1. Which investment protection standards have been violated? Why?

1
An Agreement for the Promotion and Protection of Investments was signed by Latvia and the

Kyrgyz Republic on May 22, 2008. By doing this, both nations publicly vowed to strengthen

their ties with one another and guarantee that investors would be treated fairly, equitably, and in

compliance with international law.

The Latvian and Kyrgyz governments reached a deal on economic, industrial, scientific, and

technical cooperation in the fall of 2007. This agreement on bilateral investment followed. At

this time, Mr. Valeri Belokon, the owner of the Baltic International Bank from Latvia, was

growing interested in the banking industry in Kyrgyzstan. Based upon that desire, Mr. Belokon

bought the Kyrgyz bank Insan in 2007 and rebranded it Manas Bank.

Later on, a despute arose between Mr. Valeri Belokon and State of Kyrgyzstan, the host country

(Kyrgyzstan) violated 3 investment protection standards which were agreed by both parties as

provision in the Kyrgyzstan - Latvia BIT (2008), which are as follows:

Indirect expropriation, Fair and equitable treatment/Minimum standard of treatment, including

denial of justice and claims, Arbitrary, unreasonable and/or discriminatory measures

Expropriation:

All investors view the ability of a state to expropriate property as one of the major political risks

because it is a sovereign right. Expropriation has two characteristics: It is a state-authorized

action taken by the legislative, executive, or judicial branches of the government; and It results in

1 Manas Bank Case pg. 1

the transfer of property rights. Programs like land reform show that the state is not always the

recipient of this transfer.A direct or indirect expropriation may occur. When the State seizes

property belonging to a resident investor or when the State is deprived of wealth, this is known

as direct expropriation.When the government interferes with an investor's use of his or her assets,

even when the property is not taken and the title is unaffected, it is referred to as indirect

expropriation. For example, when governmental actions force an investor to leave the country,

prevent him from accessing his money or profits, or force him to sell or transfer at an unjustly

cheap rate.Compensation is another aspect of the expropriation notion. confiscation occurs when

property is taken without payment. However, not all seizures are unlawful. For example, it is

legal for judicial authorities to seize a criminal's property or products that have been illegally

imported into a nation, but these actions do not fall under the definition of expropriation. As

previously mentioned, lawful expropriation must be done without discriminating, for the benefit

of the general public, in line with due process, and with quick, sufficient, and efficient

compensation.

The expropriation clause is discussed as follows in 2Article 5 of the BIT between the States of

Kyrgyzstan and Latvia:

1. Investments of investors of either Contracting Party shall not be nationalized, expropriated or

subjected to measures having effect equivalent to nationalization or expropriation (“hereinafter

referred to as II expropriation ") in the territory of the other Contracting Party except for a public

purpose. The expropriation shall be carried out under due process of law, on a non-

discriminatory basis and shall be accompanied by provisions for the payment of prompt,

2 Article 5 of Kyrgyzstan-Latvia BIT(2008) pg. 5

adequate and effective compensation. In particular, such compensation shall amount to the

market value of the investment expropriated immediately before expropriation or before

impending expropriation became public knowledge, whichever is the earlier, shall include

interest at a normal commercial rate from the date of expropriation, shall be made without delay,

be effectively realizable and be freely transferable in a freely convertible currency.

2. The investor affected shall have a right, under the law of the Contracting Party making the

expropriation, to prompt review, by a judicial or other independent authority of that Contracting

Party, of its case and of the valuation of its investment in accordance with the principles set out

in this Article.

3. Where a Contracting Party expropriates the assets of a company which is incorporated or

constituted under the law in force in its territory, and in which investors of the other Contracting

Party own shares, it shall ensure that the provisions of this Article are applied to the extent

necessary to guarantee prompt, adequate and effective compensation in respect of their

investment to such investors of the other Contracting Party who are owners of those shares.

As a result, both parties are required—with the exceptions mentioned in the BIT and the general

exception of the expropriation standard—to refrain from expropriating against one another's

investors or investments in the other party's territory.

However, 3the Kyrgyz National Bank issued Decree No. 10/1 on April 8, 2010, suspending the

authority of the boards and controlling organs of five Kyrgyz banks, including Manas Bank, due

to the country's severely tumultuous political climate. Although the turmoil of the regime change

subsided rather soon, the National Bank did not lift the emergency measures on Manas Bank,

3 Article 2 of Kyrgyzstan-Latvia BIT(2008) pg. 3

which continued to be run by the Kyrgyz National Bank, until more than four years later. The

host State (Kyrgyz Republic) indirectly expropriated Manas Bank by establishing a succession of

arbitrary and unjustifiable administrative regimes on it in breach of Article 5 of the BIT, which is

equivalent to expropriation.

