CYIL vol. 14 (2023)

CYIL 14 (2023) ASSET FREEZING IN INVESTMENT ARBITRATION: LESSONS LEARNED … financial institution by the Kyrgyz Republic at a time of domestic unrest. 43 During parallel criminal investigation for money laundering, the Kyrgyz National Bank issued a decree by which it suspended the board and managing body of Manas Bank and placed it under State administration and later sequestration. 44 While Kyrgyz law set maximum time limits for such restrictive measures, the regime was repeatedly extended beyond these boundaries. 45 In the absence of any genuine public purpose for the administrative control, the tribunal pointed to the adverse impact of sequestration on bank’s profitability and derived that such measures constituted indirect expropriation of the claimant’s investment. 46 3.3 Proportionality of freezing and seizure orders The last factor in the analysis of expropriatory effects of freezing and seizure orders issued in the course of criminal proceedings is related to the proportionality of such decisions to the pursued goal. On the domestic level, the proportionality of similar interference with property rights is measured both against its duration and scope. 47 In general, the standard of proof grows more stringent as the investigation proceeds and the illicit origin of the frozen assets is expected to be supported by adequate evidence. 48 If such evidence remains vague at advanced stages of the proceedings, further extension of asset freezing or their seizure is unwarranted. With the evidentiary material gradually piling up, the law enforcement authorities are also required to specify the material harm caused by the prosecuted criminal offense and adjust the scope of blocked assets to the alleged damage. In essence, the value of frozen or seized assets should not exceed the material harm resulting from the committed crime or deprive the affected persons of necessary means to finance their basic needs. These principles apply even to orders adopted for the purpose of securing the compensation of victims or payment of criminal penalties. Whenever the criminal authorities reach a conclusion that the blocking is disproportionate, the scope of freezing and seizure orders must be narrowed down. Disproportionality of seizure orders was one of the grievances invoked by the Russian investors in an undisclosed dispute with Mongolia related to its 2006 scheme which had introduced a windfall tax of 68% on gold sales above 500 USD an ounce due to public pressure for a greater share of revenues. 49 During the arbitral proceedings, the claimants requested an interim injunction by the tribunal to order the Mongolian Ministry of Justice to refrain from remitting windfalls payments to the government. 50 While the tribunal granted the relief and ordered the claimants to make payments into an escrow account or provide a bank guarantee until the final outcome of the arbitration, it did not find that the new tax regime amounted to expropriation, either in a direct or indirect form. 51 Noting that the respondent had complied with the order on provisional measures whereas the claimants had 43 Valeri Belokon v. Kyrgyz Republic , UNCITRAL, Award, 24 October 2014, paras. 57 and 66. 44 Ibid., paras. 68, 108 and 112. 45 Ibid., para. 117. 46 Ibid., paras. 207–210. 47 IVORY, R. (2014). Corruption, Asset Recovery, and The Protection of Property in Public International Law: The Human Rights of Bad Guys (Cambridge: Cambridge University Press), pp. 223–228 and 255–257. 48 BRUN et al. (n 8), pp. 60–61. 49 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia , UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011 (“ Paushok v. Mongolia ”), para. 104. 50 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia , UNCITRAL, Order on Interim Measures, 2 September 2008, paras. 11–12. 51 Paushok v. Mongolia (n 49), paras. 336–337.

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