Laos Mum on Lawsuit

A foreign business group says the Lao government’s actions could destroy the country’s investment environment.

2012.08.23
botencasino-305.jpg Chinese men sit in front of a five-star hotel-casino in Boten, northern Laos, March 11, 2011.
AFP

The Lao government is largely tightlipped over a lawsuit filed against it by a China-based investment company which claims it was bilked out of hundreds of millions of dollars when its holdings were seized by authorities in the Southeast Asian state.

Sanum Investments Ltd. last week filed a suit through the World Bank’s International Center for the Settlement of Investment Disputes, alleging that the Lao government had broken international treaties it signed promising to protect foreign investment by “the illegal taking of a U.S. $400 million investment.”

Sanum, a partner in and manager of several hotel and casino projects throughout Laos, initially invested U.S. $85 million in the country five years ago, but said that the Lao government began to strip it of its projects once they began to generate substantial revenue by canceling relevant contracts and levying retroactive taxes.

The company alleges that its investment in Laos is worth at least U.S. $400 million.

But while Sanum said that the Lao government had recently been served with the lawsuit, government officials when contacted by Radio Free Asia’s Lao service refused to comment on the case.

An official from the Lao Ministry of Planning and Investment, speaking on condition of anonymity, finally told RFA that the ministry was unaware of the company’s claims.

“It isn’t clear because we here [at the Ministry of Planning and Investment] haven’t received any documents in detail from the government,” the official said.

“I can't give you any information because we don't know what [Sanum Investment] intends to do. We don't understand their reasoning either,” he said.

“We have a policy not to respond yet. The other side can say what they want to say—let them say it. On this side we will not say anything.”

Jody Jordahl, the president of Sanum Investments, told RFA from Hong Kong that his company had good ties with the Lao government at both the national and provincial levels when it initially invested in the country, but that the relationship had begun to sour about a year and a half ago.

“I think it’s a simple case of greed clouding the judgment. Sanum invested over U.S. $85 million in Laos because it was given assurances by all levels of government, including the former prime minister, that the rule of law was fairly and fully enforced within the country,” he said.

“And while our initial experience the first few years was very positive, once our projects began to make money, and the government and our minority partners saw the revenue that was generated, the decision was made to strip us of those projects.”

Accusations

Jordahl said his company had trained some 5,000 Laotians since it first entered the country and currently employs more than 2,000 domestic staff.

But despite a sizable commitment to the country, Jordahl said the government used its judicial branch and tax authorities to allow a well-connected Lao family and their entities to seize control of Sanum’s prize asset, the Thanaleng Slot Machine Club, which is located close to the capital Vientiane near the Lao-Thai “Friendship Bridge No. 1.”

He said that Lao Holdings is losing U.S. $1.8 million every month that the takeover is allowed to continue.

Jordahl also claims that the Lao government has retroactively imposed more than U.S. $23 million in taxes and penalties for years upon Sanum’s businesses, despite written agreements to the contrary, and threatened to use those tax claims as a reason to seize and auction off the company’s investments.

He said the government also forced Sanum to go to trial in a multimillion dollar lawsuit brought by a local business partner on a 48-hour notice and had a Lao court impose a U.S. $5 million fine against the company, which it began to impose before the hearing was over and the result announced.

He accused the government of arbitrarily revoking licenses and concessions for projects worth hundreds of millions of dollars, without providing compensation.

“At this point, we have one remaining project currently operating in the country and that is under the constant threat of closure for the retroactive taxes—clearly improper taxes that the government is levying against us,” he said.

Seeking resolution

He said that since the dispute began, Sanum had “explored every opportunity to negotiate a settlement within the country that we possibly could.”

“We’ve done nonbinding mediation, we’ve gone through the Office of Economic Dispute Resolution, we’ve gone through the courts, and we’ve gone even to the National Assembly and we have not gotten anywhere … we are continuously treated unfairly.”

Jordahl said that his company only contacted the World Bank within the last few weeks because Sanum had hoped to resolve the problem through the Lao legal system.

“The Lao government has signed international agreements where they agreed to be held accountable to decisions handed down in international arbitration forums such as the World Bank,” he said.

“The process is proceeding. I know that the government has been formally served with the petitions, but at this point we have not heard anything from the government,” he said, adding that he was still hopeful that Vientiane would honor its contractual and international agreements to “rectify the position that it has put us in.”

Jordahl said that he would only ask that the Lao government follow its own rules and regulations and enforce the rule of law equally to both foreign and domestic investors.

“We’ve invested over U.S. $85 million and have very little to show for it. Quite simply put, it’s not the way that a country acts if it truly wants to join the international community,” he said.

“It could have very negative long-term consequences for the country of Laos and could potentially cripple its economic growth.”

Laos is a member of the Association of Southeast Asian Nations (ASEAN) that seeks to promote economic growth across the region,and Jordahl said that the government’s actions could send a negative signal to the foreign investment community.

“I think that this is a very topical issue right now, especially as Laos moves closer to World Trade Organization (WTO) accession and as more people look to Southeast Asia as a whole for investments. It should certainly serve as a warning sign,” he said.

“If the government cannot be trusted to honor its obligations, or perform its contractual obligations, then it’s not a safe environment for foreign investors.”

Reported by Bounchanh Mouangkham of RFA’s Lao service. Translated by Bounchanh Mouangkham and Max Avary. Written in English by Joshua Lipes.

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