states that Peru’s laws clearly define the conditions upon which BCR loans are granted. It added that the BCR was not allowed to make an emergency short-term loan to BNM because BNM did not have sufficient collateral to secure the loan; the Claimant mischaracterizes the role of BCR as lender of last resort.255 It is not true that BNM had sufficient collateral and the Claimant has not produced any evidence that it did. BCR has no constitutional or legal basis for ignoring the legal requirement regarding sufficient and eligible collateral; thus, the Claimant and her expert have completely mischaracterized the role of BCR.256
Peru notes that BNM’s shareholders could not reasonably have had any expectations of benefitting from or continuing to control the Bank’s assets after its intervention had been ordered. The Banking Law states that, once a bank is intervened, its assets are sold, the bank is liquidated, and the recovered assets are used first to pay depositors, creditors and—if some residual value remains—shareholders.257
Regarding the order of priority for BNM payments during liquidation, Peru states that the payment of foreign banks had no impact on the Claimant, because BNM’s shareholders were last in the order of payment, so that any expectations they might have had in that regard were irrelevant.258
With regard to the allegation of violation of the guarantee of juridical stability, the Respondent explains that the decrease in BNM’s public deposits was consistent with the freedom of State-owned companies to invest their funds and to withdraw them at the end of the term of the deposits instruments, particularly in cases such as that of BNM, where there had not been any promise of renewal. The denial of the BCR loan was consistent with the legal requirements concerning the provision of sufficient collateral. PCSF did not change banking regulations in any way; it rather created a new benefit that banks could voluntarily choose to access. It insisted that the BNM liquidation process followed the laws on the order of priority for payments.259 In addition, it is not clear what the Claimant means by stating that BCR acted as a private bank, since it has acted in conformity with the laws governing its powers and authorities.260 It is nonsensical to argue that BCR should have acted in accordance with the alleged international best practices, which were used for the first time to respond to a global financial crisis that occurred one decade after the events in this case.261
Peru notes that "States parties to a BIT do not relinquish their traditional regulatory authority or forgo their ability to amend and adapt legislation over time."262 Additionally it notes that Peru’s legal framework did not undergo any significant changes during the financial crisis, and SBS, the MEF, and BCR applied the laws in a consistent manner when dealing with BNM: "the legal framework that was applied to BNM was at all times in line with the expectations of stability that an investor in Peru’s financial system would have had."263
In the opinion of Peru, the transparency obligation refers to the ability of the investor to know "beforehand any and all rules and regulations that will govern its investments."264 It has complied with that obligation by publishing all the legal requirements of PCSF and applying them consistently to the banks interested in participating. It has also acted transparently by making payments to creditors according to the priorities established by law. It rejects the Claimant’s conspiracy theory about the elimination of small banks.265PCSF did not force banks to do anything; it was designed to facilitate the reorganization of institutions in the national financial system. The program was subsequently expanded to include intervened banks, but on the understanding that any intervened bank would be liquidated and dissolved. For example, NBK Bank’s assets and liabilities were sold through PCSF and the Bank was then placed in liquidation.266
Regarding the rehabilitation of BNM, Peru explains that, under the General Banking Law that option is only allowed for a bank in liquidation (not in intervention) and can only be initiated by at least 30 percent of the bank’s creditors (not by its shareholders or directors).267
As for the allegations of discrimination, Peru states that the Claimant has not shown that arbitrary or discriminatory measures are in fact prohibited in the APPRI and that, at a minimum, she must show the existence of such a prohibition ("non-impairment" provision) in customary international law.268 Citing doctrine, Peru states that "... not every exercise of discretion that departs from usual practice without a justification would rise to the level of prohibited arbitrariness."269 It adds that "a breach would require showing intentional arbitrariness, a failure to act in good faith, and actual harm,"270 and states that the Claimant has not proved any of those situations.271
Peru further states that a measure described as discriminatory must have been taken with the intention to harm the investor and must have caused actual injury.272 Citing several arbitral awards, it states that "when a measure or a distinction reflects ‘a reasonable relationship to rational policies,’ such conduct is not unlawfully arbitrary or discriminatory."273 Based on that line of reasoning, Peru states that, in light of BNM’s financial problems, it is evident that there was nothing arbitrary, discriminatory or abusive about the intervention of that Bank.
In particular, on the subject of the accounting practices used by SBS during the intervention, Peru states that the necessary adjustments had been made to the financial statements to reflect the true condition of the Bank. The reduction in the value of BNM’s assets during the intervention of the Bank was due to a re-evaluation of its financial state to reflect the financial problems caused by BNM’s management before the SBS intervention. In addition, given that the Bank was insolvent, the management of the assets by SBS could not have caused harm to the Claimant. Concerning the loan requested from BCR on December 5, 2000, Peru explains that BCR’s decision was not arbitrary because the law governing emergency loans specifically required the provision of sufficient collateral. As to the rescue plan proposed by BNM’s shareholders, the rejection was reasonable because the plan was not legally viable; in addition, the Claimant was not harmed by the rejection because the ownership interest of BNM’s shareholders would have been diluted or eliminated. With regard to the reduction of BNM’s shareholder equity to zero, Peru explains that PwC and SBS determined that BNM was insolvent and that its equity was therefore worth nothing.274
Regarding the basis for the decision to liquidate BNM, Peru states that SBS did not rely on the Arthur Andersen valuation, but on the fact that, under the Banking law, intervention is always followed by liquidation "regardless of the Bank’s value." As for the rumors regarding BNM’s financial situation, the authorities were unaware of such rumors before the intervention and had a policy of not speaking to the public about specific institutions. In response to the Claimant’s allegation that it had given bailouts to other banks, the Respondent states that it had not bailed out the shareholders of any banks similarly situated to BNM. It is thus not true that there has been any discrimination against BNM. Concerning the withdrawal of public deposits, Peru maintains that public funds had been withdrawn not only from BNM but from all private-sector banks; in addition, the Claimant has not shown that the Bank’s failure has been due to those withdrawals. It was rather the withdrawal of private deposits that caused BNM’s liquidity crisis.275
Concerning the Claimant’s allegation of abuse of power in acting in contempt of Peruvian judicial decisions, Peru states that "While the courts acknowledged the rights of BNM’s shareholders to judicial review, the courts found that SBS was authorized—and indeed obligated—to dispose of BNM’s assets in the process of liquidation and to determine if any residual value was left at the end of that process. Therefore, Peruvian courts did not conclude that SBS abused its power; further, SBS has not been in contempt of any court decisions."276 Moreover, there were no judicial orders to produce information about BNM’s liquidation process; the one decision handed down has subsequently been annulled.277
Peru denies having acted against BNM in bad faith, with coercion, threats and harassment; the onus is on the Claimant to show that the alleged situations have existed. It has been concluded in the Vivendi II case278 that "it is the severity and ‘misuse of [] regulatory powers for illegitimate purposes’ that distinguishes a wrongful act from the legitimate exercise of sovereign authority."279 The Claimant has failed to establish any act of bad faith by the authorities and has even stated in her Memorial on the Merits that the actions of Peru "may" have been intended to affect the investment and to violate the fair and equitable treatment standard.280
Concerning the inspection visit of BNM conducted in August 2000, Peru states that it had been made in accordance with the law, was not unusually long, and was not the second visit of the year, since what had happened in January was a special examination of the consumer loan portfolio and not a full inspection visit.281 Moreover, the reduction of BNM’s equity to zero was not a form of coercion, since the Bank was already insolvent and the publication of that fact in a resolution had no effect on the value of the Bank’s equity and merely acknowledged a reality. The efforts to transfer BNM’s assets to another bank as a block were not acts of coercion but were expressly authorized by the Banking Law. It was not coercive for SBS to file criminal charges against the directors and shareholders of BNM; it was its duty to do so.282
Countering the Claimant’s allegations of violations of due process, Peru pointed out that the APPRI cannot be construed as guaranteeing to the Claimant a right to participate in or comment in advance on PCSF and that "[a] right to comment on an emergency decree is not a guarantee that is generally considered indispensable to the proper administration of justice."283 In addition, "no generally accepted standard of due process requires that all investors have the opportunity to attend government meetings, let alone participate in making governmental decisions."284 Peru concluded that PCSF had no impact on the interests of BNM’s shareholders, as it was designed simply to benefit those institutions that chose to participate.285
Peru emphasizes that SBS has never disregarded any judicial decisions; the courts had not invalidated any of SBS’s administrative acts and the court claims of BNM’s shareholders have been consistently dismissed as unfounded.286 Furthermore, there is no generally accepted norm requiring the Peruvian State to provide investors with an administrative review of administrative actions, in addition to the already existing judicial review.287
Peru denies that BNM’s shareholders did not have access to judicial review. They brought several court cases, in which they put forward their arguments and presented the evidence that they deemed appropriate. Based on several awards, Peru concludes that "[t]he substance of a judicial decision can lead to finding a denial of justice only ‘when the decision is so patently arbitrary, unjust, or idiosyncratic that it demonstrates bad faith’ or ‘as an indication of lack of due process.’"288 Moreover, Peru adds that BNM’s shareholders were able to challenge administrative decisions to reduce public deposits, to decrease BNM’s shareholders equity and to liquidate BNM and in each case, they failed to substantiate their allegations.289 As for the Supreme Court’s ruling, confirming SBS’s decision to liquidate BNM, Peru states that the Court’s findings were well-reasoned and not influenced by the alleged political pressure.290
The following section describes the Claimant’s allegations regarding the violation of the standard of national treatment, and the response of Peru.

