(a) The Respondent had previously indicated that it intended to amend its existing East Star Capital quantum report and that the Claimant should wait before submitting an updated report. The Claimant had understood that the Parties were in agreement that the Claimant would file an updated quantum report. When no update was received from Respondent, the Claimant decided to submit its reply quantum report on September 27, two and a half months prior to the hearing.
(b) With regard to the factual witness statements, these merely updated the Tribunal on developing circumstances, and could have alternatively been included during oral submissions.
(c) The supplemental submissions withdrew a claim, provided an update on criminal proceedings that could have been included in the skeleton argument, and further explained claims of harassment discussed in the 27 September 2013 witness statement of Mr, Belokon.
...control the flow of capital and reiain assets in the interests of depositors and other bank creditors and in consideration of the system 's significance and interrelation, as well as the circumstances of theft and threat of theft.39
On 9 April 2010 the Kyrgyz Federal Prosecutor’s office seized the assets of Manas Bank, based as it appears principally upon suspicions of illegality at an unrelated bank - Asia Universal Bank :
Various suspicious money transfer operations, whose origin raises doubts of their legality, were concluded on an especially large scale dur ins the period from 2006 to 2010 through Asia Universal Bank, Issyk-Kul-Invest, Manas, KyrgyzCredit and Akylinvest banks,
Thus, an inspection of only one client upon the incoming and outgoing transfers for several months of LLC Investment Company Tabylga in 2009 showed that its turnover on credit accounts are the following: 3 972 million dollars and 580 million euros, and this turnover exceeds the real gross domestic product of Kyrgyz Republic.
Basically, the monetary finds come from the companies, which are registered in offshore zones, the received sums of money are converted into another currency and are transferred inside the bank to the accounts of other companies - the clients of Asia Universal Bank in divided amounts as for the Agency Agreement and etc., and then are transferred back to the accounts of the same companies - non-resident offshore companies. (Emphasis added.)42
Bishkek Prosecutor Decree of seizure of movables and immovable property of Manas Bank, 9 April 2010; CL-21. Bundle E2,104.
On 17 April 2010, as part of the ongoing investigation, the State Prosecutor took the further measure of seizing the shares of a number of Banks, including Manas Bank:
In order to open a civil case and ensure the compensation of damages, as well as the execution of the sentence as related to the confiscation of property, it is necessary to seize all of the shares of the following banks : OAO Asia Universal Bank, OAO Investment Bank Yssyk-Kul, ZAO Manas Bank, OAO Kyrgyz Credit Bank, OAO Investment Joint-stock Commercial Bank Akyl, OAO Dos Credo Bank, and OAO Bank Bakai. (Emphasis added.)45
Order of the Bishkek Prosecutor to seize shares in Manas Bank, 17 April 2010; CL-18 R-1.18, Bundle E2,107. This decision was reversed on 20 January 2011 [Decree of General Prosecutor of the KR "on partial annulment of imposed sequestration" on Mr. Belokon's shares in Manas Bank; CL-5,R-I.23,BundleE.191].
It is widely known that in Bishkek on the night from 7 April to 8 April ATM machines and payment and trading terminals of several bank, including Manas Bank CJSC, were damaged, destroyed and robbed, and one ATM was destroyed and looted. In addition, on 8 April the management of Manas Bank CJSC contacted the National Bank with a request to provide assistance and protection and to provide security against an armed penetration into bank buildings and against the threat of a forced, armed bank robbery. Thus, Manas Bank CJSC was facing a true threat against the safety of its assets.
Based on the above, we believe that in order to protect state assets and protect the interests of depositors, the introduction of temporary administration and Manas Bank CJSC was a necessary measure. (Emphasis added.)49
The Tribunal notes the lack of evident connection between the physical threats and the decision to appoint a temporary administrator, as opposed to other possible actions, such as sending police officers or guards. At any rate, the Temporary Administrator set about managing the affairs of Manas Bank.
