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Why the LCIA is more needed than ever

Graham Paul

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As much as the last-minute Brexit deal was hailed as a success in preventing the UK’s uncontrolled crashing out of the EU, the devil is in the details as many problems are only slowly becoming apparent over time. Case in point is the clause, included in the agreement, that Brussels can impose tariffs on London if EU lawmakers have reasonable cause to believe the UK is giving its firms an unfair advantage. While Boris Johnson has praised the deal as a guarantor of British sovereignty, the fact that London is forced to abide by European rules or face consequences will likely prove a point of ample friction in the future, writes Graham Paul.

It’s unclear how long the UK will be willing or able to adhere to this level-playing field principle. What is already evident, however, is that the resulting disputes will need confident and reliable international arbitration mechanisms accepted by both the EU and UK. While  London and Brussels have outlined plans to set up a separate body to enforce the Brexit agreement, cross-border disputes between private actors may move to forums such as the London Court of International Arbitration (LCIA) in order to avoid uncertainties linked to what the final shape of the enforcement regime will take post-Brexit. Thanks to its independence from any country’s legal system or government, international arbitration is likely to grow by leaps and bounds in the years to come.

Unfortunately, the LCIA has been suffering from populist headwinds in recent years that are aiming to undermine its authority and damage its international standing. In one particularly grievous instance, one of its judgements is being defied by the government of Djibouti in the dubious name of national sovereignty. While Djibouti is not the first nation to take the drastic step of questioning the authority of the LCIA – Russia famously refused to recognize the award in the politically fraught Yukos case – the fact that a small African country could get away with this could very well embolden others to follow suit.

The case in question began in 2018, when the government of Djibouti seized the Doraleh Container Terminal SA – a joint venture in Djibouti’s port of Doraleh between Dubai-based global port operator DP World and Djibouti – and unilaterally terminated DP World’s contract to run the terminal. In response, DP World filed claims with the LCIA, which shortly thereafter ruled against Djibouti, arguing that the port seizure was illegal and that DP World’s 30-year concession couldn’t be unilaterally ended.

Although the judgement should have definitively put the issue to an end, Djibouti has never recognized the ruling and has continued to refuse to do so ever since. So far, the LCIA has ruled six times in DP World’s favour all of which have been ignored by the Djibouti’s president Ismail Omar Guelleh on grounds that the arbitral award supposedly qualifies “the law of a sovereign State as illegal.” In a similar vein, a LCIA award of $533 million in compensation and unpaid royalties owed by Djibouti to DP World has gone unheeded for the same reason, with the country even asking its own Supreme Court to nullify the LCIA ruling.

Such behaviour doesn’t bode well for the LCIA’s ability to pull its weight in international affairs. Djibouti’s enforcing of domestic law over established international legal procedures on the flimsy justification of national sovereignty is setting a dangerous precedent.

However, if Djibouti’s breach of international legal practice already poses a serious challenge to international arbitration, a recent blunder the LCIA itself made risks being weaponized even further by other regimes looking for facile excuses not to honour the tribunal’s rulings. Indeed, as was revealed in December 2020, the LCIA became a bizarre example of a tribunal that admitted to making a mistake in the calculation of an award in an arbitration case, only to refuse to change the outcome of its ruling.

The case involved Mikhail Khabarov, a Russian businessman, who in 2015 had secured an option to acquire 30 percent in the Delovye Linii GK holding company for $60 million. However, when the deal fell through, Khabarov submitted a claim for damages to the LCIA, which had to calculate the exact amount of damages suffered by the Russian based on the difference between the actual value of the company’s 30 percent share and the option price of $60 million.

In January 2020, the LCIA awarded Khabarov a compensation of $58m – as it turned out, a vast over-valuation as a result of a “typo of miscalculation” that occurred when the LCIA panel in charge had added the value of historic tax liabilities, rather than subtracting it. With the actual value closer to $4m, the English High Court ordered the LCIA to correct the damage, which the arbitration court vehemently refused to do, arguing that the original amount was still in line with its intent to award a fair compensation to the claimant.

The latter case has sparked an entirely separate debate about the models used to calculate the damages in question, although the premise that damages should be paid – even after this clerical error – was never thrown into doubt. It is also widely accepted that errors such as these are a function of human fallibility in the face of vastly complex procedures. However, whereas corrective measures can be taken, it appears little can be done when an entire country refuses to implement a LCIA decision.

In that sense, there is little doubt that Djibouti’s utter disregard for the LCIA is a much greater threat to its credibility. In a norms-based international environment, the rejection of said norms is the first step towards triggering their collapse. If the LCIA’s influence is to be preserved, one must hope that no other country follows down this path. In times like these, an institution like the LCIA is needed as never before.