B. Infringement of the National Treatment Standard

1. Claimant’s Allegations

The Claimant reiterates that a State act violating international standards can be an act or an omission.291 The Claimant indicates that the first paragraph of Article 4 of the APPRI governs the principle of national treatment of investors and of the investment itself: "[e]ach Contracting Party grants, in its territory and sea areas, to nationals or companies of the other party in matters regarding its investments and activities related to these investments a treatment not less favorable than that accorded to its nationals or companies, [...]."
The Claimant also notes that the examination of the violation of that principle involves three essential factors: a) identification of comparator and the concept of similar circumstances; b) existence of unequal treatment and lack of reasonable justification; and c) irrelevance of the State’s intention.292
The Claimant notes that this principle or standard protects foreign investors that are in similar circumstances to those of a national investor or his investment and is respected if the claimant investor is in the same industry or in direct competition with the comparator. It is also important to consider the reasonableness of the State’s measure granting unequal treatment. In the same line of thinking, the Claimant states that BNM was comparable to BCP, Banco Wiese, Banco Latino, and Banco de Comercio—all Peruvian Banks.293
In her Reply on the Merits, the Claimant also mentions other factors for comparing BNM with the above-mentioned banks: the benchmark banks performed the same functions, provided the same financial services, had a similar growth rate, and took similar risks.294
The Claimant notes that arbitral doctrine and case law have established that non-compliance with the national treatment standard occurs regardless of whether the State took into account the investor’s nationality; for that reason there are de jure and de facto discriminatory measures. Relying on the case of Feldman Karpa v. Mexico,295 she states that, once unequal treatment has been proved, the State has to show the existence of reasonable grounds for such treatment; otherwise, it would be a discriminatory measure violating the national treatment standard.296
The Claimant affirms that in January 2001, SBS and the MEF reassured the markets and countered the effects of the rumors circulating about the Peruvian banks BCP and Wiese Sudameris. In addition, national media published news confirming that affirmation (Claimant’s Exhibits V-29, V-30, V-31, V-32, V-33, V-34, V-35, and V-36). There were thus no reasonable grounds or objective public policy issues that would justify such unequal and discriminatory treatment.297
The Claimant also alleges that the State gave "disproportionate" help to Banco Wiese and Banco Latino and that, through COFIDE, it intervened in favor of Banco Latino by capitalizing its receivables, thus avoiding intervention. The State intervened via bailouts and rescue programs for amounts higher than those required for BNM, which needed only US$20 million. This amount could have been given through the mechanism of rediscount by BCR and other viable options, which would have prevented BNM’s intervention.298
The Claimant further cites the case of Banco de Comercio, whose main shareholder is the Peruvian State itself and which allegedly had a lower ratio than BNM but still managed to survive the liquidity crisis in the financial industry. The Claimant also notes that the Respondent has not provided the list of cash rediscounts given to the banks by BCR between August 2000 and August 2001, as ordered by the Arbitral Tribunal in its Procedural Order No. 1. This list would have shown the support received by other banks from the State, in contrast to the treatment accorded to BNM.299
The Claimant adds in her Reply on the Merits that Peru’s position that the market share of banks is a sufficiently reasonable indicator justifying unequal treatment has no merits.300 According to the Claimant’s expert, Mr. Nicolas Dujovne, in December 1999, BNM was Peru’s sixth largest bank and was an institution of systemic importance.301
The Claimant also notes that Article 20 of the Banking Law prohibits shareholders, managers, and directors of firms intervened by SBS to continue being qualified as the firms’ "organizers." However, that rule did not apply to national shareholders who benefited from the bailout programs, such as Banco Latino, where the directors remained in office even after nationalization.302
In her post-hearing submission, the Claimant includes a section entitled: "The more favorable treatment given by SBS to Banco Wiese and Banco Latino during the financial crisis" and argues: "... it has been substantiated that the bailout schemes implemented by the State for local banks, did not preclude the possibility of rescuing banks by way of a direct or third-party contribution, and the permanence of some directors. The contrary happened in the case of BNM, as the Banking Act underwent amendments through Emergency Decrees days before BNM was intervened which established new rules for bailout processes or bank interventions that ruled out any possibility of keeping it afloat by its shareholders, and hence the only alternatives were either the sale of assets or the dissolution and liquidation of the bank."303

2. Respondent’s Response

Peru claims that BNM was not in like circumstances with BCP, Banco Wiese Sudameris, or Banco Latino. It also claims that a domestic investment was not in like circumstances with a foreign investment merely because the two companies were in the same industry or in a competitive relationship. It adds that an essential element of a national treatment analysis is the reasonable justification of any differential treatment. To this effect, if the differential treatment is reasonably based on a rational policy, the foreign and domestic investment will be considered not in like circumstances.304
Peru explains that Banco de Crédito and Banco Wiese Sudameris were the fìrst-and second-largest banks in Peru and that, until November 2000, they had accounted for 44 percent of loans and 51 percent of deposits.305 Banco Latino had a very large network of individual depositors, making its survival very important for the safety of Peru’s banking system. In contrast, as of November 2000, BNM accounted for 4 percent of all loans in the financial system and 2 percent of deposits.306 In addition, BNM’s depositors were not individuals but businesses, other banks and State-owned companies, so that its failure would not (and did not) destabilize the financial system.307
Considering the bank that was most similar to BNM at the time, Peru compares BNM with NBK Bank, which held 3.3 percent of loans and 1.9 percent of deposits in that country and which, on December 11, 2000, failed to pay its obligations and was excluded from Peru’s check-clearing process and intervened by SBS. NBK Bank came under the Special Transitional Regime and Banco Financiero acquired it under PCSF, so that its shareholders lost their ownership interest and investment.
Peru also affirms that the Superintendent did not, as the Claimant alleges, make any statements refuting rumors about the above-mentioned three banks; he made only general statements about the overall health of the banking system.308 Regarding the Claimant’s allegations about the way Banco Latino and Banco Wiese were bailed out by Peru, Peru states that "For Banco Latino, the Government committed funds and effectively nationalized the Bank; the shareholders’ ownership stake was severely diluted and eventually eliminated. For Banco Wiese, the Government did not end up paying out any public funds, and in the process of that merger, Banco Wiese’s shareholders likewise lost control and ownership of the Bank".309 Consequently, even if Peru had treated BNM in the same manner than Banco Latino or Banco Wiese, which it could not have done, BNM’s shareholders would have lost ownership and control of the Bank.310
Concerning the case of Banco de Comercio, Peru points out that the Claimant did not explain the alleged similarities between that Bank and BNM. According to Peru, the Claimant also failed to prove her assertion that Banco de Comercio was treated more favorably than BNM by the Peruvian authorities. While SBS was required by law to intervene BNM, when that Bank stopped paying its obligations, this was not the case for Banco de Comercio, even if its liquidity indicators were weaker than those of BNM. The Claimant thus has failed to demonstrate violation of the national treatment standard in that respect.311

C. Refusal to Provide Full Protection and Security

1. Claimant’s Allegations

The Claimant cites Article 5(1) of the APPRI as the rule governing the principle of full protection and security: "Investments made by nationals or legal persons of a Contracting Party shall enjoy broad and full protection and security in the territory and maritime area of the other Contracting Party."312
The Claimant states that this principle can be violated by an action or an omission.313 The Claimant also alleges that, according to doctrine and arbitral precedent, the full protection and security standard goes beyond physical integrity.314 Moreover, an important element of full protection and security is the right of access to a system of adequate administration of justice.315 Denial of justice can be created by the lack of access to a fair judicial system or by the contempt of court rulings on the part of government agencies; specifically in the case under consideration, contempt of court by SBS has been substantiated.316
The Claimant mentions the following occasions on which, in her opinion, the full protection and security standard has been violated:

"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

The Claimant indicates that, according to doctrine and certain ICSID awards, two requirements must be met to establish denial of justice: a) exhaustion of previous remedies within the jurisdiction of the host State; and b) identification of the illicit conduct attributable to the judicial system that may not be righted by local remedies.318 As regards exhaustion of remedies, the Claimant reiterates that SBS resolutions could not be challenged at an administrative level. As regards illicit conduct, the Claimant notes that the purpose of the Administrative Contentious process in Peru is to assess only the formal aspects of the administrative action and not to discuss the merits of a case, like the present one, related to BNM’s intervention and dissolution.319
The Claimant mentions the following situations of denial of justice:

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

The Claimant states that the violation of the full protection and security standard "questions the conduct of the judicial system as autonomous behavior, the illegality whereof is directly related to the adverse effects on the investor’s economic rights."321 In addition, the lack of access to a fair and effective judicial system from the perspective of international law implies that the court action filed by BNM’s shareholders challenging its dissolution and liquidation precluded any possibility of filing any other judicial action. The Claimant further states that the opinions given by the President of the Republic, the President of Congress and the Superintendent (here she refers to the video file appended to the Request for Arbitration as Exhibit 08) were openly public, coercive, and concerted.322
The Claimant notes in her Reply on the Merits that there was no efficient administrative defense available, since SBS’s decisions could be appealed only in the courts and not at an administrative level.323 This is so because the Judiciary "may lack the technical or professional expertise to contend the State’s ‘truth’... making the Court review option in a formal remedy but inefficient for the investor’s rights." Moreover, Administrative Contentious actions focus on issues of form rather than on the merits of the case.324
The Claimant also refers to international reports on the bias and corruption of the Peruvian Judiciary, which in 2007 was placed near the bottom of the ranking.325

2. Respondent’s Response

Peru states that the Claimant has presented no evidence to support her serious allegation that the President of Peru, the Congress, and SBS interfered and improperly influenced the Supreme Court of Justice, which was reviewing SBS’s Resolution declaring BNM’s liquidation and dissolution. The Claimant also offers no evidence that the Supreme Court was influenced by the Congress’s bill suspending the wage increase of that Court’s Justices.326 In addition, the Claimant’s arguments are contradictory because she relies on reports issued by two congressional sub-committees regarding SBS s actions and omissions and at the same time alleges that the Congress influenced, along with the Executive Branch, the Judiciary to the detriment of BNM.327
Peru states that it has, at all times, provided full protection and security to BNM’s shareholders, who have enjoyed unfettered access to the Judiciary. The Claimant is dissatisfied with the outcome of half a dozen lawsuits but did not offer any evidence that efficiency or expertise had been lacking in those processes or explain how the judicial review process was insufficient to provide due process and access to justice.328 Regarding the Supreme Court’s decision, to which the Claimant objected, Peru reiterates that it is, in fact, quite straightforward and well reasoned.329 The Claimant’s unsubstantiated allegations of political pressure and the fact that Peru’s courts have been critiqued by international reports on judicial reform can have no bearing over the Supreme Court’s decision.330