However, in accordance with Article 3.1 of the Resolution of the NBRK dated 30.09.208 No 36/5 only temporary administrators of the Bank are authorised to represent it as a legal entity in case temporary administration regime is imposed.75
• Revocation of the Bank’s license
• A detailed plan for the rehabilitation of Manas Bank
• A detailed plan for the sale of Manas Bank
What information now relied upon by the Respondent as justifying its post-April 2010 actions against the Manas Bank were timely available to the Respondent prior to April 2010? What, if any, is the significance of the time limits (18 and 9 months respectively) mentioned in Article 9(2) of Law No 14 of 15 February 2004 On Sequestration, Liquidation and Bankruptcy of Banks (Bundle F2, tab 20)? In particular, did these statutory time limits preclude the National Bank from re-introducing or imposing a new sequestration regime on the same bank after the lapse of the aggregate number, i.e. 27, of months mentioned in the provision.89
Organisation of a criminal group, corruption, legalisation of financial means obtained by criminal activities, fraud used for obtaining securities of the Russian issuers etc, and other charges according to various articles of the criminal code of the republic of Kyrgyzstan.98
Thus, the issue of violation of laws of the Kyrgyz Republic on counteraction against financing of terrorism and legalisation (Money Laundering) of the proceeds acquired in an illegal way by CJSC Manas Bank has been considered by the authorised state body - the Financial Intelligence Service of the Kyrgyz Republic and no reason has been found for application of any enforcement actions due to this.100
That Court also considered the previous audits of Manas Bank (prior to the introduction of temporary administration) and found there to be no reason to doubt their findings or veracity:
Further on, the court demanded provision of Reports of independent auditors CJSC Top-Audit KG dated 23 March 2010 and 13 March 2009. According to the aforementioned reports, the financial statements of CJSC Manas Bank, as of 31 December 2008 and 31 December 2009, are credible in all significant aspects and are in conformity with the international financial reporting standards. Up to now, these reports have not been acknowledged as unlawful or invalid by anyone, i.e. the court has no reasons to doubt their credibility .
The court was also provided the NBKR Reports on the results of the complex inspection of operation of CJSC Manas Bank for the years 2008 (the inspection headed by E. Karabechelova (Карабечелова Э.)) and 2009 (the inspection headed by A. Dolubaev (Долубаев A.)), according to which the inspectors did not establish any violations in the operation of CJSC Manas Bank and E. K. Kyshtobaeva, which fall under the activities classified as unfit and unsafe banking practice. As a consequence, according to the results of the aforementioned inspections, neither E. К Kyshtobaeva, nor other officials of CJSC Manas Bank were applied any measures or sanctions on the part of NBKR.
Therefore, the court cannot agree to the NBKR objections that the Report on checking the CJSC Manas Bank operation during the period of introduction of temporary administration in 2010 fully proves the fault of officials of the bank in committing actions which are determined as unfit and unsafe banking practice, as, according to the aforementioned, the defendant has not provided evidences of the fact that previous Reports on the results of the complex inspection by NBKR of operation of CJSC Manas Bank for the years 2008 and 2009 are invalid. Similarly, the defendant has not provided documents certifying on the lack of objectivity or lawlessness of the conclusions of the NBKR inspectors who performed the complex inspections in 2008-2008, as well as evidences of applying measures and sanctions established by the law with regard to them.
Moreover, in accordance with Clause 5.6 of the NBKR Instructions "On Performance of Inspections In-Situ", assessment of a banks operation performed in the course of an inspection is final. (Emphasis added,)101
ibid, at 12.
Summing up the above mentioned facts, it should be noted that the criminal case has been investigated superficially, with accusatory bias, while the criminal case should be investigated fully, objectively and comprehensively, it is desirable that the case should be investigated for each of the defined banks separately, since it would facilitate either criminal investigations or the proceedings.102
Thus, a Deputy Chairman of the National Bank, Mr. Suerkul Abdybaly Tegin, in his witness statement of 25 September 2012, stated that:
29. The conservator held its examination with participation of Manas Bank's staff upon issues of compliance with requirements of the bank's activities regarding combating against the financing of terrorism and money laundering (Combating against financing of terrorism/money laundering). The inspection confirmed the presence of many violations of the law on (Combating against financing of terrorism/money laundering) indicated by the examination of banking supervision. The conservator sent the results of its examination to the National Bank and its shareholders. (Emphasis added.)107
Mr. Suerkul Abdybaly Tegin, First Witness Statement, 25 September 2012; Bundle C.l.
As for the second witness statement of Deputy Chairman Zair Chokoev, it noted:
8. The reasons, that caused the financial difficulties of the bank and subsequent appropriate action by the supervisory authorities, are the actions of the bank's former management - Management Board and the Board of Directors which allowed the acceptance by the bank unreasonably high credit risk and other serious violations of the law. (Emphasis added.)108
Mr. Zair Chokoev, Second Witness Statement, 19 November 2012, Bundle C.6.
12. As the results of checks, numerous violations of economic standards observance, banking legislation and normative-legal acts of the National Bank were committed by the [Manas] Bank, a lot of questionable conduct and suspicious transactions took place in the bank, bank officials committed significant violations up to a conceal upon the record of guarantee bonds.