Agriculture

CAP: New report on fraud, corruption and misuse of EU agricultural funds must be wake up call

EU Reporter Correspondent

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MEPs working on protection of the EU's budget from the Greens/EFA group have just released a new report: "Where does the EU money go?", which looks at the misuse of European agricultural funds in Central and Eastern Europe. The report looks at systemic weakness in EU agricultural funds and maps out in clear terms, how EU funds contribute to fraud and corruption and undermining the rule of law in five EU countries: Bulgaria, Czechia, Hungary, Slovakia and Romania.
 
The report outlines up to date cases, including: Fraudulent claims and payments of EU agricultural subsidies Slovakia; the conflicts of interest around Czech Prime Minister's Agrofert company in Czechia; and state interference by the Fidesz government in Hungary. This report comes out as the EU institutions are in the process of negotiating the Common Agricultural Policy for the years 2021-27.
Viola von Cramon MEP, Greens/EFA member of the Budgetary Control Committee, comments:   "The evidence shows that EU agricultural funds are fuelling fraud, corruption and the rise of rich businessmen. Despite numerous investigations, scandals and protests, the Commission seems to be turning a blind eye to the rampant abuse of taxpayer's money and member states are doing little to address systematic issues. The Common Agricultural Policy simply isn't working. It provides the wrong incentives for how land is used, which damages the environment and harms local communities. The massive accumulation of land at the expense of the common good is not a sustainable model and it certainly shouldn't be financed from the EU's budget.
 
"We cannot continue to allow a situation where EU funds are causing such harm in so many countries. The Commission needs to act, it cannot bury its head in the sand. We need transparency on how and where EU money ends up, the disclosure of the ultimate owners of large agricultural companies and an end to conflicts of interest. The CAP must be reformed just so it works for people and the planet and is ultimately accountable to EU citizens. In the negotiations around the new CAP, the Parliament team must stand firm behind mandatory capping and transparency."

Mikuláš Peksa, Pirate Party MEP and Greens/EFA Member of the Budgetary Control Committee said:   “We have seen in my own country how EU agricultural funds are enriching an entire class of people all the way up to the Prime Minister. There is a systemic lack of transparency in the CAP, both during and after the distribution process. National paying agencies in CEE fail to use clear and objective criteria when selecting beneficiaries and are not publishing all the relevant information on where the money goes. When some data is disclosed, it is often deleted after the mandatory period of two years, making it almost impossible to control.
 
“Transparency, accountability and proper scrutiny are essential to building an agricultural system that works for all, instead of enriching a select few. Unfortunately, data on subsidy recipients are scattered over hundreds of registers, which are mostly not interoperable with the Commission’s fraud detection tools. Not only is it almost impossible for the Commission to identify corruption cases, but it is often unaware of who the final beneficiaries are and how much money they receive. In the ongoing negotiations for the new CAP period, we cannot allow the Member States to continue operating with this lack of transparency and EU oversight."

The report is available online here.

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Trillion euro GDP opportunity if Europe embraces digitalization, report reveals

Technology correspondent

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A new report, Digitalization: An opportunity for Europe, shows how increased digitalization of Europe’s services and value chains over the next six years could boost the European Union’s GDP per capita by 7.2% – equivalent to a €1 trillion increase in overall GDP. The report, commissioned by Vodafone and conducted by Deloitte, looks at the five key measures – connectivity, human capital, use of internet services, integration of digital technology and digital public services – that are measured by the European Commission’s Digital Economy and Society Index (DESI), and reveals that even modest improvements can have a big impact.

Using data1 from all 27 EU countries and the United Kingdom across 2014-2019, the report reveals that a 10% increase in the overall DESI score for a member state is associated with a 0.65% higher GDP per capita,assuming other key factors remain constant, such as labour, capital, government consumption and investment in the economy. However, if the digital allocation from the EU recovery package, particularly the Recovery and Resilience Facility (RRF), was concentrated in areas that could see all member states reach a DESI score of 90 by 2027 (the end of the EU’s budget cycle), GDP across the EU could increase by as much 7.2%.

Countries with lower GDP per capita in 2019 stand to be the biggest beneficiaries: if Greece were to raise its score from 31 in 2019 to 90 by 2027, this would increase GDP per capita by 18.7% GDP and productivity in the long term by 17.9%. In fact, a number of significant member states, including Italy, Romania, Hungary, Portugal and the Czech Republic would all see GDP rises of over 10%.