D. Indirect Expropriation

1. Claimant’s Allegations

The Claimant alleges that in this case there has been indirect expropriation and that the value of the investment, and its legal and contractual rights protected by the APPRI have been gradually and systematically impaired.331 Article 5(2) of the APPRI provides that: "[n]either Contracting Party shall nationalize or expropriate or take any measure depriving, directly or indirectly, nationals or legal persons of the other Contracting Party, from their investments made in its territory or in its maritime area, unless such measures are in the public interest, provided that these measures are not discriminatory, or against a particular commitment of one of the Contracting Parties with nationals or legal persons of the other Contracting Party. Expropriation measures that may be adopted shall cause prompt and adequate compensation, the value of which, shall be equivalent to the real value of the affected investments, and shall be determined based on a normal economic situation and prior to any threat of expropriation [...]."
According to the Claimant, Peru’s expropriatory measures were concentrated in the following actions: the lengthy second visit of SBS to BNM; the failure to neutralize the rumors about BNM’s financial situation; the impairment of the BNM loan portfolio during SBS’s intervention; the reduction by SBS of BNM’s equity capital to zero; the lack of an overall valuation of BNM’s equity before declaring its liquidation and dissolution; the lack of legal and technical reports on the intervenors’ management that reclassified BNM’s portfolio and rendered its equity negative, which also led to the final expropriatory measures and to the declaration of the Bank’s dissolution.332
The Claimant considers "that the objective mission of BCR and SBS of safekeeping the right of savers and overall stability of the banking and financial industry ... seemingly constituted a sovereign regulatory measure by the State to try to justify a measure highly restrictive of the Claimant’s right to property."333 The Claimant also notes that, in order to determine the degree of expropriation of a State’s measure, its effects on the protected investment should be considered.334
In the Claimant’s view, the deprivation of the investment in this case meets the requirements mentioned in the arbitral precedents on substantial335 and absolute336 deprivation. In effect, the BNM intervenors assumed the powers of BNM’s management and limited the powers of the Shareholders’ Meeting; SBS reduced the Bank’s equity capital to zero, taking away the shareholders’ legal and economic rights, and ordered the Bank’s dissolution, preventing it from being creditworthy and precluding the shareholders from pursuing the purpose of the company.337
The Claimant states that "BNM was not having losses in its accounts or negative cash flows before the measure; accordingly, there has been substantial deprivation and the condition of having suffered a real, rather than theoretical, loss of the economic enjoyment of the investment on the part of Claimant [is met]."338
The Claimant adds that, as a result of the intervention, the investor lost effective control of the economic decision making and business of BNM. With the declaration of its dissolution and liquidation, the loss of control was complete and irreversible.339 The Claimant quotes Articles 106 and 114 of the Banking Law governing the consequences of intervention, dissolution, and liquidation of a bank, which led to the loss of control on the investment and the extinction of BNM’s corporate purpose.340
The Claimant alleges that the economic damage "... was not ephemeral nor was it minor" and that "it was impossible for BNM to mitigate it."341 In that connection, the Claimant lists the following "serious" events, explained "in terms of the economic impact:" a) BCR’s refusal to play the role of ultimate lender to provide liquidity to the financial system; b) the failure of SBS to counter the speculation and rumors, which created financial panic and a massive flight of funds; c) the abrupt withdrawal of State funds that led to the flight of privately-owned deposits; d) the intervention resolution of SBS, which resulted in the cessation of all BNM’s operations; e) the irregular accounting practice of the SBS intervention commissioners, which affected BNM’s economic results; f) the reduction of BNM’s equity capital to zero; g) the dissolution ordered by SBS on the grounds of a deficit of US$217 million, mostly the result of the impairment that occurred during the management of the SBS intervention commissioners; and h) the SBS Resolution ordering the dissolution and liquidation of BNM, rendering the Bank no longer creditworthy.342
The Claimant further notes that the effects of those measures could not be mitigated by BNM’s shareholders, despite the following actions, which they had taken or tried to take: capital increases; sale of portfolio; application for rediscounts at BCR; requests to SBS and the MEF to counter the financial panic; bailout plan; and proposal to take over Banco Financiero.343
The Claimant alleges that the arbitrariness of the measures was conspicuous and lists the following specific actions considered to be arbitrary: a) a second inspection visit by SBS in the same year showing that the discretionary power to make visits was not exercised prudently and reflecting abuse of authority, which created distrust in the market; b) the failure by BCR and SBS to neutralize speculation and rumors; c) the dramatic impairment of BNM’s loan portfolio during SBS’s intervention; d) the reduction of BNM’s equity capital to zero, which was illegal and was declared to be inapplicable in a Constitutional Action of Protective Measure (Amparo); d) the lack of a complete valuation of BNM’s equity at the time when the dissolution decision was taken by SBS; and e) the irregular accounting practices followed by the SBS intervention commissioners.344
The Claimant reiterates that "[t]he effects of the measures denounced on the Claimant’s investment had a destructive impact from the very day they were imposed, since they affected the trust of the market, and their permanence, as it still lasts to date, were enough to thwart irreversibly any possibility of resuming the banking business."345
The Claimant emphasizes that, in the context of the expropriation measures, the concept of legitimate expectations was relevant and that the operating license granted to BNM by SBS "reflects an explicit obligation by the State of providing the required guarantees for the investor to carry out an investment, which, due to the nature of the banking business, is of long term."346 The investor had legitimate expectations to plan the growth of her investment, as substantiated by the takeover of Banco del Pais, the plan to purchase Banco Financiero, and the capital increases that took place until the year 2000, when BNM was intervened by SBS.347 In addition, BNM ranked sixth among all Peruvian Banks in terms of equity and market share and had managed to consolidate important business relationships with overseas banks.348
The Claimant points out that, according to the "sole effects doctrine," if the expropriation exceeds the limits of arbitrary interference, then the investor should be compensated, regardless of the purpose or objectives of an alleged public interest of the government measure.349 The intent of the expropriation does not constitute a necessary requirement for the State to be held internationally responsible.350
The Claimant refers to the existence of two positions regarding police powers: the first one, the "Radical Police Powers Doctrine" and the second one, the "Moderate Police Powers Doctrine." According to the Claimant, under neither of those doctrines can it be argued that, in this case, the actions of the State were based on public interest. The first theory establishes certain requirements for a measure to be arbitrary: that it should be clearly discriminatory and should have been imposed in bad faith and in violation of due process. The second theory takes into account the effects of State interference and the purpose of the measure, considering whether there exists a real public interest and legitimate expectations on the part of the investor; and there has to be proportionality between those elements. The proportionality test determines whether there was a balance between the public interest and the adverse effects of the measure.351
In the Claimant’s view, no public interest can be identified to justify the measures imposed by SBS. In addition, there is no certainty whatsoever that BNM has failed to comply with any law, since none of the SBS inspection visit reports had found serious irregularities; there had been only certain findings typical of the industry, in the midst of a liquidity shortage caused by the State itself. If BCR had wanted to protect the public’s savings and the stability of the financial industry, it should have been the ultimate lender and SBS should have countered the rumors about the liquidation of BNM. Consequently, it was impossible to defend the reasonableness and proportionality of the measures based on any public interest justifying the substantial damage to the investor’s rights and legitimate expectations.352
Citing Article 5 of the APPRI, the Claimant refers to the illegality of the expropriation measure and states that "... since the Peruvian State did not comply with the international commitment not to expropriate [that] it had assumed, this leads us to characterise the expropriatory act as wrongful and illegal."353 Moreover, the wording of Article 5 of the APPRI provides that "any expropriation resulting from a measure, whether regulatory or not, infringing the requirements established by said article or by international law, is punishable and therefore entails the international responsibility of the host State."354
The Claimant then analyzes various aspects of Article 5 of the APPRI. The first element to be considered is the public utility, which would oblige the State to enact a law to authorize expropriation of the investment on the basis of that concept. In the case of BNM, according to the Claimant, the procedure established by law to execute an expropriation was not followed.355 The Claimant then analyses two additional conditions that are not expressly provided for in the APPRI but may be considered part of the defense of Public Interest or Public Necessity. The Claimant cites Article 87 of the Political Constitution of Peru and Article 2 of the Banking Law regulating savings and the operation of the financial industry and notes that, in the Amparo action filed by NMH, SBS had stated that the purpose of the intervention was to protect the stability of the financial sector and the rights of BNM’s investors and creditors. According to the Claimant, Peru has not substantiated the purported public interest or utility of the irreversible and destructive measure of intervention, dissolution, and liquidation of BNM.356 BCR’s conduct did not comply with its ultimate lender role in order to protect the public’s savings. In addition, during the intervention, higher payment priority was given to foreign banks to the disadvantage of savers, proving the lack of public utility of the State’s measure.357
The Claimant also states that this is a case of a bank with a sound equity position that was wound up and liquidated, in response to a temporary liquidity shortage caused by the State, by the political instability and by the public disclosure of widespread corruption in the Government, strengthening larger banks and restricting market competition.358
The Claimant also lists the following actions by the Peruvian authorities that were taken in bad faith and were discriminatory: i) BCR’s refusal to allow a rediscount; ii) enactment of PCSF without the participation of small banks; iii) PCSF favored the purchase of smaller banks and biased the merger negotiation processes; iv) lack of technical and legal justification for submitting BNM to the Transitional Regime; v) SBS’s contradictory conduct, since its second inspection visit Report did not state that BNM needed to increase its capital but it then claimed that an insufficiency of capital precluded the takeover of Banco Financiero; vi) the reduction of BNM’s equity capital to zero; vii) the lack of grounds for SBS Resolution No. 775-2001, ordering BNM’s dissolution; viii) the Intervenor’s use of an inconsistent method to manage BNM; and ix) the retroactive accounting of negative balances during the intervention.359
The Claimant also refers to a test of proportionality between the effects of the measure, the public interest, and the investor’s legitimate expectations. If there is no balance between those factors, there has been a wrongful expropriatory act.360 Additionally, the State’s measures should be as non-invasive as possible and the use of discretionary powers should observe the principle of minimal interference.361
The Claimant further states that the implementation of a regime parallel to the one established by the Banking Law implied a change in the rules of the game in terms of the procedures for intervention and dissolution of banking companies, which clearly favored the transfer of small banks to large banks, affected shareholders’ expectations and rights, and was not intended to maintain banks with a strong equity position in the market.362
The Claimant affirmed that it is possible to determine the severity of SBS's intervention, which ended BNM's operations; that the investor's legitimate expectations were severely affected and, consequently that the intervention and the dissolution are null. In addition, she mentioned that, pursuant to international law, reducing the shareholders to equity to zero is a disproportionate measure. The Claimant additionally argued that even if the actions taken by SBS were legal under domestic law, they were illegal and arbitrary under international law. According to Claimant, Peru violated the principles of predictability, proportionality, good faith and legal security, infringed the principles of protection of investments and international law, and, therefore, should compensate the damages caused.363
In accordance with Article 5 of the APPRI, one requirement for an expropriation to be legal is that it should observe domestic law and due process. Compliance with due process requires: basic legal mechanisms of challenge; reviewing or appeal organs independent from the government agency that imposed or implemented the expropriation; reviewing organs with powers to revoke the measure and order payment of compensation; and the existence of clear and transparent procedural rules for appealing the measure.364
In the Claimant’s view, the measures for intervention and dissolution of BNM did not comply with the formal or material requirements established in the Peruvian General Expropriations Law.365 According to the Claimant, "[t]he Peruvian legal system lacks an available, immediate, adequate and effective remedy," as SBS’s decisions were subject to appeal only through the courts and not through the administrative channels;366 SBS ordered the dissolution of BNM despite the existence of an interim injunction suspending the effects of SBS Resolution No. 509-2001 that had reduced the Bank’s equity capital to zero;367 furthermore, the dissolution of BNM was based on a report that was not a complete valuation of equity; the Claimant reiterates that there was no efficient remedy to challenge SBS’s decision to liquidate and dissolve the Bank.368 Likewise, due process was violated when the MEF excluded BNM from the meeting on the PCSF program and when the authorities interfered in the legal proceedings before the Supreme Court of Justice requesting the nullity of SBS’s resolution that declared BNM’s liquidation and dissolution.369 All those facts lead to the conclusion that the expropriation has not complied with the due process requirement, provided for in Article 5 of the APPRI, and is therefore illegal.370
The Claimant also indicates that all the discriminatory measures that she had described violated the principles of non-discrimination and equal treatment and that Article 5 of the APPRI and international customary law provided that, in order for an expropriation measure to be considered lawful, it must not be performed on a discriminatory basis.371
The Claimant further notes that the Peruvian State has not fulfilled the obligation established in Article 5 of the APPRI to compensate for damage caused and that, in this case, "the damage caused entailed the complete destruction of the economic viability and profitability of the Claimant’s investment."372
The Claimant refers to the theory of mitigation of damage and lists the following actions taken by BNM to overcome the effects of the liquidity crisis created by the State’s political crisis: a) increase in BNM’s capital agreed to on February 29, 2000; b) first issue of BNM’s mortgage bonds for up to US$20 million; c) increase in capital by public deed on September 12, 2000; d) creation of an optional reserve by issuing equity securities for S/.8.8 million; e) in October 2000, BNM informed SBS of the completion of the merger operation involving the takeover of Banco Financiero; f) the agreement of 22 November 2000 of the Board of Directors authorizing the sale of part of the portfolio for a maximum of US$50 million; g) on November 24, 2000, BNM concluded an Assignment of Loan and Leasing Operations Agreement with COFIDE, whereby BNM assigned its rights under a number of loan and leasing contracts for about US$105 million; h) the application to BCR for a loan of US$12 million; i) the bailout proposal made to the MEF on September 25, 2001; and j) Minutes No. 121 of the Board of Directors of BNM listing the measures taken to deal with the temporary illiquidity.373
The Claimant states that her conduct was proactive but that the responses were slow or inconsistent and sometimes non-existent; SBS Resolution No. 775-2001 declaring BNM’s dissolution and liquidation precluded any possibility of finding alternatives.374
With regard to the valuation of BNM, the Claimant notes that the Accounting Audit Expert Report established that there was no accounting basis for concluding that the Bank was insolvent. In addition, Peru has ignored previous relevant documentation about BNM’s solvency, such as the reports of risk rating agencies and the authorization given to BNM to be listed on the Stock Exchange.375

