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International tribunal to rule on S. Korea-Lone Star $4.68 bln dispute

National 11:44 August 30, 2022

By Kim Han-joo

SEOUL, Aug. 30 (Yonhap) -- South Korea waited Tuesday for an international tribunal's decision in a massive, multibillion dollar damages suit that U.S. private equity firm Lone Star filed against the country in connection with its asset sell-off more than a decade ago.

According to the justice ministry, the Washington-based International Centre for Settlement of Investment Disputes (ICSID) planned to deliver its ruling on the case on Tuesday (local time), bringing an end to the decadelong legal battle between the two sides.

Lone Star subsidiaries filed the suit in 2012 to demand US$4.68 billion in compensation from South Korea's government, claiming that it was forced to pay unfair taxes and suffered losses due to Seoul's delay in approving a profitable deal.

The Texas-based firm argues that its 2007 plan to sell a controlling stake in the now-defunct Korea Exchange Bank (KEB) to global banking giant HSBC fell through because Seoul's financial regulatory authorities delayed approval of the deal.

Lone Star, which acquired the KEB stake for 1.38 trillion won (US$1.02 billion) in 2003, had planned to sell off the stake to HSBC for about 5.94 trillion won but eventually ended up selling it to Seoul-based Hana Financial Group for some 3.9 trillion won in 2012.

Civic activists call for a parliamentary hearing on the investor-state dispute settlement between Lone Star and the South Korean government in a press conference held in Seoul in September 2020. (Yonhap)

Civic activists call for a parliamentary hearing on the investor-state dispute settlement between Lone Star and the South Korean government in a press conference held in Seoul in September 2020. (Yonhap)

Lone Star claims South Korea should compensate it, claiming that the government "deliberately" delayed approval of the deal with HSBC and deprived the firm of fair and equitable treatment and other protections guaranteed in the investment treaty.

South Korea maintains that it treated Lone Star equally and fairly, as in the case of domestic entities, in accordance with international laws and local regulations.

The Seoul government further argues that there were legitimate reasons to hold up the deal with HSBC, citing legal issues involving the firm were going on at the time, including allegations of stock manipulation in the course of Lone Star's acquisition of KEB's credit card unit.

In another issue, Lone Star claims that local tax authorities applied inconsistent standards, seeking to reimburse the taxes it paid on the proceeds from selling off its assets because it is technically the subsidiaries based in either Belgium or Luxembourg that carried out the transactions.

The firm claims that it should be exempt from taxes under investments treaties South Korea has with the European nations. But South Korea says the subsidiaries are paper companies and should not be protected by investment treaties.

The upcoming ruling is keenly watched in South Korea not only because of the amount of money involved but also alleged involvement of several incumbent high-ranking officials in the issue.

Allegations rose earlier this year that Prime Minister Han Duck-soo was paid a total of 150 million won between November 2002 and July 2003 as an adviser for the local law firm Kim & Chang that represented Lone Star at the time.

Should South Korea be ordered to pay a large amount of compensation, it could spark criticism of wasting taxpayer money and give rise to calls for holding officials involved in Lone Star's acquisition and sell-off of KEB responsible.

Lone Star's entry into and exit from South Korea has been a target of criticism in South Korea amid widespread public perceptions that the firm made huge profits by taking advantage of the country's economic difficulties in the wake of the Asian financial crisis in the late 1990s.


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