Vodafone Group External Affairs Group Director Joakim Reiter said: “Digital technology has been a lifeline for many over the last year, and this report provides concrete demonstration of how further digitalisation really is essential to repair our economies and societies following the pandemic. But it puts a clear onus on policy-makers to now make sure that the funds allocated by the Next Generation EU recovery instrument are used wisely, so that we can unlock these significant benefits for all citizens.

“This crisis has pushed the boundaries of what all of us thought was possible. Now is the time to have the courage and set a clear, high bar for how we rebuild our societies and fully leverage digital to that effect. DESI - and the call for “90 by 27” - provides such a robust and ambitious framework to drive concrete benefits of digitisation and should form an integral part of measuring the success of the EU reconstruction facility, and Europe’s Digital Decade ambitions more broadly.”

Digitalisation can enable economic and societal resilience not only when it comes to connectivity and new technologies, but also by driving the digital skills of citizens and the performance of public services. Previous studies have already established broadly positive links between digitalisation and economic indicators.

This new report goes one step further, and builds on an earlier Vodafone report, also produced by Deloitte, that also looks at the wider benefits of digitalization, which include:

  • Economic: An increase in GDP per capita between 0.6% and 18.7%, depending on the country; with the EU seeing an overall increase in GDP per capita of 7.2% by 2027;
  • Environmental: the more we use digital technologies, the greater the environmental benefits, from the reduction in paper use to more efficient cities and less use of fossil fuels – for example, using Vodafone’s Internet of Things (IoT) technology in vehicles can cut fuel consumption by 30%, saving an estimated 4.8million tonnes of CO2e last year;
  • Quality of life: innovations in eHealth can improve our personal wellbeing and smart city technologies support our health with lower emissions and mortality – rolling out eHealth solutions across the EU could prevent as many as 165,000 deaths a year, and;
  • Inclusivity: the digital ecosystem opens up opportunities to more members of society. As we invest in digital skills and tools, we can share the benefits of digitalization more equitably – for example, for every 1,000 new broadband users in rural areas, 80 new jobs are created.

Sam Blackie, partner and head of EMEA Economic Advisory, Deloitte, said: “The adoption of new technologies and digital platforms across the EU will create a strong foundation for economic growth, creating new opportunities for products and services and boosting productivity and efficiencies. Economies with low-levels of digital adoption stand to benefit considerably from digitisation, which will encourage further collaboration and innovation across Europe.”

In addition to commissioning this report, Vodafone has a number of initiatives, at both EU and member state levels, that will support the drive towards digitalization and the push for 90 for 27. Visit www.vodafone.com/EuropeConnected for more details.

Select Member States GDP and productivity increase if they reached 90 on the DESI by 2027:


NLIEESDECZPTHUITROGR
2019 DESI score63.65853.651.247.34742.341.636.535.1
% increase in GDP if country gets to 90 on DESI0.590.984.387.8110.0610.1611.4311.6516.4818.70
% increase in productivity if country gets to 90 on DESI4.706.307.708.6010.3010.5012.9013.3016.7017.90

The report utilises data from 27 EU countries and the United Kingdom across 2014-2019 to develop econometric analyses of the economic impacts of digitalisation, as measured by the DESI, on GDP per capita and on long-term productivity. This builds on approaches used in previous literature to study the impact of technology and digital infrastructure on economic indicators. For more information on the methodology, please see the technical annex of the report here.

About the DESI

The Digital Economy and Society Index (DESI) was created by the EU to monitor Europe's overall digital performance and track the progress of EU countries with respect to their digital competitiveness. It measures five important aspects of digitalization: connectivity, human capital (digital skills), use of internet services, integration of digital technology (focusing on businesses) and digital public services. EU and country scores are out of 100. DESI reports on digitalisation progress across the EU are published annually.

About Vodafone

Vodafone is a leading telecommunications company in Europe and Africa. Our purpose is to “connect for a better future” and our expertise and scale gives us a unique opportunity to drive positive change for society. Our networks keep family, friends, businesses and governments connected and – as COVID-19 has clearly demonstrated – we play a vital role in keeping economies running and the functioning of critical sectors like education and healthcare.  

Vodafone is the largest mobile and fixed network operator in Europe and a leading global IoT connectivity provider. Our M-Pesa technology platform in Africa enables over 45m people to benefit from access to mobile payments and financial services. We operate mobile and fixed networks in 21 countries and partner with mobile networks in 48 more. As of 31 December 2020, we had over 300m mobile customers, more than 27m fixed broadband customers, over 22m TV customers and we connected more than 118m IoT devices. 