2. Respondent’s Response

Peru states that not every regulatory measure that might adversely affect the value of an investment can be considered an expropriation.376 As the Claimant has recognized in her Memorial on the Merits: "a non-compensable regulation is distinguished from an expropriation by, inter alia, the extent to which the investor was deprived of the investment and the character of the governmental measure."377 In this case, BNM’s shareholders have not been deprived of any economic value or rights because Peru’s actions were exercises of its legitimate sovereign regulatory powers.378
According to Peru, there has not been any considerable deprivation of BNM’s shareholders’ ownership rights. Before the SBS Resolution on the dissolution and liquidation of BNM, the investment had already lost its value, because the Bank had been insolvent since June 2000. On December 5, 2000, it could no longer pay its obligations and the BNM managers decided that day to close it, hours before SBS’s intervention.379
All banks in Peru were subject to the same legal framework and BNM’s shareholders would have been well aware of that framework. The inability of BNM to meet its obligations triggered mandatory intervention. The loss of the shareholders’ control over the Bank derived from the financial failure of the Bank, rather than from the discretionary acts of the authorities. In addition, the shareholders "did retain their rights to the residual value of BNM (if any) once all of BNM’s liabilities had been paid, as well as a right to judicial review of SBS’s actions provided by Peruvian law, and no deprivation of those rights ever occurred."380
Peru adds that the expectations that the Respondent would guarantee long-term growth and return on investment were not reasonable or legitimate. The APPRI is not a guarantee of economic success, especially when the investment’s growth depends on the investor’s management.381 The Respondent claimed that a number of arbitral awards have confirmed that "a state cannot be liable for expropriation as a result of the legitimate exercise of its inherent power to regulate for the protection of, inter alia, public welfare and order."382
Peru stated that once BNM failed to meet its payment obligations, the intervention, liquidation, and dissolution of the Bank were mandated by, and undertaken in conformity with, the legislation in force.383 In addition, the right to operate and control a bank is always contingent upon satisfying the regulator that the bank is sufficiently sound to receive deposits from the public.384
In the next section, the Tribunal will summarize the claims of the parties regarding damages and moral damages.


A. Claimant’s Position

According to the Claimant, "... any reference to the damage valuation method within the context of the expropriation clause of Article 5 of the Peru-France BIT shall be considered applicable to the valuation of the damages caused by the breach of the other international guarantee and protection standards."385
The Claimant further states that paragraphs 1 and 2 of Article 5 of the APPRI are not applicable to establish the amount of damages because they refer to cases of legal and not illegal, as in this case, expropriation; thus the Claimant states that she will consider the standard recognized in customary international law, "... consisting of comprehensive rules intended to restore all the damage caused and to redress all the consequences of the unlawful act to the pre-existent situation, from the date of the act in question, projected until the payment date by the host State."386
The Claimant indicates that she would use the concept of "prompt, full and adequate compensation," but as in this case restitution of the assets is not possible, integral compensation will be sought.387 The Claimant explains that Article 42(1) of the ICSID Convention provides for the coexistence of domestic law and generally recognized principles of international law to assess the value of the damages to be paid by the host State.388 Based on this approach, the Claimant indicates that the Political Constitution of Peru recognizes the obligation to compensate, including for any potential damage. The Claimant also notes that damnum emergens, lucrum cessans, personal damages, and moral damages are recognized by the Peruvian Civil Code.389
Based on the quotations from various awards,390 the Claimant refers to the principle of restitutio in integrum and explains that her Expert, Mr. Neil Beaton, assessed the requested damages by projecting them until the date of the Award, thus adopting an ex post calculation formula;391 furthermore, the Claimant’s Expert, has estimated the corresponding interest from the date of issue of the Award until payment of the amount due; and used the valuation methodology to obtain the fair market value.392
According to the Claimant "... an item is put forward related to personal damage and moral damage that the Claimant’s name and reputation has suffered, as a result of the media exposure of all acts that breached the obligations... the innumerable criminal prosecutions against Directors and senior officers of BNM, before the Jewish community and the impact on religious freedom, and finally, the severe impact before the business community, which taken together exceeds what legal doctrine understands as exceptional circumstances for its application."393
The Claimant states that BNM had consolidated commercial relations, as it had been in operation since 1993; that before the intervention, the bank had generated ever-growing sales and profits every year, with a steady upward growth;394 and that investment value losses are determined as of the day of the expropriatory act, and as well, the losses generated between the date of the expropriation and the estimated date of the Award.395 The Claimant concludes that Peru should pay damages amounting to US$4,036 million.396 The Claimant considers an interest rate of 11.11 percent as opportunity cost and that post-award interest, capitalized semi-annually, should be applied until the actual full payment.397
As regards moral damage, the Claimant states:

