Reproduced from www.worldbank.org/icsid with permission of ICSID.
I. INTRODUCTION AND SUMMARY
II. STATEMENT OF FACTS
A. The Claimant
B. KML's founder and manager
C. KML's seven years ofoperations in Peru
a. Growth of KML
b. KML's business
c. KML's business at the time of the damages caused by Peru
d. KML's inventory of gold (seized by Peru)
e. KML's going concern enterprise
D. Peru's measures
a. Initial seizing (temporary immobilization) of KML's gold
b. Subsequent supervening investigations mentioning KML
c. Statements against KML
d. Arbitrary and unreasonable extension of the seizing (temporary immobilization) of KML's gold
A. Ratione Personae: KML is a protected investor under the TPA
B. Ratione Materia: KML's claims arise out of its investments that are protected by the TPA
C. Ratione Temporis: Peru and KML have consented to arbitration under the TPA and the ICSID Convention
D. KML has fulfilled the TPA's requirements to initiate arbitration
E. KML has complied with the TPA's requirements to submit its claims to arbitration after negotiations with Peru failed
IV. LEGAL BASIS FOR KML's CLAIMS
A. The law applicable to the dispute
B. Peru failed to accord fair and equitable treatment to KML
a. Peru has permanently deprived KML of its property without due process of law
b. Peru failed to provide KML with fair and equitable treatment by holding a prosecutorial sword of Damocles over KML' head
c. Peru denied KML fair and equitable treatment by treating similarly-situated investors differently in judicial proceedings
d. Peru denied KML fair and equitable treatment by treating domestic (Peruvian) purchasers of gold differently from foreign purchasers
e. Peru's refusal to engage in discussions with KML following receipt of the notice of dispute represents a denial of fair and equitable treatment
C. Peru's actions and omissions constitute an indirect expropriation of KML's assets, as well as its business enterprise
a. The concept of indirect expropriation
b. Peru's measures constitute an indirect expropriation of KML's gold assets (inventory)
c. Peru's measures constitute an indirect expropriation of a going concern enterprise
A. Overview and summary
B. The applicable standard of compensation
C. Three main heads of damage
a. Lost profits caused by Peru
b. Gold inventory indirectly expropriated by Peru
c. Expropriation of KML as a going concern enterprise
D. Taxation and grossed-up damages
E. Interest on the compensation awarded
a. Pre-award compound interest
b. Post-award compound interest
F. Costs and expeses associated with this proceeding
VI. REQUEST FOR RELIEF
Claimant Kaloti Metals & Logistics, LLC (the Claimant or KML) submits this Memorial in support of its claims against the Republic of Peru (Respondent or Peru) in this arbitration proceeding administered by the International Centre for Settlement of Investment Disputes (ICSID), pursuant to Procedural Order No. 1, issued by the Arbitral Tribunal on October 28, 2021.
I. INTRODUCTION AND SUMMARY
1. This case is not about whether the gold industry has a "shady" underside--it does.
This case is not about whether the gold industry is susceptible to money laundering--it is.
Nor is this case about whether a country has a right to take reasonable, proportionate, and temporary measures against a company pending a decision to charge, in accordance with due process of law.
2. Here, the legally relevant question is whether Peru violated international law by prolonging the temporary seizure of Claimant's property, placing KML in legal limbo by not charging it with any crimes or making it indirectly subject to a pseudo trial for close to eight years, while denying it the opportunity to challenge the ongoing seizures--all the while ruining Claimant's reputation in Peru and abroad, choking KML's business, and eventually running it into the ground. And the answer to this question is "yes."
3. Kaloti Metals & Logistics, LLC is a gold processing and trading company, based in Miami, Florida. From its roots in the United States of America, Claimant expanded into the Latin American market, and into Peru in particular. As an attractive, stable market, Peru was a logical choice for a company looking to grow its business while keeping its investment risk low. KML began buying gold in Peru and selling it to overseas buyers at a small profit margin. Although it maintained a relatively small footprint, KML established a highly lucrative business model, allowing it to grow from US$ 800,815,532.00 in turnover in sales revenue in its first year of operation in Peru, to US$ 1,332,970,387.00 in its second year.
4. Beginning in 2013, the Peruvian customs authority, Superintendencia Nacional de Aduanas y de Administración Tributaria (SUNAT), began seizing some of Claimant's gold assets it had purchased in Peru, which were being prepared for export to foreign purchasers at the time of the seizures. In total, SUNAT seized five shipments reaching a sum of US$ 26,099,826.00 (at February 2022 market prices). While, SUNAT initially characterized those seizures as being "temporary immobilizations," they were anything but. For close to eight years, SUNAT consistently refused to return Claimant's gold, citing criminal investigations and proceedings against certain gold suppliers in Peru as the reason for its continued holding of Claimant's property. However, Peru was unable to articulate a rational connection between the suppliers being investigated and KML; nor was Claimant able to have its day in court. When KML attempted to intervene and assert its property rights in the underlying criminal proceedings, a Peruvian court denied Claimant's application on the ground that it was not a party to the proceeding--a perfect Catch-22.
Peru has thus kept Claimant locked in a legal black box, without any indication of when-- if ever--Claimant's exile to a legal "No Man's Land" will end.
