CYIL vol. 14 (2023)

CYIL 14 (2023) ASSET FREEZING IN INVESTMENT ARBITRATION: LESSONS LEARNED … Leaving the procedural challenges aside, the impact of unilaterally imposed sanctions on foreign direct investments will be undoubtedly at the centre of attention of arbitral tribunals in the following years. So far, only a handful of cases have discussed the effects of similar measures which caused mostly difficulties at the stage of enforcement of arbitral awards when successful investors struggled with the attachment of State assets subject to sanctions. 6 In the absence of any guidance on assessing their compliance with substantive standards of treatment in IIAs, this paper draws an analogy to freezing and seizure orders issued in domestic criminal proceedings which similarly curtail the disposal rights of the accused pending the final decision on their conviction or acquittal. In terms of its structure, the paper first briefly outlines the underlying rationale of asset freezing and seizure in criminal law and builds parallels to similar sanction policies. In the following section, it analyses the critical findings of arbitral tribunals on the expropriatory effects of freezing and seizure orders in the light of their temporary scope, reversibility as well as proportionality to the pursued public purpose. Finally, the last part of the paper elaborates on defences justifying asset freezing and seizure in general which are currently available in IIAs or under customary international law. 2. Freezing and seizure of assets in criminal proceedings Asset freezing and seizure is one of pivotal instruments in prosecution of organised crime in most national jurisdictions, seeking to prevent dissipation of illegally obtained proceeds from criminal activities before the end of the criminal proceedings. 7 Given the urgency of such measures, freezing and seizure orders are typically adopted at the outset of criminal investigation along with other operational means, such as searches of premises, 8 when suspects become acquainted with their examination by law enforcement authorities and may have incentives to hide misappropriated assets in intricate legal structures, preventing identification of their beneficial owners, convert them into other assets preserving anonymity or simply transfer them to foreign jurisdictions. Generally, the issuance of freezing and seizure orders is a culmination of a complex process of tracing and identification of criminal property 9 which places great demands on investigators. Since criminal proceeds are mostly held in disguise, the relevant authorities are often required to seek judicial or administrative cooperation in assembling bank records, transaction data or other types of information that do not appear on public registries. 10 The 6 Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others , Judgment of the French Court of Cassation (II) and (III), 7 September 2022. The failure to comply with a prior arbitral award due to imposed US sanctions has even given rise to a new arbitral claim in Mohammed Reza Dayyani and others v. Korea which was registered at the Permanent Court of Arbitration. See CHARLOTIN, D. (2023). Claimants lodge second treaty arbitration against South Korea, alleging failure to honour first award. IA Reporter , 28 October 2021, available at: . 7 LIGETI, K. and SIMONATO, M. (2017). Asset Recovery in the EU: Towards a Comprehensive Enforcement Model beyond Confiscation? An Introduction. In: LIGETI, K. and SIMONATO, M. (eds.), Chasing Criminal Money: Challenges and Perspectives on Asset Recovery in the EU (Oxford: Hart Publishing), p. 3. 8 BRUN, J.-P. et al. (2021). Asset Recovery Handbook: A Guide for Practitioners (Washington D.C.: The World Bank), pp. 68–69. 9 Ibid., pp. 7–8. 10 MONTEITH, C. and DORNBIERER, A. (2019). Tracking and Tracing Stolen Assets in Foreign Jurisdictions , Basel Institute on Governance Working Paper No. 15, International Centre for Asset Recovery, pp. 13–15.

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