The worlds of white-collar criminal law and international investment arbitration continue to collide. Following on the heels of March’s decision in Hydro S.r.L. v. Albania, in which an International Centre for Settlement of Investment Disputes (ICSID) tribunal directed the Albanian government to suspend its efforts to extradite and arrest two of the claimants in the arbitration, and a UK judge’s July order deferring to the arbitrators and blocking the extradition (see our prior post), another ICSID tribunal has just similarly ordered Cyprus to refrain from attempting to arrest four Greek bankers, including witnesses and a claimant in a treaty arbitration brought against Cyprus.
In Marfin Investment Group Holdings SA, et al. v Republic of Cyprus, a group of Greek investors have accused the Cyprus government of violating the Cyprus-Greece bilateral investment treaty when, in 2012, it nationalized Laiki Bank, which had suffered massive losses from defaulted Greek debt. For its part, the Cypriot government opened various investigations and criminal proceedings regarding Laiki Bank’s collapse, resulting in the issuance of European arrest warrants on securities fraud charges for the bank’s former CEO and one of its directors, who were potential witnesses in the arbitration. Cyprus also brought criminal bribery charges against one of the claimants in the arbitration and another former Laiki Bank executive.
The Marfin claimants asked the arbitral tribunal to order Cyprus to suspend the criminal investigations entirely. As in Hydro, the tribunal met them partway, asking Cyprus to suspend any efforts to arrest the men, as their participation as witnesses in the arbitration was “essential” for the “smooth conduct” of the arbitration. But it refused to halt the investigations completely.
The decision once again highlights the intersection of criminal law and investment disputes, particularly in the context of requests for interim measures. It also illustrates arbitrators’ willingness – to a limited extent – to intervene when criminal proceedings threaten to undermine ongoing arbitrations. Hydro was perhaps the most direct recent example. A more cautious approach was evident in the April 2016 decision in Teinvir S.A., et al. v. Argentina, in which the Argentinian government opened a criminal investigation of the claimants, their court-appointed receivers, their counsel, and their third-party litigation funder. In that case, the tribunal approved provisional measures prohibiting the Argentinian government from publicizing the investigation, and deferred its decision as to the claimants’ request to suspend the investigation of the counsel and receiver. As the Teinvir tribunal noted, a government must exercise its law enforcement authority “in good faith, respecting a claimant’s rights to have its claims fairly considered and decided by an arbitral tribunal.”
But the standard for such intervention remains high. As the Hydro tribunal stated, “criminal law and procedure are a most obvious and undisputed part of a State’s sovereignty.” Thus, it found “any obstruction of the investigation or prosecution of conduct that is reasonably suspected to be criminal in nature should only be ordered where that is absolutely necessary.” In Teinvir, as in Marfin, the tribunal denied the claimants’ request to suspend the criminal investigation of the claimants themselves, even though the arbitration proceedings were still open. Some critics of investment treaties and investor-state dispute settlement (ISDS) have gone further, alleging that international corporate criminals are using investment treaty claims to avoid punishment (in their view, ISDS is a “global club that helps executives escape their crimes”), and tribunals should have essentially no power when it comes to criminal proceedings.
As a former prosecutor of financial crime and public corruption who has also represented both investors and governments in ISDS cases involving criminal investigations, I can appreciate the appeal of both perspectives. How can private arbitrators, who are unelected and politically unaccountable, be allowed to interfere with a sovereign government’s protection of public order and enforcement of its most basic legal norms? At the same time, how can an international legal regime designed to protect foreign investors from the depredations of host governments decline to do so when those governments abuse their most powerful and damaging regulatory weapon: criminal prosecution?
Whether domestic courts will follow the UK judge’s approach in Hydro, and recognize the Marfin tribunal’s decision as binding, remains to be seen. In any event, we have likely not seen the last of this issue.