Government-Lone Star International Investment Dispute Ruling on 31st... Large Compensation Burden if Lost (Comprehensive)

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[Asia Economy Reporter Kim Hyung-min] The international arbitration result between the foreign private equity fund Lone Star and the government of the Republic of Korea will be announced on the 31st.

The Ministry of Justice announced on the 24th that the arbitral tribunal for the investor-state dispute settlement (ISDS) case filed by Lone Star against the Korean government is scheduled to deliver its ruling on the 31st.

In November 2012, Lone Star filed a lawsuit with the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C., claiming $4.6795 billion (approximately 6.0356 trillion KRW) against the Korean government. Initially, the claim was about 5 trillion KRW, but due to recent exchange rate fluctuations, the amount has risen to the 6 trillion KRW range.

Lone Star purchased Korea Exchange Bank in 2003 for 1.3834 trillion KRW and attempted to sell it to Hongkong and Shanghai Banking Corporation (HSBC) in 2007. However, Lone Star claims that the Financial Services Commission of Korea delayed approval of the sale without just cause and that the National Tax Service imposed arbitrary and contradictory taxation. After the overseas sale of Korea Exchange Bank fell through, Lone Star transferred it to Hana Bank in 2012.

The government formed a task force called the "International Investment Dispute Response Team," chaired by the Chief of the Prime Minister's Office (currently the Office for Government Policy Coordination), to respond to the dispute.

The ICSID constituted an arbitral tribunal in May 2013 to hear the case and began written proceedings in October of the same year. Although oral hearings concluded in June 2016, the ruling was delayed due to reasons such as the resignation of the presiding arbitrator.

After replacing the presiding arbitrator, the ICSID continued to hear the case for about another year and a half and finally declared the conclusion of the proceedings last June, ten years after the lawsuit was filed. If the Korean government loses, it may have to pay a massive compensation amount from tax revenues, which would inevitably impact public finances.

The Ministry of Justice stated, "We will promptly disclose the ruling once it is announced," and added, "We will do our best to ensure that the outcome aligns with national interests even after the ruling."

This content was produced with the assistance of AI translation services.