Fair and equitable treatment/Minimum standard of treatment, including denial of justice

claims, Arbitrary, unreasonable and/or discriminatory measures

The FET standard safeguards investors from discrimination and ensures due process of law in

cases where prejudice is alleged. Along with other requirements, the duty to give "fair and

equitable treatment" is frequently cited as a requirement of host nations for the protection of

foreign direct investment. It is a standard of treatment that is "absolute" and "noncontingent,"

meaning that the treatment to be provided is stated in terms whose precise meaning must be

determined by reference to particular application circumstances. It is also regarded as an

autonomous standard that incorporates principles like transparency, good faith, and preservation

of the investors' legitimate expectations.Some tribunals take an approach to this that is arbitrary,

grossly unfair, unjust or idiosyncratic, discriminatory and reveals the complainant to segmental

or racial bias, or involves a lack of due process that results in a decision that violates judicial

propriety - as might be the case with an evident failings of natural justice in judicial proceedings

or an administrative process that is completely devoid of transparency and candor.The FET

standard mandates that host states uphold the rule of law and refrain from obstructing the

administration of justice in criminal, civil, or administrative actions. FET encompasses actions

taken in front of host state courts. The rights to file a claim, to fair treatment during the
procedures, and to an adequate and enforceable judgement at the end of the process are all

covered by the principles of the right to justice, fairness in procedure, and the restriction of the

denial of justice.

In the BIT between the States of Kyrgyzstan and Latvia the 4article 2 discusses the expropriation

provision as follows:

1. Each Contracting Party shall encourage and create favourable conditions in its territory for

investments of investors of the other Contracting Party and shall admit such investments in

accordance with its laws and regulations.

2. Investments of investors of either Contracting Party shall at all times be accorded fair and

equitable treatment and shall enjoy full protection and security in the territory of the other

Contracting Party.

3. Neither Contracting party shall in any way impair by unreasonable or discriminatory measures

the management, maintenance, use, enj oyment or disposal of investments in its territory of

investors of the other Contracting Party. Each Contracting Party shall observe any obligation it

may have entered into with regard to investments of investors of the other Contracting Party.

As a result, both parties are required to treat investors and investments in the other's territory

fairly, equally, and with a minimal standard of care, which includes refraining from claims of

denial of justice and taking no arbitrary, irrational, or discriminatory actions. However, 5the

government of the Kyrgyz Republic continues to exert control over Manas Bank by leveling

significant accusations against the bank, Mr. Belokon, and his staff, alleging that they engaged in

4 Manas Bank Case pg.1

5 Manas Bank Case pg. 19
serious criminal activity such as money laundering. said that this control was and is still

necessary, The investor responds that the allegations are unfounded, the investment was ruined

in a way that violated the BIT, and he is entitled to compensation from the Kyrgyz Republic

because these claims were never proven, no fair trial was provided, and the legal process was

purposefully delayed so that the Kyrgyz Republic could continue to control the Manas Bank and

reap the benefits of the investor's investment while the investor was perplexed in court and

deprive of his rights.

2. Do you agree with the reasoning of the investment arbitration panel?

I do agree with the explanation of the arbitration court, but the amount of compensation in the

decree is insufficient because Manas Bank was subjected to an administrative and sequestration

regime for at least four years with no end in sight, which constitutes to a thinly veiled taking and

expropriation of Manas Bank. This was not a legitimate takeover and was instead done to further

the government's narrower interests. Mr. Valeri Belokon wasn't given any money in exchange for

his lost goods. 6Although the market worth of the bank three months before to the expropriation

was more than 13 million, I feel that 715 million dollars is an inadequate and unfair

compensation for the investor after four years of expropriation. Notable to mention that the

Kyrgyz Government violated 8Article 5 of the BIT by imposing an arbitrary and unreasonable

6 Manas Bank Case pg. 74

7 Manas Bank Case pg. 79
8 Manas Bank Case pg. 79
series of administrative regimes on Manas Bank, as well as 9Articles 2(2) and 2(3) by failing to

treat the investor fairly and equally but rather taking actions in a manifestly arbitrary and

unjustified way, as well as by filing criminal charges against the investor and prosecuting on

unfounded allegations. Here, the investor's reputation and property rights have both been

destroyed, despite the fact that the law and legal principles specifically provide that ( Ubi jus, ibi

remedium ( Latin maxim) meaning where there is a right, there is a remedy, ) where a right has

been established by the law, there must be a proportionate remedy for its violation.

9 Manas Bank Case pg. 79