"... 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

The Claimant asks the Tribunal to "consider the redress for moral damages insofar as we are dealing with an exception situation. "399 The Claimant indicates that she suffered a severe damage to her reputation caused by the unlawful intervention in BNM and by the damage caused to senior officers and Directors of that Bank.400
The Claimant cites Articles 1984 and 1985 of the Peruvian Civil Code regarding non-property damages, which are further divided into personal damages and moral damages. In relation to personal damages, the Claimant indicates that it is considered to be an injury to the physical integrity, honor and good standing of a person.401 The Claimant notes that, according to Article 1984, moral damages should be calculated not only in relation to an affected person but also to that person’s family or closest ones and that the amount of such compensation depends completely on the judge’s assessment of the circumstances.402 In the field of international law, the Claimant indicates that moral damage includes coverage that affects the investor, the company’s prestige, reputation, and credit, and the psychological damage produced by harassment, persecution, and coercion against the officers of the company.403
Based on the Lemire v. Ukraine case,404 the Claimant identifies the following exceptional circumstances that harmed BNM and its shareholders: "public statements by Peruvian authorities against BNM’s management to the degree that we are labeled ‘swindlers’ and ‘white collar thieves;"’405 legal prosecution against BNM’s senior managers before civil and criminal courts; the imposition on Mr. David Levy Pesso of the obligation to sign in at court offices every month with the ensuing humiliation before the business community and the Jewish community in Peru; preventing Mr. David Levy Pesso from leaving the country for five years, save with prior authorization of a judge; exposing the dispute in the press; the legal impediment to undertake a banking project in Peru again; excommunication from the Jewish community because they had been labeled by the State as swindlers; prohibition by the Jewish community of Peru from burying Mr. Levy Pesso in the Lima Jewish cemetery; adversely affecting the health of the Levy family; excommunication of the Levy family and removal of minors of that family from schools; and suspension of real estate developments by the Peruvian authorities.406
The Claimant states that the damage to her image is not limited to herself but involves her family name, and the business prestige and reputation of the Levy name.407 The Claimant argues that "to the extent that the Peruvian State... has recognized Grupo Levy as a family group that controlled a Financial Conglomerate..., a legal connotation is attributed in its own right, and therefore is entitled to claim damages to its good standing caused by the State’s conduct, as a result of the destruction of the investment in BNM."408
According to the Claimant, the amount for moral damage should take into account: the loss of revenue streams by the Claimant and the Directors of BNM, as they were exposed to and condemned by public opinion as a result of the State’s arbitrary conduct.409 The Claimant argues that having substantiated French control of Grupo Levy, the family group as such is also entitled to the rights recognized in the APPRI.410 Article 1(3) of the APPRI refers to family companies and capital, and BNM is a family company. The Claimant states that the damage to her image and reputation is not limited to herself, but is "consubstantial to ‘Grupo Levy.’"411
The Claimant states that, in the event the above argument is not accepted, she is also invoking Article 4 of the APPRI in relation to the Most Favored Nation Clause and requests the application of the "Agreement between the Government of the Republic of Peru and the Government of the Republic of Italy for the Promotion and Protection of Investments... and/or in a supplementary manner, the Agreement between the Republic of Peru and the Federal Republic of Germany for the Promotion and Reciprocal Protection of Investments... concerning a broader concept and favorable of the term legal persons, as part of the concept of ‘societies.’"412
The Claimant further indicates that, in case the Tribunal decides not to award compensation for the damage to her reputation, as representative and controlling party of Grupo Levy, she requests that the compensation "be applied as damage to the reputation of BNM."413 The Claimant’s Expert, Mr. Neil Beaton, estimated the Claimant’s moral damages, through BNM’s "brand value", at US$2,953 million.414

B. Respondent’s Position

The Respondent objects to the payment sought by the Claimant and insists that Ms. Levy did not acquire any shares in BNM or any of its holding companies before July 12, 2005, which is an insurmountable obstacle for the recovery of damages arising from the alleged acts and omissions of the State that occurred in the years of 2000-2001, and adds that, in 2005, the shares purchased by the Claimant had no value and, therefore, she had nothing to lose.415
According to the Respondent, the Claimant and her damages expert modeled the hypothetical development of BNM beginning in December 2000, under the assumption it was not intervened, even though the Claimant did not acquire her interest in the Bank until July 2005 and, therefore, never had anything at stake at the time when the intervention occurred.416 Moreover, the Respondent asserts that "[i]t defies logic that a person can simply receive shares in a defunct company for nothing and then claim US$ 7 billion for alleged losses she never suffered."417
The Respondent also claims, based on the Report issued by its Expert, Mr. Brent Kaczmarek, that BNM’s capital had a negative value in June 2000, even before the first of the actions of the Peruvian authorities. That fact would make the amount of damages zero. It notes that the premise on which the Claimant’s calculations are based (that BNM was a healthy bank and that it would prosper if the actions of the Respondent had not taken place) is false. It also points out that Mr. Beaton, the Claimant’s expert, used BNM’s misleading and unaudited financial statements of November 30, 2000 and ignored the 1999 and 2000 SBS Inspection Reports and the reports produced by PwC.418
According to Peru, the APPRI and principles of international law require valuation of loss at the time of the alleged treaty breach (ex ante approach), but the Claimant’s expert’s valuation is calculated on an ex post basis, as of 2010.419
Based on the opinion of its expert, Mr. Brent Kaczmarek, Peru points out several flaws in the Claimant’s damages model.420
The Respondent also requests that the Tribunal award it moral damages suffered as compensation, separate and apart from and additional to any award of costs it incurred as a result of this proceeding in an amount to be determined at the Tribunal’s discretion.421
Peru states that BNM’s shareholders (and now, the Claimant) abused the administrative and judicial processes available to them and inflicted serious harm on the Respondent’s reputation and the legitimacy of its response to Peru’s financial crisis.422 The shareholders brought six lawsuits in 10 years against the Respondent and thus interfered with the authorities’ efforts to wind up the Bank’s affairs efficiently. They also "induced their political allies to initiate two Congressional investigations;" filed a lawsuit against the Superintendent of SBS in the U.S. federal district court of the Southern District of New York, which was dismissed.423BNM’s shareholders have also engaged in a media campaign to undermine the Respondent’s credibility. The Claimant even lobbied to damage Peru’s international reputation by identifying herself as an American shareholder and tried to block the approval of the U.S.-Peru Free Trade Agreement in the U.S. Congress.424
In relation to the Claimant’s argument that she can claim damages for continuity of the investment, the Respondent argues that Ms. Levy "has not demonstrated how there was any continuity of investment, aside from the fact that Mr. Levy was her father, which is irrelevant for the purposes of proving that she is an investor protected by the BIT. [The] Claimant has not indicated any provision in the BIT that extends its protections to the relatives of covered investors."425
Peru concludes that neither the Claimant nor any of her experts challenged the findings of SBS contained in its Inspection Visit Reports, and simply conducted analyses of the bank’s financial performance as if these reports never existed. Thus, the Claimant’s Expert’s damages calculation, which is based on BNM’s flawed self-reported data, should be dismissed.426


The Tribunal will summarize below the principal arguments of the parties submitted in the post-hearing briefs dated January 22, 2013. First, it shall summarize the position of the Claimant and then that of the Respondent.

A. Claimant’s Conclusions

The Claimant states that it is established that she is an investor protected by the APPRI; that she is of French nationality; that her dual citizenship is no impediment to having recourse to the ICSID; that BNM was the result of investments of Mr. David Levy; and that the very existence of the bank since 1992 is evidence of the investment made. The Claimant also states that there is no requirement that the initial investor be the person to make a claim before the ICSID and that there was no bad faith in the transfer of shares to her.427 Moreover, the fact that the assignment of shares was free of payment can have no bearing on the legitimacy and validity of the transaction.428 As the Respondent has not questioned the Claimant’s shareholding control on BNM, she has a legitimate right to advance the present claims on her's and BNM’s behalf.429
The Claimant states that she did not question Peru’s sovereign right to issue regulations regarding banking and financial matters. She states, however, that in accordance with a number of ICSID cases, even in a crisis in this sector, arbitral tribunals have jurisdiction to rule on any measures affecting investment.430 She adds that neither the APPRI nor the ICSID Convention contemplate rules on objections to admissibility.431
The Claimant confirms that the content of the SBS 2000 Inspection Visit Report on "goodwill" and treasury bonds are conservative estimates. With the evidence presented, it has been demonstrated that BNM was above the levels of liquidity of other banks; that its accounting and financial information was truthful; that Peru questioned neither the method of the expert, Mr. Leyva, in terms of determining the "ratios" in December 2000, nor the methodology and conclusions of the reports made by the Peruvian Congress.432
The Claimant concludes that Peru confused terms like "capital" and "losses" with "provisions" and confirms that there were no mismanagement or misleading accounting practices at BNM, which was also confirmed by Mr. Alvarado of PwC at the hearing.433 The Claimant notes that Peru’s submissions on BNM’s policy of mobilization of loans are erroneous, since they included the Banco del Pais’ portfolio. The Claimant affirms that the acquisition of that bank was made based on "accounting and legal due diligence procedures" and, in any case, the merger plan was approved by SBS. The Claimant states that, as regards the potential merger with Banco Financiero, this merger was also based on "due diligence," and that it included the participation of the Bank of America.434
The Claimant states that the capital increase of BNM was not listed as a legal requirement in the SBS Inspection Visit Report of 2000, but as a suggestion to be implemented in the business plan within the next two years. In relation to the valuations of customers’ assets as collateral for their loans, these were made by companies authorized by SBS. As regards operations carried out by the Multirenta Investment Fund, the Claimant states that they were made in accordance with the regulations and that Messrs. Levy did not interfere in the decisions of the Fund; the Claimant adds that the pertinent authorities never objected to officer Meza, who worked for both BNM and the Fund. The Claimant also states that the removal of the liens, days before BNM’s intervention, on GREMCO’s properties was partial because liens were maintained on assets with a value of approximately US$35 million. The Claimant further argues that the valuations of those assets, i.e. of the lands offered as collateral, were made by companies registered with SBS.435 As for the responsibility of BNM’s Management Staff, the Claimant contends that BNM engaged "in good management practices and that each of Respondent's imputations lacks any factual grounds whatoever and bears no relationship to the specific functions of BNM officials".436
The Claimant rejects Peru’s arguments in support of its position that it did not violate the international standards contained in the APPRI. BNM was not insolvent before the intervention and the Tribunal should not judge the conduct of the Respondent based on the domestic legal framework, but in light of the APPRI and international law; in addition, the discretion of a State ought not to be absolute and unlimited.437
Regarding the violation of fair and equitable treatment because it hindered the merger of BNM with Banco Financiero, the Claimant states that the Bank of America actively participated in that plan; there was "due diligence" and contracts were signed, but the operation was hindered when it met with unlawful hurdles in its path from SBS.438 The Claimant adds that SBS’s refusal to counter the rumors about BNM’s financial situation violated the principle of fair and equitable treatment, as well as the national treatment standard. SBS not only was aware of these rumors but also countered them with respect to Banco Wiese and BCP.439
The Claimant states that BCR rejected BNM’s emergency loan application without stating any reasons. Its refusal is inconsistent with the role of lender of last resort, regulated by the Peruvian legal system, as noted by the Claimant’s expert, Mr. Forsyth, and indirectly by the Respondent’s witness, Mr. Monteagudo, at the hearing. In addition, Peru affirms that BCR can act arbitrarily, based on its domestic law requirements regarding emergency loans and without giving reasons for its decisions. The Claimant concludes that for that very reason, BCR itself violated the standard of fair and equitable treatment regulated by the APPRI.440
The Claimant states that the Banking Law was modified by the Emergency Decrees, which established new rules on bailout and bank intervention processes, "... that ruled out any possibility of keeping it afloat by its shareholders, and hence the only alternatives were either the sale of assets or the dissolution and liquidation of the bank."441Claimant adds that this treatment was different from the one the Respondent afforded to Banco Wiese and Banco Latino, which allowed for the rescue of these banks through a direct or third-party contribution and that all this was against the national treatment standard, as provided for in Article 4 of the APPRI.442
The Claimant also argues that the feasibility of the damages valuation model has been demonstrated and she states that the ex post method presented by her expert, Mr. Beaton, was supported by decisions of the Supreme Court of the United States, while the Respondent’s argument is based on direct expropriation cases and not on a proceeding such as this one, in which damages are being claimed for the time before and after the intervention.443
The Claimant also notes that the Montecarlo model used by the expert, Mr. Beaton—which analyzes all probabilities for all possible scenario combinations, thus providing a result quite adjusted to reality—is the most advanced methodology used. The Claimant also underlines that the application of that model has not been objected by the Respondent.444
The Claimant concludes that the moral damage approach has legal support in Peruvian law and ICSID case law and the exceptional circumstances of this case were considered when adopting this approach.445