13. Accordingly, the question of the involvement of government officials in the conduct of unsafe and unhealthy banking practice was rendered to the Oversight Committee. The Committee approved the proposal for the oversight involvement. Because officials of Manas Bank appeal, the matter was considered by the Board of National Bank. NBKR’s Board carefully enough studied the documents provided by the banking supervision Office. I, like other members of the Board, voted in favour of the proposal for the involvement since provided materials convincingly demonstrated numerous violations, and conduct of shady and suspicions transactions. (Emphasis added.)109
6. The officers of banking supervision have provided me with the information on non-resident companies, serviced in Manas Bank, as well as on non-resident companies drawn through Baltic International Bank. Also I familiarised myself with the information on founders, owners, directors, managers and information on conducted transaction. The majority of the information seemed suspicious to me, and in my opinion, the employees in charge of Combating the terrorism jinancing/Money laundering, did not perform their job duties in dull and did not carry out the audit properly. (Emphasis added.)110
The first Sequestration Administrator, Ms. Nazgul Mulkubatova, made the following observations in her first witness statement:
27. I paid attention to the fact that when issuing a bank guarantee, the decision of the Credit Committee was missing (violation of Article 35.2 of the Law "On bank and banking activity"), internal procedures on the issue and accounting of guarantee had not been complied with, unreliable financial statements had been provided since 2008, and, accordingly, from 2008 to 2010 Manas Bank showed no guarantee in reports to the national Bank, i.e. deliberately concealed it.
62. In pursuit of profit and attraction of new Manas Bank, in the absence of the development of appropriate maintenance procedures of VIP-customers, former management of Manas Bank, in violation of the Law on Banks and the Law "On Combating against Financing of Terrorism/Money laundering", held the service of so-called VIP-customers and their identification in Mr. Verbitsky’s [the Chairperson’s] office, contracts for their services were signed here.
63.... Mr Verbitsky personally engaged in identification of fa VIP customer ] and some non-resident customers. Although as a Chairman of Manas Bank, he did not have such authority to do so. Special authorized person, compliance-officer had to deal with the identification, verification of Mans Bank customers, and their compliance with requirements of the Kyrgyz Law "On Combating against Financing of Terrorism/Monev Laundering".
65. In the first instance of the court, NBKR proved infringements with respect of suspicious transactions upon MasterCard Payment system by Mans Bank. The fact to attract customers who are citizens of Latvia to the service through the Kyrgyz Mans Bank looks very strange in terms of economic efficiency.
66. Violations revealed in Manas Bank and attributed to Mr. Sheytelman by the National Bank were confirmed by the Court's decision and were fully proved by the NBKR. These violations are reflected in the Report of the National Bank in 2010 upon the verifications by Manas Bank. (Emphasis added.)111
Ms. Nazgul Mulkubatova, First Witness Statement, 25 September 2012; Bundle C.9.
The first Sequestration Administrator, Ms. Nazgul Mulkubatova, made the following observations in her second witness statement:
25. The national Bank... have an irrefutable evidence of the activity of Manas Bank and its officers in violation of the Kyrgyz law and in violation of the principle of the implementation of healthy and unsafe banking practices by Manas Bank and its officers.
37. In conclusion, I would like to note that the very nature of the relationships and conducting transactions of Mans Bank and [a VIP] (and others, as well holding Manas Bank operations with customers on the work with the international payment cards of Mastercard International through JSC "Baltic International Bank") are suspicious and do not make any economic sense. (Emphasis added.)113
Ms, Nazgul Mulkubatova, Second Witness Statement; Bundle C.10.
Ms, Mulkubatova made the following observations in her third witness statement:
43. A letter to the General Prosecutor's Office of the Kyrgyz Republic No 9/07-10 of 20.01.2011, in which it was stated that according to the results of criminal investigation No 150-10-94 the officials and shareholder of "Manas Bank" CJSC were held criminally liable for committing crimes related to legalization (laundering) of unlawfully obtained funds, corruption and for participating in a criminal organization served as a prerequisite for imposition of the sequestration regime in "Manas Bank" CJSC.