5. Peru's actions had significant consequences on KML's ability to continue expanding and growing its business in Peru. Reputation is a key currency in business, and when SUNAT seized Claimant's gold and began feeding baseless rumors to the press about KML being involved in money laundering, it torpedoed the relationships of trust that Claimant had developed with its sellers and buyers, permanently crippling KML. It cast a sinister cloud of doubt over KML, injected considerable uncertainty into KML's operations, and saddled the Claimant with an enormous debt, the financing of which eventually drove KML into the ground.
6. A natural question for the Tribunal to ask is--why? Why did Peru do this? What motivated its actions? The answer is not clear. It could be that SUNAT allowed itself to be influenced against KML--a foreign investor--by domestic companies who did not like that KML was undercutting them in the gold market by offering lower prices. It could be that SUNAT was overly aggressive in seizing KML's assets, and then could not think of an appropriate way to return Claimant's property without facing embarrassment. It is also possible that this is the result of irrational bureaucratic contortions, but unmotivated by any sinister intentions. The lack of an answer to this question highlights a central problem in this case, and one that KML asks the Tribunal to keep in mind at all times: Peru's lack of transparency. This negligent omission has led to a devastating information asymmetry, with Peru knowing everything about its actions and intentions, while Claimant has been left to feel around in the dark as best it could.
7. This lack of transparency--and the uncertainty that it created--is what ultimately destroyed KML's operations in Peru. Predictability and stability are the key requirements of any successful investment, and it is precisely these that Peru wiped out from under Claimant's feet. How could Claimant persuade its foreign buyers to do business with it, when it could not guarantee that a customer's shipment of gold would not be seized by SUNAT--as had happened on five occasions--just as it was getting ready for export? How could Claimant clear its name that had been tarnished by reporting journalists, when the State affirmatively denied KML judicial recourse to reclaim its property? How could KML keep servicing its debt for the seized gold when it had no idea when--or if--it would ever recover that gold?
8. The actions and omissions of Peru in (1) not concluding investigations in a timely manner; (2) arbitrarily mentioning KML in general, supervening anti-money laundering investigations; and (3) targeting the financial resources and reputation of KML, caused KML to incur: lost profits, the indirect expropriation of its gold, and the indirect expropriation of its entire enterprise as a going concern business. Peru breached its TPA with the United States through violations that became actionable when their economic effects (damages to KML) were incurred and became irreversible on November 30, 2018.
9. During the course of these proceedings, Peru and its first-rate lawyers will no-doubt give a careful, detailed explanation of the State's position. They will submit meticulously crafted submissions, witness statements, expert reports, and documents justifying the State's actions. Claimant asks the Tribunal to remember, however, that no such explanations or justifications were ever given to KML during the eight-year period following the first seizure of Claimant's gold. Peru's lack of transparency also means that there are gaps in the story that Claimant is unable to tell. This should not be held against KML.
10. International investment law has grown in sophistication over the past few decades, and international investment arbitration has proliferated during that same period.
Allegations of State violations have become ever-more creative, aggressive, and nuanced.
Many claims are hyper-technical; some are quite fantastical. This case, however, brings the Tribunal back to the essence of investment protection: an obligation to respect investors' property, and a duty to give them due process and access to justice. Peru failed to provide these two bedrock, foundational protections, and KML is therefore entitled to compensation as a result.
VI. REQUEST FOR RELIEF
234. For the foregoing reasons, the Claimant respectfully requests that the Tribunal render an award in favor of Kaloti Metals & Logistics, LLC:
a. Upholding the claims asserted by Claimant in this proceeding;
b. Determining that Peru breached the TPA:
i. By failing to accord fair and equitable treatment to the Claimant's investments; by taking arbitrary or discriminatory measures that impaired the use and enjoyment of the Claimant's investments; by failing to accord to those investments the same treatment that it provided to nationals or companies of Peru, or third States;
ii. By wrongfully expropriating the Claimant's gold without complying with the requirements of the Treaty, including nondiscrimination and payment of prompt, adequate and effective compensation; and
iii. By wrongfully expropriating the Claimant's going concern enterprise business without complying with the requirements of the Treaty, including nondiscrimination and payment of prompt, adequate and effective compensation.
c. Determining that such breaches have caused damages incurred by the Claimant;
d. Ordering Peru to pay to the Claimant full reparation in accordance with the TPA and customary international law, including:
i. Compensation for damages sustained as a result of the discriminatory, unfair and unequitable treatment; the expropriation of gold; and the expropriation of the enterprise, in an amount to be established in the proceeding;
ii. Compound interest thereon (both pre-award and post-award) in accordance with applicable law;
iii. Determining that the Claimant shall be protected from taxation of such compensation, in the manner specified in this memorial;
iv. Ordering Peru to pay all costs and expenses of this arbitration proceeding, including the fees and expenses of the tribunal, and the cost of legal representation (counsel's fees), plus interest thereon in accordance with applicable law; and
v. Such other or additional relief as may be appropriate under the applicable law or may otherwise be just and proper.
Ramón A. Azpúrua-Núñez
Mikel Del Valle
848 Brickell Ave, suite 1000
Miami, FL 33131
Counsel for the Claimant
Follows: Appendix A.