B. Respondent’s Conclusions

The Respondent expressed the following conclusions: BNM was insolvent since at least as early as June 2000, that is, before the Government intervened and was a failed institution. BNM did not reveal in a proper manner the impact that its growing portfolio of risky loans had on its income and capital. It exaggerated its income by improperly classifying its consumer loans and recording the interest on those loans. SBS had determined in the Inspection Visit Report of 2000 that BNM’s capital was 25.7 percent lower than that reported by BNM and concluded that BNM needed US$32 million to meet the capital requirement demanded by the Peruvian banking regulations.446 BNM’s officials were aware of the situation, as Mr. Jacques Levy acknowledged at the hearing that he agreed with everything SBS had identified in its inspection visits to BNM.447 According to the documentary evidence, the owners and managers of BNM were aware since 1997 of the violations of Peru’s banking laws and regulations;448 Mr. Kaczmarek presented an analysis of the SBS Inspection Visit Reports from 1997 to 2000 and showed that the percentage of incorrectly classified loans increased every year.449 At the hearing, BNM’s officials and Mr. Levy "...attempted to distance themselves form the memos and the problems they identified" and said they were not aware of the content of the memos, either demonstrating management negligence on their part or that their testimonies were not credible.450
The Respondent argued at the hearing that none of the Claimant’s witnesses denied that BNM’s officials used the bank’s resources to benefit affiliated companies.451 In fact, Mr. Jacques Levy admitted at the hearing that BNM released, just a couple of days before its intervention, mortgages used as collateral for loans extended to the affiliated company Gremco.452 The Claimant’s witness, Mr. Meza, admitted that the participation of BNM in the Investment Fund had exceeded the level of support allowed by law and that BNM had found another mechanism, through sham transactions with the Bank’s customers, to reduce its stake in the Fund.453 The Respondent further noted that Mr. Kaczmarek proved that if the "goodwill credit" of the merger with Banco del Pais were removed, BNM’s equity would fall below the minimum level required by law. He also indicated that if the deficit in the provisions was taken into account, the equity would also be below the legal minimum and, applying to BNM’s financial statements as at June 30, 2000 the provisions for risky loans that PwC determined in its 2000 audit, he concluded that the capital adequacy ratio of BNM would be negative.454Peru also stated that BNM is wrong in asserting that loan loss provisions are not accounted for as losses or do not affect a bank’s capital; it has been established that BNM was required to register the provisions each month as losses and consequently, its financial information was completely flawed.455
The Respondent also states that BNM did not use the government assistance to improve the situation of the bank but rather to take more risks. It notes that, during the hearing, the Claimant’s experts failed to support the contention that the authorities violated any legal obligation of Peru or international best practices in the banking sector.456 Mr. Jacques Levy at the hearing did not indicate how BNM allegedly informed SBS of the existing rumors against that bank.457 Peru also indicates that the withdrawals of public deposits were not made only at BNM and that those that were made were insignificant compared to withdrawals of private funds. It reiterates that the Claimant failed to prove the causal link between the reduction of public deposits and the failure of BNM.458 As regards the merger with Banco Financiero, Peru notes that, according to the statement of Mr. Jacques Levy, it was finalized and the only thing missing was the authorization of SBS, but there is no evidence to support those claims. Peru also states that Mr. Levy admitted at the hearing that he could not remember if any letter of intent had been signed, nor was it demonstrated that BNM had made a formal request to SBS on this merger.459 It argues that there is no evidence that BCR unreasonably rejected BNM’s request for an emergency liquidity loan and that the legislation clearly regulates the type of collateral required for these loans.460 It also notes that the Claimant did not challenge the legality or suitability of the triggering event leading to BNM’s intervention on December 5, 2000.461
The Respondent highlights that the Claimant had initially resorted to far-reaching accusations of government corruption and conspiracy. These accusations, whether expressed in the Claimant’s Second Request for Provisional Measures, or in Mr. Jacques Levy’s book about BNM, remain entirely unsupported.462 The Claimant thereafter accused Peru of acting in bad faith in handling BNM’s financial statements. According to Peru, the Claimant did not present any evidence to support these claims and it therefore rejects them in view of the fact that the losses in BNM’s audited financial statements for the year 2000 were uncovered by PwC, a firm that had served as BNM’s independent auditor for years.463 The Claimant did not explain how the government could have manipulated BNM’s books after the intervention without PwC having been part of that conspiracy. It notes that there is no proof of these serious allegations, nor did the Claimant explain how and why the Government would devise a conspiracy of such broad scope against BNM and the Levy family.464
The Respondent also indicates that Peru’s regulatory authorities were not obliged to rescue any bank, much less BNM, whose financial situation was deteriorated due toits internal mismanagement.465 It notes that Mr. Dujovne himself, the Claimant’s expert, acknowledged that central banks have absolute discretion in their actions, provided they do not violate the law.466 The Respondent indicates that BCR had the option to determine when to adjust the standards for the required collateral and to that end it had to take into consideration the overall financial system, not the needs of one specific bank; to require adjustment for a particular bank would undermine monetary policy regulation.467Peru reiterates that the shareholders of Banco Wiese and Banco Latino were not benefited, as they lost their entire investment.468
In relation to the claim for damages, the Respondent states that several problems are evident: the calculation does not reflect the damage suffered by the Claimant; it did not consider BNM’s previous track record of growth and was based on erroneous information; also the amount claimed has constantly changed.469 It notes that Mr. Beaton, the Claimant’s expert, agreed that "no one got any money in 2005... there was no value to distribute",470 that he reviewed almost every document and knew that SBS and PwC had serious questions about the reliability of information that BNM had given SBS between August and October 2000. He also said that the amount of damages changed from the time of the Request for Arbitration up to the hearing.471Peru claims that Mr. Beaton admitted at the hearing that the damage to reputation could not be attributed to any specific person or entity.472 According to the Respondent, the Claimant’s only goal in this proceeding is to manufacture jurisdiction, as she admitted that she had no connection with BNM at the time the events at issue in this dispute took place;473 the fact that she did not pay any money for the shares is significant because it shows that they had no value.474
Peru concludes that the Claimant submitted a new argument in closing, that BNM should be considered a company in France, under Article 8(3) of the APPRI, which argument in the opinion of the Respondent is out-of-time and without merit, since BNM has never been a claimant in this proceeding.475


The Claimant requested that the Tribunal:

a. Admit her claim;

b. Declare that the Peruvian State violated the standards of fair and equitable treatment, non-discrimination, national treatment, full protection and security, and prohibition of indirect expropriation;

c. Declare "...the international responsibility of the Peruvian State and order that the Peruvian State pay the Claimant a compensation for damages of US$4,036 million... and a reparation for moral damage of US$2,953 million;"

d. Declare in both cases the recognition of an opportunity cost interest rate of 11.11 percent from the date of the Award up to the effective payment; and

e. Order "that the Republic of Peru pay for all the expenses and costs incurred in the arbitral proceeding... plus any accrued interests and any other reparation that the Tribunal may deem pertinent."476

The Respondent requested that the Tribunal:

a. Dismiss the Claimant’s claims for lack of jurisdiction, or in the event the Tribunal finds jurisdiction;

b. Dismiss the Claimant’s claims for lack of merit;

c. Award moral damages to the Republic of Peru in the amount the Tribunal deems appropriate; and

d. Award Peru its costs, including counsel fees.477

In order to resolve the dispute between the parties, the Tribunal will examine below the arguments put forward by them. Although the analysis may seem repetitive, the Tribunal was forced to proceed in this manner in order to ensure that all of the arguments of the parties will be addressed. This approach was unavoidable because the Claimant used virtually the same facts (the alleged wrongful actions of the Respondent) to support her extensive claims about the way in which these actions violated the various standards that she invokes (fair and equitable treatment, national treatment, full protection and security, and indirect expropriation).


A. Violation of the Standard of Fair and Equitable Treatment

The Tribunal agrees with the statement made by the Claimant that the legitimate expectations of an investor are linked to the standard of fair and equitable treatment. It also agrees that, for an investor to make a decision on an investment, an important element usually considered is the stability of the country’s legal system. Now, in the opinion of the Tribunal, that stability does not mean a freezing of the legal system or making it impossible for the State to reform laws and other regulations in force at the time the investor made the investment.
As noted by Professor Schreuer: "[t]he standard of fair and equitable treatment is relatively imprecise. Its meaning will often depend on the specific circumstances of the case at issue."478 For this reason, the Tribunal will examine each allegation of the Claimant to decide whether Peru actually violated the said standard.
In relation to the Claimant’s argument that SBS Resolution No. 1455-92, which gave BNM permission to start operations, is "an administrative action that created legitimate expectations of stability and return of investment," the Tribunal considers that it is wrong to state that an authorization to begin operating in a commercial activity, whatever it may be, alone generates the expectation of a return on investment. The investor may indeed have that expectation, but based on the knowledge of the investor’s own capabilities and internal and external factors.
With respect to the expectation of "a legal framework clearly perceptible," the Tribunal examined in this case the following aspects:

a. The Banking Law was in force in 2000 and continues to be in force today;

b. Emergency Decree 108-2000 was published in the Official Gazette, El Peruano;

c. SBS, in its Inspection Visit Reports, pointed out to BNM the problems it had detected and the rules that were violated in each case (as an example, see paragraphs 42-45, 47, 52, and 53 above); and

d. The Claimant did not complain that SBS had imposed a fine on BNM.