52. Furthermore, the violations set forth in the NBKR’s Report have been confirmed by the sequestrator’s Report on the results of the activity of "Mans Bank" OJSC in the field of the sequestrator on the results of audit of Manas Bank’s activity in the field of combating the financing of terrorism / money laundering on 01.07.2011 (on the bank transactions conducted in 2008, 2009), which independently confirms the NBKR's findings on inefficient identification and verification of Manas Bank's clients. In particular, the Sequestrator’s Report (page 5) states that "These facts suggest that identification of clients was carried out (on clients who opened accounts in Manas Bank in 2008, 2009, our clarification) improperly, as well as that on the side of the Compliance Control Department - Heads of Department on work with corporate nonresident clients - lax controls over identification of the bank's clients and end beneficiaries on their operations." (Emphasis added.)115
Ms. Nazgul Mulkubatova, Third Witness Statement, 19 November 2013, Bundle C.l 1
This third witness statement exhibited 17 documents, but not the above referenced letter of 20 January 2011 authored by the prosecutor and explaining the purported criminal activities of the Claimant and Manas Bank. Nor does one find the sequestrator’s report concluding that there was wrongdoing. The included exhibits do not elaborate on the facts pertaining to the alleged money laundering or financing of terrorism.116
For example, the first exhibit states that violations occurred but provides no particulars:
Certain officers of ZAO Manas Bank were responsible for violations of articles 24, 25, 27, 35, 27, 39.1, 53, 58.3 and 60 of the Kyrgyz Republic Law "On Banks and Banking Activities"; articles 3.1 and 4.1 of the Kyrgyz Republic Law "On Combating the Financing of Terrorism and Money Laundering"; paragraphs 5.5, 5.6 and 5.7 of the Regulation on Minimum Requirements for Organizing Internal Controls at Commercial! Banks and other Financial/Credit Institutions Licensed by the NBKR. to Combat Financing of Terrorism and Money Laundering. [NBKR Decree no. 76/2 re officers of Manas Bank, 30 September 2010; CL-12, R-I.14, Bundle E. 164.]
On 26 November 2013, i.e. a few days before the Witness Hearing in Paris, the Respondent submitted a second expert report to the Tribunal, prepared by Mr. Andrew Howson and Mr. Paul Devine of East Star Capital (this Award refers to the Respondent’s experts collectively as ESC). This Report was prepared in the course of two and a half weeks. ESC’s primary conclusion was that further investigation would be warranted with respect to the activities of Manas Bank:
During the course of the investigation East Star Capital has, in its opinion, found a number of trading and operational complexities that it believes warrant further investigation and or deliberation by international and Kyrgyz professional and judicial bodies. We clearly state that we are not qualified to offer an opinion on what those outcomes might be from any investigation, that that the facts point to a need to engage further qualified bodies going forward who can determine those matters. We do offer the opinion that evidence provided in this document does, from our understanding of the relevant international standards on money laundering and fraudulent behavior, raise a number of red flags that on the surface provide significant reason to believe that there were transactions and organizations that would be of interest to international judicial authorities. (Emphasis added.)117
Second ESC Report, at 2.
"Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source"118
This is an important distinction that must be made, in the cases of money laundering: the bank must act, not on proof of illegality, but on suspicion. This duty to act and report suspicion is usually legal obligation and failure to report can be a criminal offence in itself.121
The Claimant's final formulation of its request for relief is for:
a. A declaration that the Respondent has breached the BIT.
b. A monetary award to compensate the Claimant for harm to him by the aforesaid breaches including:
i. the value of his shareholding in Manas Bank;
ii. the amounts loaned to depositors and paid to Ms de Vaskevich-Mirska;
iii. reputational harm.
c. An order that the Respondent shall terminate all outstanding criminal and civil administrative investigations and proceedings against the Claimant and any persons affiliated with Manas Bank and shall not commence any such proceedings in the future in relation to events that occurred prior to the date of the award.
d. An order that the Respondent shall publish a statement in the leading newspapers of the KR, by which it rehabilitates the Claimant's name and indicates that all previous allegations raised against him and persons affiliated with Manas Bank have been withdrawn.
e. An order that the Respondent shall procure the withdrawal of all police search warrants and equivalent search notices issued by any international and/or Kyrgyz police authority against Mr Belokon, Mr Verbickis, Mr Kacnovs and Ms Matisone.
f. An order that the Respondent shall inform the relevant authorities of the European Union, the UK and any other jurisdiction to whom the General Prosecutor has sent defamatory statements about the Claimant / Manas Bank / Baltic International Bank, that these statements are withdrawn.
g. In the alternative to a monetary award of the amounts loaned to depositors and paid to Ms Mirska, an order that the KR procure that all the monies in the accounts at Manas Bank of the depositors listed at paragraph 89 of the Claimant's Statement of Claim be returned to those depositors or their authorised representatives with accrued interest and the monies in the account of Ms Mirska referred to at paragraph 92 of the Statement of Claim be paid to the Claimant with accrued interest.
i. An award of interest on money compensation up to the date of payment.
j. Such other relief as the Tribunal deems appropriate.
a. Dismiss the reliefs sought by the Claimant under points 3), 4) and 5) of the Statement of Claim as being inadmissible.137
b. Dismiss all reliefs sought by the Claimant in the Statement of Claim as being not founded.
c. Condemn the Claimant to the payment of the expenses associated with this claim and arbitration in the amount of 750 000 USD as well as all arbitration costs.
