Lone Star files investor state dispute lawsuit against S. Korea
SEOUL, Nov. 22 (Xinhua) — U.S. private equity firm Lone Star Funds filed investor state dispute (ISD) lawsuits against the South Korean government for losses related to its investment into the country’s No. 5 lender Korea Exchange Bank (KEB), the finance ministry said Thursday.
"On November 21, 2012 (USA time), Lone Star Funds brought a lawsuit to the International Center for Settlement of Investment Disputes, an international arbitration organization, arguing that Korea violated the Korea-Belgium-Luxembourg Investment Agreement," the Ministry of Strategy and Finance said in a joint press release with the Financial Services Commission (FSC), the country’s financial regulator.
This is the first time the South Korean government goes through the arbitration trials through the ISD mechanism that grants foreign investors the right to initiate dispute settlement proceedings against the government.
The Dallas-based private equity fund was reported to insist that the FSC’s delayed approval of the Lone Star’s KEB sale caused losses by driving down the sale prices. Earlier this year, Lone Star sold its 51 percent stake in the KEB to Hana Financial Group for around 4 trillion won.
The National Tax Service (NTS) levied a 10 percent withholding tax on the profits that Lone Star gained, but the U.S. private equity fund insisted that the tax should be exempted as the actual seller was its subsidiary in Belgium, with which South Korea singed a double-taxation avoidance treaty.
The finance ministry said that the South Korean government rejects Lone Star’s accusations regarding this dispute, noting that the government has been preparing for trial. It added that the government will pay full attention to the arbitration proceedings and will aggressively defend its self against Lone Star’s unjust accusations.