In light of the foregoing, the Tribunal concludes that the legal framework was clear and known by BNM’s managers and shareholders.

In the opinion of the Tribunal, it is also important to note that shareholders and officials of BNM knew of the existing crisis before the BNM intervention; the Claimant herself notes the existence of a political and economic crisis in Peru.479 Therefore, it was logical to assume that State authorities would take measures to maintain the stability of the financial system, as mandated by Peruvian law and, to that end, promulgate Emergency Decrees.

1. Legitimate expectations

As regards the acts and omissions alleged by the Claimant to be violations of legitimate expectations (paragraph 172 above), the Tribunal will analyze each situation separately:

a. Purchase and Takeover of Banco Financiero

The first claim of the Claimant in this matter relates to the frustrated Banco Financiero purchase and takeover operation; the Claimant states that SBS never notified that an increase in capital would be required for that entity to authorize the merger of BNM with Banco Financiero. At the hearing, Mr. Jacques Levy said, "At that point, we had a conversation. We were waiting for them to give us that in writing. And we would have complied with it."480 The Tribunal does not understand the logic of the argument of violation of legitimate expectations put forward by the Claimant, as Mr. Levy was the President of the Board of BNM, a man very experienced in the banking world, as confirmed at the hearing, where he said that he had been in the banking business since the 1980s and had served as BNM’s CEO since it started in 1992.481 The Tribunal therefore cannot understand how a person with as much experience in banking as Mr. Levy, and with knowledge of the crisis affecting Peru, could submit a preliminary proposal to SBS in October 2000482 regarding the merger with the Banco Financiero and expect that SBS would indicate whether there should be an injection of capital. The Claimant herself affirms that, since July 2000, there were withdrawals of public sector deposits483 and the private sector withdrew more than $70 million in August.484 It is obvious, therefore, that the President of BNM knew that BNM required an injection of capital, with or without the requested merger.
It was also discussed at the hearing whether BNM in fact submitted a formal request to SBS regarding the merger of the bank with Banco Financiero. Concerning this matter, Mr. Jacques Levy, after the persistent questions of Mr. Alexandrov, attorney for Peru, answered as follows:

"We did it the same way we had done in Banco del Pais. We had done it the first time. First you go to the superintendents and you talk to them and then they tell you ‘Let’s wait a while.’ And they do not push the issue and say you will—you will do it otherwise. So we went to them, and we did it the same way we had done Banco del Pais. And this time he said exactly what he declares in the super in the commission. (Through Interpreter) In the economic commission, he has stated that we had the operation ready and that he was just waiting, or something to that effect."485

Obviously, that answer cannot be the basis for demonstrating the existence of a formal request regarding the merger.

b. Lack of transparency

The second claim of the Claimant is the lack of transparency concerning the regulations on the PCSF and the failure to notify BNM of a meeting on the matter; the Claimant alleges that the meeting convened by the MEF regarding the PCSF (paragraph 75 above) did not take BNM into account, "had not even tried to find out what its position was with regard to the substantial legal changes planned, thus violating the investor’s legitimate expectations."486
The Claimant does not explain the "substantial legal changes" that were made because of the PCSF, and moreover the Tribunal considers credible Peru’s response that the banks that were invited to attend that meeting did not have a role in formulating the PCSF.487 If one considers the chronology of the events, the above becomes clear: the meeting was held on Sunday, November 26, 2000; the regulation was promulgated on the 27th and published on the 28th of that same month. It does not seem plausible that the invited banks that attended the meeting would have contributed to the drafting of standards that were approved the next day and published immediately. The Respondent admits that it did not invite BNM to that meeting, but it is not logical to believe that, at that meeting, the "ten largest banks in Peru"488 decided with the Superintendent and the Minister of the MEF on how to proceed. The Tribunal concludes that the meeting was called to explain the scope of the Emergency Decree and that the lack of notice to BNM could not have had the consequences the Claimant contends it had. In addition, the Emergency Decree was published in the Official Gazette, so it cannot be said that there has been lack of transparency.

c. Withdrawal of funds

The third claim of the Claimant refers to the abrupt withdrawal of the funds of State enterprises; the Claimant alleges that these "funds were legitimately considered by the Investor as an important variable of return on the investment."489 The Claimant also notes that the withdrawals were sudden and disproportionate and without any contingency plan490 and, therefore, directly affected BNM’s viability and liquidity.
The Tribunal finds that the Respondent had no obligation to prepare "a contingency plan" for the withdrawal of the State-owned funds. Like any public or private entity, the MEF could remove deposits when deemed expedient, especially because they had no maturity date after the date of their withdrawal. The fact that, from April 25, 2000, SBS indicated to BNM that it had a high concentration of public deposits and that there was a potential liquidity risk (paragraph 53 above) is extremely revealing. BNM had three months in 2000 to develop a contingency plan because withdrawals began in July of that year (paragraph 54 above, paragraphs 28 and 278 of the Reply on the Merits), so there was no factor of suddenness of which the Claimant complains. It is also important to note that, even in the 1999 Inspection Visit Report, SBS pointed out to BNM that it had a concentration of deposits and should "Stimulate the incentive for attracting alternative lower cost deposits,... given that one of the risks the Bank faces is liquidity, to which it is vulnerable do to the excessive concentration of liabilities in few creditors" (paragraph 46 above).
In paragraph 302 of her Memorial on the Merits, the Claimant includes some charts in order to assert that "the relative impact of such withdrawals was quite significant on BNM." Then, in paragraph 304, the Claimant points out that in October 2000, the impact of the withdrawal of public funds was critical. The Claimant stresses that the withdrawals did not follow an orderly schedule and the experts and the media criticized the withdrawal of funds and points out that the State was well aware of the illiquidity risk that its policy posed to BNM, which SBS also mentioned in the November 2000 report.491
The Claimant adds that "the withdrawal of funds was abrupt and systematic, and its relative impact was greater on BNM compared with all other banks in the Peruvian banking system."492 The Claimant states in paragraph 303 of the Claimant’s Memorial on the Merits that the withdrawals of public funds from BNM between July and October 2000 amounted to US$24 million. The Tribunal found no reliable information on withdrawals from other banks, or any demonstration whatsoever of the disproportion and the alleged "relative impact". So as regards the withdrawal of public funds deposited in BNM, a discriminatory and disproportionate attitude by Peru against the Claimant has not been demonstrated.

d. Financial Panic

The fourth claim of the Claimant refers to the State’s alleged inaction in directly fighting against the financial panic. The Claimant alleges that SBS failed to play its role as a stabilizer to counter the financial panic. The Claimant states that there was a legitimate expectation of the investor to expect quick, clear, firm, and diligent actions from SBS to stabilize the financial system. The Tribunal notes that the evidence presented at the hearing about the rumors transmitted by e-mail demonstrates that several persons warned about the intervention in BNM493 and that bank officials reported that the spread of these emails is categorized under Peruvian law as the offense of Financial Panic.494 As regards the emails of December 4, 2000 (referred to in paragraph 77 of this Award), which warned about the intervention in that bank, on December 11, SBS authorized the filing of a criminal complaint with the Public Ministry. Mr. Jacques Levy said in his first witness statement that, in the third week of October, he had a meeting with the Superintendent of Banks in which he requested that SBS perform its duty to stabilize the local banking industry and release an official statement assuring the stability thereof.495 The Tribunal fails to find any documentation regarding this meeting or the request allegedly made by Mr. Levy. Copies of emails brought to the proceedings commenting on the BNM intervention are dated as of November 2000. The Tribunal also cannot understand how Mr. Levy or any other shareholder or senior officer of BNM with banking experience and knowledge of the possible effects of the rumors left no written record of the alleged request they made to SBS.
Article 345 of the Banking Law states that SBS is a constitutionally autonomous institution, the purpose of which is to protect the interests of the public in the fields of the financial and insurance systems. Article 346 states that the said entity has functional, economic, and administrative autonomy. Article 347 states:

"the Superintendency is responsible for the defense of the public interest; guaranteeing the economic and financial soundness of the individuals and corporations under its control; enforcing the legal, regulatory and statutory regulations governing their activities; practicing to that end the broadest control over all of their transactions and businesses; filing criminal claims against unauthorized individuals and corporations practicing the activities set forth in this law and closing their offices; and, as applicable, requesting the dissolution and liquidation of the violator."

In light of the aforementioned provisions, the Tribunal considers that SBS should contribute to the stability of the financial system, for which purpose it has discretionary powers, and that no bank has the power to require SBS to act in a certain way in order to disprove rumors.
In the opinion of the Tribunal, experience shows that, when there is a run on a bank, it is very difficult to control its impact and the actions that can be taken are very few, as they run the risk of producing the opposite effect to that intended. This is confirmed by the Respondent’s experts, Messrs. Powell and Clarke.496 For these reasons, the Tribunal cannot hold that there was a negligent attitude on the part of SBS in failing to rebut the rumors that had been circulating against BNM.

e. BCR Loan

The fifth claim of the Claimant was BCR’s dismissal of an emergency loan for monetary regulation. The Claimant alleges that BCR’s decision in dismissing BNM’s application for a loan of US$12 million was unjustified, although it was entitled to a certain number of rediscount operations, and that this dismissal affected the legitimate expectations of BNM and the guarantee of predictable behavior by State agencies.
In the opinion of the Tribunal, in the circumstances prevailing in Peru in 2000, it was not reasonable for BNM to expect approval, with absolute certainty, of the loan it requested. Although BCR is the "lender of last resort" in Peru, it is also obliged to demand sufficient collateral before granting a loan; BNM did not offer such collateral and for that basic reason its request was denied.497 To bolster the argument that BCR acted arbitrarily and discriminatorily, the Claimant indicated in her Post-Hearing Brief that Peru’s expert, Mr. Monteagudo, stated that BCR did not have to give reasons for its decisions on requests for loans.498 The issue does not seem to have any greater importance in view of the evident lack of adequate collateral on the part of BNM, which was a key factor in the rejection of its request, and the undeniable fact that BCR was not obliged to accede to the request of BNM.