Article 5 of the BIT sets forth the applicable expropriation standard:
"1. The Contracting Parties shall not directly or indirectly apply measures to expropriate or nationalise the investments of investors of the other Contracting Party or measures having effect equivalent to nationalization or expropriation (hereinafter referred io as "expropriation"), except for expropriation:
(a) for public purposes;
(b) on a non-discriminatory basis; or
(c) in accordance with national laws; and
(d) with prompt, effective and adequate payment of compensation, in accordance with paragraph 2 of this Article.
2. Compensation shall:
(a) be made without delay. In the event of a delay, costs caused by fluctuations in the exchange rate that flow from the delay in payment shall be borne by the Contracting Party in whose territory the investment was made;
(b) amount to the current market value of the expropriated investment immediately before expropriation. The determination of current market value shall disregard any changes caused by the expropriation becoming public knowledge before it took place;
(c) be effectively realizable and freely transferable; and
(d) include interest at the commercial market rate for the currency for which the compensation will be paid, from the date of expropriation to date of actual payment."
An expropriation occurs if the interference is substantial and deprives the investor of all or most of the benefits of the investment. The deprivation would have to be permanent or for a substantial period of time.139
The Respondent defends the treatment directed towards Manas Bank as constituting "general regulatory measures".141 The Respondent submits that "a state is not responsible for loss of property or for other economic disadvantage resulting from the bona fide general" regulation under the "police power of the states, if not discriminatory".142 Citing to Feldman v Mexico, Respondent notes that "government must be free to act in the broader public interest."143 Invoking Methanex v USA, it insists that "as a matter of general international law, a non-discrimination regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable".144 Lastly, the Respondent notes the observation in Saluka v The Czech Republic that "a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are ‘commonly accepted as within the police power of States.’"145
Statement of Defence, at ¶ 267
Statement of Defence, at ¶ 268, citing to: Rudolf Dolzer and Christopher Schreuer, p. 109 with reference and quotation under footnote 116 to: American Law Institute, Restatement (third) of the Foreign Relations Law of the United States, Vol.l (1987), Section 712, Comment (g).
Statement of Defence, at ¶ 268, citing to: Feldman vs. Mexico, Award, 16 December 2002,18 ICSID Review-FILJ (2003) 488, quoted in Rudolf Dolzer and Christopher Schreuer, p.109.
Statement of Defence, ¶ 268, citing to: Methanex vs USA, Award, 3 August 2005, 44 ELM (2005) 1345, quoted in Rudolf Dolzer and Christopher Schreuer, Exhibit CA-, p.110,
The Tribunal naturally accepts that the application of general regulatory powers, such as taxation or determination of bank capitalisation standards, does not in and of itself amount to indirect expropriation. States have considerable policy space to enact the laws and regulations they believe are appropriate. The NBKR is not just empowered, but required to regulate and inspect the activities of Manas Bank. Kyrgyz prosecutors are equally charged with responsibility for conducting investigations when they believe there may have been criminal wrongdoing.
Article 5(l)(a) of the BIT requires that expropriation be for public purpose. While the initial imposition of the temporary administration regime in mid-April 2010 may have been undertaken for a public purpose, the administration of the temporary regime does not appear to have been pursued with that goal. Rather, continued administration of Manas Bank appears to have been undertaken because of suspicions of wrongdoing on account of a connection between the Claimant and the Bakiev regime. Further, the administration of Manas Bank permitted the return of funds to state coffers despite contractual obligations to keep deposits with Manas Bank. In addition, the administration allowed the expropriation of assets secured by Manas Bank and prevented Manas Bank from taking legal actions to claim compensation for the expropriation of these secured assets.
287. It has been explained above that the measures taken were a part of the internal regulation norms of the Kyrgyz Republic and it has not been established by the Claimant that these internal regulation norms (the banking laws, the Criminal Procedural Code and the Criminal Code of the Kyrgyz Republic) would constitute a violation in one way or another of the interests of investment of the Claimant.
288. It has to be reminded that these laws and Codes were already in place at the moment that the investment initially was made.
289. The regulatory measures that were an execution of this legislation were totally in accordance with this legislation.
290. Therefore, the Claimant was given a fair and equal treatment and the said standard was not violated.
One notes the absence of qualifying language, such as "in accordance with customary international law". No point has been taken as to supposed consequences of the particular wording. Nevertheless, it is right to bear in mind that the words appear in a type of treaty which became commonplace in the second half of the 20th Century, and due consideration should be given to construing them in a way that is consonant with those treaties in general and thus to give effect to legitimate expectations.
a. Transparency, stability and protection of the Investor's legitimate expectations;
b. Compliance with contractual obligations;
c. Procedural propriety and due process;
d. Good faith; and
e. Freedom from coercion and harassment.150
The Claimant’s Supplemental Submission also referred to a number of recent awards that discuss the FET standard in a manner relevant to the facts of this present dispute. Determination of whether the FET standard has been breached in a given case is inherently fact specific. Nevertheless, its tenets seem broadly well established and have not been disputed by the Respondent:
29. The Respondent agrees with the Claimant’s opinion that according to the BIT "investment and returns of investor of either Contracting party shall at all times be accorded fair and equitable treatment" and that FET standard should include the following principles:
a. Transparency, stability and protection of the investor’s legitimate expectations;
b. Procedural propriety and due process.151
Respondent’s Post-Hearing Brief, ¶ 29.
