Arbitration Proceedings against Russia to protect the Investment lost in Crimea

By Sarthak Malhotra

A number of press reports suggest that PrivatBank (Dnipropetrovsk), the largest commercial bank in Ukraine, has decided to initiate arbitration proceedings against Russia in order to protect the investment that the bank allegedly lost due to the 2014 annexation of Crimea by the Russian Federation.

The Bank’s press service was quoted as saying:

PrivatBank jointly with Finilon finance company has initiated arbitration proceedings against the Russian Federation for the protection of the investment lost in Crimea. An arbitration court has been formed and will carry out the proceedings in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

The Bank also said that the proceedings will take place in the The Hague, Netherlands.

PrivatBank is led by Ihor Kolomoisky, a Ukrainian oligarch. There have been allegations that Kolomoisky provided funds to anti-separatist militias in eastern Ukraine.  Kolomisky was removed from the post of Governor of the key industrial region of Dnipropetrovsk in March, 2015 after  some armed men, associated with him, occupied the offices of a state owned oil firm in Kiev.

Kolomoisky had stopped the bank’s operations in Crimea from March and his remaining Crimea-based assets were to be nationalized and put for public auction. Kolomoisky once called Putin a “schizophrenic shorty” and “totally out of touch, completely crazy”.

Picture Credits:
Picture Credits:

PrivatBank was one of the first banks that was blocked in Crimea.  FZV (Depositor Protection Fund), the Crimean subsidiary of Russia’s bank deposit insurance fund took over the assets of PrivatBank and was compensating depositors, albeit, up to a  limit of about $20,000.

Russia and Ukraine signed a Bilateral Investment Treaty on 17th November, 1998 which came into force in 2000. This BIT was intended to develop the basic provisions of the Agreement On Cooperation in the Sphere of Investment Activity of December 24, 1993.

The BIT explains the scope of “investment” as:

 all kinds of property and intellectual values, which are put in by the investor of one Contracting Party on the territory of the other Contracting Party in conformity with the latter’s legislation  and in particular:

a) movable and immovable property and any other rights of property therein;

b) monetary funds and also securities, liabilities, deposits and other forms of participation;

c) rights to objects of intellectual property, including authors’ copyrights and related rights, trade marks, the rights to inventions, industrial samples, models and also technological processes and know-how;

d) rights to perform commercial activity, including rights to prospecting, development and exploitation of natural resources. 

Article 5 of the treaty deals with the issue of expropriation and states:

The investments of investors of either Contracting Party, carried out on the territory of the other Contracting Party, shall not be subject to expropriation, nationalization or other measures, equated by its consequences to expropriation (hereinafter referred to as expropriation), with the exception of cases, when such measures are not of a discriminatory nature and entail prompt, adequate and effective compensation.

Russia has issued a report stating that the tribunal does not have the jurisdiction to adjudicate this dispute. The Ministry of Justice stated:

Property that is the subject of the dispute is in the territory of the Republic of Crimea and Sevastopol, which were part of the Ukraine, and now, as a result of will of the people, are part of the Russian Federation. Corresponding relationships can not be governed by the agreement. ”
Note: The above has been translated using an online translation service

Another bank, Oschadbank is also planning to sue Russia for 15 billion hryvna($700 million) in compensation.

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