November 23, 2012 11:25
The U.S. hedge fund Lone Star, formerly the owner of Korea Exchange Bank, has filed investor-state dispute arbitration claims against the Korean government over losses it claims to have made in the sale of the bank.
The latest installment in the epic saga is the first ISD lawsuit for the Korean government. The ISD mechanism allows foreign investors to request international arbitration against a government that has failed to live up to obligations under international investment treaties.
Lone Star on Wednesday submitted an arbitration application with the International Center for Settlement of Investment Disputes in Washington D.C., claiming that the Korean government violated the Korea-Belgium/Luxembourg Bilateral Investment Treaty.
Lone Star is nominally based in the tax haven of Belgium, which exempts taxes on income from overseas equity investments and has a dual taxation agreement with Korea.
The hedge fund claims that it lost money because Korea’s Financial Services Commission dragged its feet in authorizing the sale of its stake in KEB, after allegations that Lone Star bought the bank amid irregularities at a knockdown price.
Lone Star also alleges that Korea's National Tax Service arbitrarily imposed taxes on its sales of stakes in the Star Tower in Gangnam, Kukdong Engineering and Construction and KEB.
The government says it plans to prove in court that the allegations are unjustified.
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