The Claimant’s Reply particularised the breach of the FET standard into eleven distinct episodes (to which their Supplemental Reply added a violation of the denial of justice standard):
1. Imposition of Temporary Administrator without valid legal grounds
2. Reinterpretation of legal standards
3. Mismanagement of Manas Bank
4. Unreasonable rejection of Mr. Belokon's good faith efforts to resolve the situation surrounding Manas Bank
5. Imposition of Sequestration Administrator without valid legal grounds
6. Initiation of vexatious Criminal Trial
7. Resubmission of criminal case, notwithstanding continued grave procedural defects
8. Request for Red Notices
9. Harassment and coercion and illegality
a. Requests for bribes
b. Demands for injection of share capital without reciprocal return of shareholder control over Manas Bank
10. Procedural propriety and due process
a. Denial of standing to challenge Decree No. 10/1
b. Failure to seek explanations prior to initiation of criminal trial.
c. Failure duly to serve process in respect of criminal trial
11. Lack of proportionality.152
Claimant’s Reply, at ii.
The temporary administrator’s actions led to the withdrawal from Manas Bank of deposits by the Kyrgyz Social Fund and the Development Fund. While the Tribunal finds that the Temporary Administrator failed to act in good faith in carrying out her duties and may have been in a situation of conflict of interest, these activities do not amount to a breach of the FET standard. The FET standard is not a remedy to every adverse action by a government agent. The Tribunal notes that these depositors may well have terminated their deposit agreements, albeit at a future date, even had Manas Bank not been under temporary administration.
The NBKR imposed a sequestration administration on Manas Bank on account of the institution of criminal proceedings against officials of Manas Bank by virtue of Article 8(3)(5) of the Kyrgyz Law on Banks and Banking:
Article 8. Grounds for conservative appointment
3. The National Bank is obliged to introduce the conservation and to appoint the conservative in the bank if any of the following reasons has occurred:
5) the criminal case has been brought against bank’s persons in charge (being accusedfor offence of economical and professional crimes) in accordance with implementation of his/her duties; in addition, the term "bank’s persons in charge" shall mean the persons having the authority to participate or factually participating in basic operations of the bank, forming the policy of the bank, apart of the fact whether official title has been assigned to him/her or not or whether the remuneration has gained or not. The Chairman of the Board, Members of the Board, the top persons in charge for financial matters and credits are to be treated as executive persons in charge.153
Supra n 87.
It does not appear that the fact that proceedings were brought against the Claimant, as a shareholder, would justify sequestration under Article 8(3)(5). In its post-hearing brief, the Respondent made significant efforts to identify Mr. Belokon as the "supreme governing body" of Manas Bank.154 The Respondent suggests that as the sole shareholder, the Claimant was to approve large scale transactions of Manas Bank, such as granting of loans or approving the large foreign currency trades undertaken by Manas Bank. In support of this, it identifies Articles 37 and 38 of the Kyrgyz law on Joint Stock Companies. While Article 37 of that law does identify the shareholder as the supreme governing body, the type of transactions that are approved by a shareholder do not include the day to day banking transactions (i.e. currency conversions or loans) put forward by the Respondent. Article 38(7) requires that shareholders "decide on major transaction in accordance with Article 73 of this Act". Article 73(2) of that law identifies that shareholder approval is required for transactions which involve 50% or more of the book value of the company. The Tribunal does not find that this type of shareholder decision making is one for which Article 8(3)(5) of the Kyrgyz law on banking and banks requires the imposition of sequestration administration. The Claimant has denied involvement or knowledge of the individual transactions that were undertaken by Manas Bank. He is not a person with "authority to participate" nor was he "factually participating in basic operations of the bank" as required by Article 8(3)(5).
Respondent’s Post-Hearing Brief at ¶¶22-25.
3. Neither Contracting party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of investors of the other Contracting Party.
