In a rare development, Argentina has asked the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) to reopen the arbitration proceeding with Siemens. Argentina wants arbitrators to examine new evidence that a disputed informatics services contract may have been secured by means of bribery.

In the late-1990s, the administration of Argentine president Carlos Menem agreed a deal with Siemens’ to develop a national identification and immigration control system for the Argentine government, including the production and distribution of national identity cards for Argentine residents.

Advertisement

However, following the country’s elections, new president Fernando de La Rua cancelled the contract, citing the high costs to the public treasury, and certain “irregularities” and “suspicions of bribery”.

Siemens turned to arbitration in an effort to recoup its losses and in 2007, a panel ruled that the contract was unjustly terminated. The Argentine government was held liable for expropriating Siemens’ investments, contrary to the terms of an investment protection treaty in place between Argentina and Germany. Argentina was ordered to pay Siemens $217m for its cancelled contract and to release a $20m performance bond it was holding.

Now, as a series of bribery investigations have engulfed the German conglomerate, the Argentine government is crying foul. Earlier this year, in the German courts, a former Siemens executive testified that the company’s contract with Argentina was procured by means of bribery. Following media reports of such testimony, Argentina returned to the World Bank, and filed a formal request for arbitrators to revise the arbitration award.

Specifically, Argentina alleges that Siemens’ investment was procured through corruption, meaning that it would not deserve protection under the Germany-Argentina investment treaty. Argentina is looking for a complete reversal of the earlier arbitration ruling, and compensation for the legal costs incurred in the earlier defence of Siemens’s lawsuit.

In recent years, several major arbitration rulings have been handed down at the World Bank’s ICSID, in cases where fraud or corruption on the part of foreign investors has served to undermine lawsuits filed by those investors against their host countries.

In legal arguments filed with the World Bank, Argentina points to a 2006 ruling in a dispute between a Spanish firm and the government of El Salvador, where fraud on the part of the investor led to an arbitration panel ruling that it had no jurisdiction to hear a claim brought by the investors against El Salvador.

In addition, lawyers for the government are citing an arbitration claim against the Kenyan government, which was thrown out of arbitration after an admission by the investor that he had personally made a payment of $1m in cash to former president Daniel Arap Moi.

It could take the better part of a year before arbitrators rule on Argentina’s effort to overturn the arbitration award issued in favour of Siemens. To date, Siemens has denied any wrongdoing in relation to the procurement of the disputed contract with Argentina.

Luke Eric Peterson is the editor of Investment Arbitration Reporter www.iareporter.com a legal news, analysis and intelligence service.