f. Impairment of the loan portfolio

The Claimant’s sixth claim is related to the impairment of BNM’s loan portfolio under the intervention. The Claimant argues that the actions of the intervenors severely affected BNM’s equity.499 The Claimant’s claim is primarily on the report of the Receivers, which was studied carefully by the Tribunal. While it is true that the report includes several critiques of administrative and accounting issues, financial and credit management, and related to BNM’s financial statements (paragraph 95 above), it also refers to a very short period of time from July 21 to August 8, 2001 (13 working days). In addition, the Tribunal does not find therein what the Claimant affirms: that the Receivers stated that the inappropriate policies applied during the intervention led to the arbitrary reclassification of the portfolio, which caused higher, substantial losses.500 The Tribunal also notes that, however important the input of officials of the Judiciary, it seems difficult to base a solid criteria on their input based on the work of SBS’s intervenors bringing about the consequences that the Claimant alleges. The Claimant also states that the investor expected an optimal and transparent management of BNM’s equity and loan portfolio by the intervenors, which, in her opinion, did not happen.501 It is noteworthy that the Claimant does not refer in any of her pleadings to the SBS final report dated February 28, 2003 and presented by the Respondent as Exhibit R-199 on the management of the intervenors. Nor does the Claimant refute in any of her pleadings Peru’s assertion that the intervenors were able to recover S/. 559 million (US$160.7 million) for the benefit of BNM’s depositors and creditors.502 The Tribunal therefore concludes that, based on the report of the Receivers, the alleged impairment of the credit portfolio of BNM during the intervention cannot be regarded as proved.

g. Priority of payments

The Claimant’s seventh claim relates to the violation of the priority of payments to creditors of BNM. The Claimant alleges that the violation relates to payment to foreign banks that were creditors and not depositors and that these payments were made in accordance with the orders given by SBS to the company that served as BNM’s liquidator, Consortium Define-Dirige. The Claimant argues that this action constitutes a violation of a fundamental rule of due process in bank intervention, the goal of which is to protect depositors. The Claimant argues that the Peruvian State violated the public interest and called into question the legitimacy of its actions concerning the intervention in and liquidation of BNM.503
The Tribunal reviewed the documents cited by the Claimant in her Memorial on the Merits and Reply on the Merits, and notes that in the SBS final report dated February 28, 2003 there is a section called "Liability for Working Capital."504 [Tribunal’s translation] As the Respondent stated in its Rejoinder on the Merits,505 that section of the report is clear in its explanation of why SBS changed several foreign banks from category D to B in payment order and why other creditors, such as the EFG Private Bank, did not change category. The Tribunal considers that the explanation contained in that SBS report is clear and does not violate the expectations that the Claimant may have had on the amount that would have been applicable to her according to the legal order of payments. In any case, the Claimant’s expectations in that respect have not been substantiated, as the Respondent clarifies that unpaid liabilities in the amount of US$ 87,076 million still exist.506
The Claimant concludes that, in general, the measures taken by the relevant authorities of the Peruvian State do not meet the minimum requirements of proportionality, reasonability, and predictability.507 However, the Claimant has failed to prove those claims.

2. Legal stability

In relation to legal stability, the Claimant alleges that, at the time that the events giving rise to this proceeding occurred, there was in Peru a regulatory vision imposed, whereby the PCSF imposed bank mergers of smaller banks.508 The Claimant argues that publication and notification of the regulations is essential, as is the right to comment on them and as is the right of any affected stakeholders to participate in their process of development. The Claimant further argues that changes in the regulations must be reasonable, non-discriminatory, made in good faith, and produce clear and predictable rules. The Tribunal notes that the amendments to the regulations to which the Claimant refers (the PCSF and the Special Transitional Regime) were published in accordance with the regulations in force. As noted above (paragraph 75) in this Award, although it is true that when some banks were invited on Sunday November 26, 2000 to a meeting in relation to the PCSF, BNM was excluded, that invitation was not so that those banks could develop the regulations, which were promulgated and published immediately after the meeting. Nor does the Tribunal find satisfactory proof that the authorities forced the so-called "smaller banks" to merge with the large banks when the PCSF was promulgated. This latter program was approved by an Emergency Decree, which indicates that it is designed to facilitate corporate restructuring in the financial system. The Tribunal finds credible Peru’s argument that it was created to benefit institutions that voluntarily chose to participate and thus facilitate mergers.509
The Claimant states that, after the meeting convened by the MEF to comment on the PCSF, "the flight of private deposits [...] intensified"510 The Tribunal finds that this claim has no basis in provided evidence. The meeting took place on November 26, 2000, and the decree was published two days later. According to the Claimant, "the flight of private funds" at BNM started in August 2000511 and, as shown in a chart the Claimant provided on page 93 (Spanish version) and page 85 (English version) of the Memorial on the Merits, although withdrawals continued in November, they did not increase nor did they "intensify" after the meeting about the PCSF. That chart contains the following data: August 2000: US$272,337; September 2000: US$250,364; October 2000: US$256,037 and November 2000: US$201,899.
The Claimant argues that, with the PCSF, expectations for rehabilitation of the intervened institutions were violated, but the Claimant did not prove that BNM was a banking institution that could have requested rehabilitation under Peruvian law. The rehabilitation regulation states that "[c]reditors of a company which combined represent at least thirty percent of the company’s liabilities may submit to the Superintendency a plan for the rehabilitation of the company."512 The Claimant did not show that the said percentage of creditors (or any other) would have carried out that rehabilitation plan, or that BNM would have complied with the other requirements.
The Claimant states that the violation in the priority of payments to creditors was a breach of the guarantee of legal stability. The Claimant also alleges that these payments were made in an illegal, non-transparent manner, infringing the public interest.513 The Tribunal examined this issue in paragraph 340 above and felt satisfied with the explanation given in the SBS Final Report of February 28, 2003 as to why some foreign banks were paid first. The Tribunal finds no illegality or lack of transparency in the way in which the payments were made. The information on the payments was obtained by the Claimant from the SBS report. Therefore, the Tribunal does not consider that the actions of SBS with respect to these payments violated legal stability or had the harmful effects that the Claimant attributes to them.
The Claimant states that SBS violated legal stability when it did not abide by several court rulings. In it’s Memorial on the Merits (281 in the English version), the Claimant affirms the following: "the 63rd Civil Court of Lima, on 23 October 2002, ruled in favor of BNM, which sentence was affirmed by Third Civil Courtroom of the Superior Court of Justice of Lima by the Decision issued on 11 August 2003... declaring inapplicable to BNM such administrative measure, because it was illegal and unconstitutional, and recognized BNM’s shareholders’ rights. However, despite these Court Decisions, SBS issued SBS Resolution No. 775-2001... whereby it ordered the liquidation and dissolution of BNM, a clearly arbitrary measure against the Rule of Law, as it was based on Resolution No. 509-2001, even though this latter Resolution had no legal effects for BNM, as it was so declared by a Court decision, and therefore it was res judicata."514 Having examined the timing of the rulings referred to, the Tribunal concludes that this argument is unsound. Resolution 509-2001 was issued on June 28, 2001, and the second one (775-2001)—which, in the opinion of the Claimant, is the one that did not abide by the court rulings, was issued on October 18, 2001. The two Decisions that, according to the Claimant, declared Resolution 509-2001 inapplicable are the 2002 and 2003 Decisions.515 How could the SBS be held in contempt of court for those Decisions by issuing Resolution 775-2001 in 2001?
The Claimant alleges that, in this case, there were State actions with "surreptitious, extra-legal" intent516 and spoke about the video of Mr. Carlos Boloña Behr, then Minister of Economy and Finance, which the Claimant had sent to ICSID along with her Request for Registration. The Tribunal finds that the Claimant added three videos to her Request for Arbitration, but the one relating to Mr. Boloña is unintelligible. It is noteworthy that the Claimant did not refer to him during the final hearing or in her post-hearing brief.

3. Acts that are arbitrary, discriminatory, and an abuse of power

The Claimant alleges that the standard of fair and equitable treatment was violated because of the following "arbitrary and/or discriminatory actions":517 a) irregular accounting practices by SBS’s intervenors in BNM; b) deliberate impairment of the loan portfolio during the BNM intervention; c) rejection of BNM’s application to BCR for an emergency loan; d) arbitrary dismissal of BNM’s proposal to strengthen its equity and leave the Special Transitional Regime; e) reduction of BNM’s equity capital to zero; f) dissolution of BNM based on a report that did not carry out a complete valuation of the business; and g) serious omissions of BCR and SBS in failing to cooperate to find ways to provide BNM with liquidity.

a. Accounting practices

In relation to the accounting practices of SBS’s intervenors, the Claimant bases her arguments on the testimony of witness Pablo Seminario and on two documents: the report518 of the Congress Economy Sub-Commission investigating the involvement of SBS in two banks—the BNM’s and another—as well as the report519 of the BNM's Court Appointed Administrators.520
The Claimant alleges that, in 2001, the SBS Intervention Committee allowed the BNM loan portfolio to deteriorate, re-classified the risk level of loans granted, ordered that the resulting provisions be recognized in the Financial Statements as of December 2000, and other negative equity adjustments were deliberately accounted for retroactively.521
The Claimant cites from the report of the Sub-Commission, its conclusion holding that SBS altered BNM’s equity position as it turned a net equity of US$72.3 million as of 30 November2000 into a negative equity of US$23.3 million as of 31 December 2000. The Claimant further states that the adjustment made by SBS’s intervenor’s in the "goodwill amortization" account, related to the merger with Banco del Pais, for over US$10 million was arbitrary and illegal. The Claimant also refers to the statement of Mr. Pablo Seminario, BNM’s Loan Assessment Head Officer, who said that he was instructed by the SBS Intervention Committee to calculate retroactive provisions for portfolio risk, which agrees with the findings of the BNM Receivers.522
In relation to the adjustments to BNM’s Financial Statements of 2000, the Respondent and Mr. Arnaldo Alvarado of PwC state that SBS made these adjustments in line with PwC’s recommendations.523
It is important for the Tribunal to point out that, in the report of the Sub-Commission, there is no indication that any report of the firm PwC had been requested in order to assess the alleged retroactivity; the same applies to the Court Appointed Administrators, whose mission in BNM was, as noted before, very limited in time (from July 21 to August 6, 2001). In the opinion of the Tribunal, it is noteworthy that neither the Sub-Commission nor the Receivers are entities specialized in banking matters; the first is essentially a political body and the latter is not necessarily aware of these issues. No matter how respectable both groups may be, the Tribunal will evaluate their opinions bearing these factors in mind.