(a) The denial of standing to challenge Decree No 10/1 ;
(b) Failure to seek explanations from Manas Bank affiliated individuals prior to instituting criminal proceedings against them in alleged violation of Kyrgyz criminal law;
(c) Failure to serve Manas Bank individuals with notice of the criminal proceedings against them in alleged violation of Kyrgyz criminal law.
a. a measure that inflicts damage on the investor without serving any apparent legitimate purpose;
b. a measure that is not based on legal standards but on discretion, prejudice or personal preference;
c. a measure taken for reasons that are different from those put forward by the decision maker;
d. a measure taken in wilful disregard of due process and proper procedure.155
However, in accordance with Article 3.1 of the Resolution of the NBRK dated 30.09.208 No 36/5 only temporary administrators of the Bank are authorised to represent it as a legal entity in case temporary administration regime is imposed.156
Where such criminal proceedings have consequences of depriving the investor of the management, use, and enjoyment of property, then the BIT requires that the underlying charges not he "unreasonable, discriminatory or arbitrary". The Tribunal recalls that Kyrgyz courts have twice remanded the case against the Claimant back to the Kyrgyz prosecutor. Further, the Respondent has not provided evidence to this tribunal of money laundering committed by Mr. Belokon, nor has it provided the reasoning of the prosecutor’s office that justified the criminal proceedings. Whether under Kyrgyz law or under international law, Mr. Belokon has a right to know the case against him. The conclusion in light of the record is inescapable, to the effect that his investment was arbitrarily destroyed and that compensation is accordingly due.
an order that the Respondent shall terminate all outstanding criminal and civil administrative investigations and proceedings against the Claimant and any persons affiliated with Manas Bank and shall not commence any such proceedings in the future in relation to events that occurred prior to the date of the award;
an order that the Respondent shall publish a statement in the leading newspapers of the KR, by which it rehabilitates the Claimant’s name and indicates that all previous allegations raised against him and persons affiliated with Manas Bank have been withdrawn;
an order that the Respondent shall procure the withdrawal of all police search warrants and equivalent search notices issued by any international and/or Kyrgyz police authority against Mr Belokon, Mr Verbickis, Mr Kacnovs and Ms Matisone;
an order that the Respondent shall inform the relevant authorities of the European Union, the UK and any other jurisdiction to whom the General Prosecutor has sent defamatory statements about the Claimant /Manas Bank / Baltic International Bank, that these statements are withdrawn;
in the alternative to a monetary award of the amounts loaned to depositors and paid to Ms Mirska, an order that the KR procure that all the monies in the accounts at Manas Bank of the depositors listed at paragraph 89 of the Claimant’s Statement of Claim be returned to those depositors or their authorised representatives with accrued interest and the monies in the account of Ms Mirska referred to at paragraph 92 of the Statement of Claim be paid to the Claimant with accrued interest.
Manas Bank, as a Bank trading in Kyrgyzstan, had no real value because of a number of breaches advised to Manas Bank by NBKR the license would in all likelihood have been suspended or withdrawn at some stage.164
At the end, 1 would say that we had two and a half weeks, of which one and a half weeks was trying to gather data and information and talk to as many people as we possibly could. One week was trying to put the report together.166
... in the case of banks, valuations are not typically carried out on a DCF basis, but rather on the basis of a P/B multiple. We can find no third party support for the proposition that discounted cash flow valuations are either popular or widely used for the purposes of valuing banks. In our own experience, the reverse is in fact true.169
the discounted cashflow valuation is a popular and the most widely used valuation approach not only to banks but to many companies and projects.173
1. Branches: with only 5 branches Manas was one of the smallest banks in the KR again its main business was conducted through the main branch in Bishkek
2. Customers: total of 4454 accounts were opened during the trading period of Manas. A number of these were closed during the period. There are also a great number of these accounts that have the same name and repeat. Also most were ELCARD users so not traditional opened accounts.
3. It was difficult to estimate usage rates by clients and services given the limited time and data available.
4. ATMs are an increasingly important part of banking.
5. Systems: as at April 2010 the key platform of the system was not installed, until it was installed it was not possible to expand the bank to retail operation. The IT section was not developed sufficiently to operate a high transaction system such that is typical in a retail bank.
6. Customer service structure: Manas bank had no retail bank structure such as customer services specialists, branches and structure,
7. The depositors and the loan book of Manas Bank were highly concentrated into corporate accounts with large state owned organization. To reiterate 80.4% of deposits were with 12 clients, and 89.2% of loans with 10 clients in addition these 10 clients generated little of all transactions in the bank. In effect the bank depended on these clients. Behind this the control of the state industries was held by CADII which was controlled by Maksim Bakiev. Such a concentration suggests that Manas Bank was focused on servicing the needs of a small group of largely corporate clients. This suggests that the bank was more akin to a specialist corporate financing organization. As stated by Mr Verbickis he had made a point of visiting his main customers personally.
