CYIL vol. 14 (2023)

CYIL 14 (2023) ASSET FREEZING IN INVESTMENT ARBITRATION: LESSONS LEARNED … local criminal authorities ordered an arrest of the Finnish investor and seized assets belonging to the claimant, his family, deputy and two of his companies incorporated in Egypt. 27 The respondent contended that Mr. Bahgat had failed to prove the origin of a payment in the amount of 30 million USD for the dismantlement, transport and re-erection of a used steel factory to its German contractual partner and pointed to judgments of Egyptian courts which had found the claimant guilty of misappropriation of funds and sentenced him to fifteen years of hard labour. 28 In its view, the steps taken against Mr. Bahgat crystallized from valid investigation conducted by the public prosecutor who had in accordance with Egyptian law adopted merely temporary conservatory measures to prevent the disappearance of the claimant’s assets from his project site. 29 The investor opposed to these assertions, pointing to the freezing of the companies’ bank accounts, removal of company records from their premises and detention of their chief executive officer which resulted in the discontinuation of the salaries of employees, closure of the companies’ offices and withdrawal of the project partner. 30 While Mr. Bahgat was eventually released after his three-year long detention and saw his travel ban lifted two years later, the assets of his companies remained frozen until the filing of his treaty claims in arbitration in November 2011. 31 In its reasoning, the tribunal agreed to apply the substantial deprivation test as proposed by both parties to the arbitration, noting that the continued possession of shares in the Egyptian companies by the claimant did not stand in the way of a finding on indirect expropriation but had to be considered at the stage of damages. 32 The arbitrators admitted that the decisions of Egyptian law enforcement authorities were formally overturned but emphasized that these measures had irreversible effects on the ability of Mr. Bahgat’s companies to manage their operations and de facto brought an end to their commercial activities in Egypt. 33 Since the six-year long standstill of all business seriously impaired the economic viability of the thirty year project, the tribunal concluded that Egypt’s actions significantly devalued Mr. Bahgat’s investment. 34 While the award equally touched upon the purpose of the conservatory measures, the arbitrators gave deference to the proclaimed motives of the Egyptian authorities despite their doubts about the due course of the criminal proceedings. 35 Egypt was, however, found to have exceeded its police powers by imposing a disproportionate freezing order against the claimant’s companies without proper justification. 36 3.2 Irreversible effect of asset freezing and seizure Depending on the length of criminal proceedings, freezing and seizure orders can be in place for several years before the competent authorities decide to either forfeit the illicit assets or lift any restrictions on the disposal rights when a trial ends in acquittal, the illegal origin of assets is not proved, or confiscation becomes moot. As such instruments alone do not 27 Mohamed Abdel Raouf Bahgat v. Egypt , PCA Case No. 2012-07, Final Award, 23 December 2019, para. 143. 28 Ibid., para. 133. 29 Ibid., para. 145. 30 Ibid., para. 203. 31 Ibid., paras. 147–154. 32 Ibid., paras. 225 and 227.

33 Ibid., para. 228. 34 Ibid., para. 229. 35 Ibid., paras. 230–231. 36 Ibid., para. 232.

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