8. The transactions and revenue contribution in 2009: Revenue was being generated primarily by fees and service rather than by net interest income. 43% from net interest income and 57% from fees and services. This was planned to continue in subsequent years.176
• The depositors and the loan book of Manas Bank were highly concentrated into corporate accounts with large state owned organization. To reiterate 80.4% of deposits were with 12 clients and 89.2% of loans with 12 clients in addition these 12 clients generated a minimal number of all transactions in the bank In effect the bank depended on this small number of clients.
• Such a concentration suggests that Manas Bank was focused on servicing the needs of a small group of largely corporate or foreign clients. This suggests that the bank was more akin to an specialist corporate financing organization
• Given the style and nature of many depositors and borrowers, a great number of whom were not Kyrgyz residence, but foreign nationals, it would appear that the bank was used primarily for the movement of monies across jurisdictions.
• The lack of service infrastructure and systems to support large scale financial transactions by multiple users.
• Manas bank was dependent on fees for service for revenue rather than interest earned.177
In response, FTI’s second report noted:
2.6 In our experience, a private wealth bank would have:
• senior relationship management professionals well-networked in the high net worth and ultra-high net worth community;
• an investment management and investment origination capability of its own or, alternatively, access to third party investment products;
• an infrastructure of processes, systems and people which responds to the requirements of private banking and private wealth management needs; and
• a business plan that supports a private wealth bank business.
2.7 Manas Bank did not have any of these features, and we understand that it did not plan to have them. Contrary to the ESC statements, Manas Bank’s high non-interest income relative to interest income is not an indication that Manas Bank was a private wealth bank
Furthermore, a central feature of a private wealth bank is that it should be incorporated and operating in a jurisdiction which is politically stable, with relatively certain legal and fiscal outcomes. We do not believe that the Kyrgyz Republic would likely meet these requirements in the eyes of potential private banking clients.178
Second FTI Report.
The Tribunal finds that Manas Bank was a new retail bank and not a private wealth bank limited to the market of high net worth individuals. This does not, of course, imply acceptance that its future was secure and predictable as a matter of market risks wholly independent of whether the terms of the BIT were respected. As the Claimant was no doubt aware, doing business in the Kyrgyz Republic, given the then current state of its banking system and market, presented commercial risks.
The Claimant has requested pre-Award interest "at the rate for deposits in US dollars in Latvia."191 The requested rates are at 4.6% for 2010, 3% for 2011, 2,7% for 2012, and 2.2% for 2013.192 The Claimant has requested that interest be compounded daily and has requested that post-Award interest be awarded at 5%, compounded monthly. The Claimant has, in the lead up to the December 2013 hearing, requested interest at a rate of 10% annually, compounded.193
Claimant’s Reply, ¶ 279.
The source used by the Claimant does not list a 2014 date. The Tribunal replicates the rate for 2013.
Claimant’s Skeleton Argument, at ¶l 58.
Given that the Respondent has not contested the Claimant’s proposed rates, and their commercial reasonableness, the Tribunal concludes that an appropriate commercial market rate is the rate for deposits in US dollars in Latvia, compounded annually:
|Year||Latvian Interest on Deposits||Interest Accrued195||Total|
Total Interest: $1,784,959.49
Rates are applied pro-rata to the number of months at issue: for 2010 nine months, and 2014 eight months.
The Tribunal hereby decides that:
(A) The Respondent has indirectly expropriated Manas Bank by imposing an arbitrary and unjustified series of administrative regimes on it in violation of Article 5 of the BIT;
(B) The Respondent has breached Articles 2(2) and 2(3) of the BIT by failing to provide Fair and Equitable Treatment to the Claimant and acting in a manifestly arbitrary and unreasonable manner;
(C) The Respondent is to pay the Claimant US$ 15,020,000 US dollars (fifteen million twenty thousand) within 60 days of this Award.
(D) The Respondent is to pay the Claimant EUR 250,000 (two hundred fifty thousand) within 60 days of this Award on account of the Claimant’s advance of the fees and costs of the Tribunal.
(E) The Respondent is to pay the Claimant EUR 970,000 (nine hundred seventy thousand) within 60 days of this Award, as a contribution to the fees and disbursements incurred by the Claimant.
(F) Following 60 days of this Award, any unpaid amounts of those defined in paragraphs (C), (D), and (E) shall be augmented by interest at a rate of 4.5%, compounded annually.
(G) All other requests are dismissed.
(H) The Claimant shall transfer ownership of the shares of Manas Bank to the Respondent upon receipt of the damages and costs, including interest, ordered payable by this Award.
(H) In the event of judicial enforcement of the Award before national courts, the post-Award interest indicated above is without prejudice to applicable national rules of interest in such proceedings.