We support diversity and inclusion through our maternity and parental leave policies, empowering women through connectivity and improving access to education and digital skills for women, girls, and society at large. We are respectful of all individuals, irrespective of race, ethnicity, disability, age, sexual orientation, gender identity, belief, culture or religion.

Vodafone is also taking significant steps to reduce our impact on our planet by reducing our greenhouse gas emissions by 50% by 2025 and becoming net zero by 2040, purchasing 100% of our electricity from renewable sources by 2025, and reusing, reselling or recycling 100% of our redundant network equipment.

For more information, please click here, follow us on Twitter or connect with us on LinkedIn.

About Deloitte

In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity.

Please click here for a detailed description of the legal structure of DTTL and its member firms.

1 Data sources include the World Bank, Eurostat, and the European Commission.

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Has Europe finally lost patience with its imported oligarchs?

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EU Foreign Policy Chief Josep Borrell’s disastrous trip to Russia in early February has cast a long shadow over the continent. It’s not the first time that a top European diplomat has failed to stand up to the Kremlin, but the humiliating scenes from Moscow—from Borrell’s conspicuous silence while Russian Foreign Minister Sergey Lavrov called the EU an “unreliable partner” to Borrell finding out via Twitter that Russia had expelled three European diplomats for attending demonstrations supporting opposition leader Alexei Navalny—seem to have struck a particular nerve among European policymakers.

Not only are calls multiplying for Borrell’s resignation, but the diplomatic dustup seems to have whetted European politicians’ appetite for new sanctions on Putin’s inner circle. Navalny himself laid out the blueprint for fresh sanctions before he was jailed, composing a target list of oligarchs. A number of the names under consideration, such as Chelsea FC owner Roman Abramovich, have long skirted Western scrutiny despite serious allegations against them and tight ties to Putin. Indeed, European policymakers have shown a remarkable tolerance for the business dons who’ve flocked to their shores—even as they have utterly failed to integrate into European societies, scorning Western court rulings and remaining in lockstep with the cronyist networks that prop up Putin’s regime. In the wake of the Navalny saga and Borrell’s catastrophic journey to Moscow, have Western lawmakers finally run out of patience?

New targets after Navalny affair

Russia’s relations with both the EU and the UK have come under increasing strain since Alexei Navalny was poisoned last August with the Soviet nerve agent Novichok, and have plunged to new lows in the wake of his arrest in January. Even before Borrell’s ill-fated trip, there was growing momentum for imposing fresh restrictions on Russia. The European Parliament voted 581-50 in late January to “significantly strengthen the EU’s restrictive measures vis-à-vis Russia”, while opposition MPs have challenged the UK government to draw up fresh sanctions. The pressure to take a tough line has reached a fever pitch after Borrell’s humiliation in Moscow, with even the Russian ambassador in London admitting that the Kremlin is expecting new sanctions from the EU and the UK.

Britain and the European Union already rolled out some sanctions last October, targeting six Russian officials and a state-run scientific research centre believed to have been involved in deploying the banned chemical weapon against Navalny. Now, however, Navalny and his allies are not only calling for a second wave of consequences but are advocating for a strategic shift regarding which pressure points the sanctions are aimed at.

Navalny believes that the oligarchs and ‘stoligarchs’ (state sponsored oligarchs like Arkady Rotenberg, who recently claimed that the opulent “Putin Palace” Navalny profiled in an exposé was actually his) whose funds freely move throughout Europe should be the target of fresh sanctions, rather than the mid-ranking intelligence officials who have historically shouldered the consequences. “The main question we should ask ourselves is why these people are poisoning, killing and fabricating elections,” Navalny told an EU hearing in November, “And the answer is very very simple: money. So the European Union should target the money and Russian oligarchs.”

A swipe at Putin’s regime, but also long-awaited retribution

The opposition leader’s allies, who have picked up the fight for fresh sanctions after Navalny was handed a two year and eight month jail sentence, have argued that personal sanctions against high-profile oligarchs with assets in the West could lead to “intra-elite conflicts” which would destabilise the network of wealthy allies that enables and legitimates Putin’s criminal behaviour.

Taking a tougher line on oligarchs with a chequered past, however, would have benefits above and beyond putting direct pressure on Putin’s administration. Just as Borrell stood by silently as Sergei Lavrov lambasted the European bloc he was supposed to represent, the West has sent a troubling message by rolling out the red carpet for oligarchs who have repeatedly tried to sidestep the European rule of law.

Just take the case of tycoon Farkhad Akhmedov. A close friend of Abramovich’s, Akhmedov was ordered by the British High Court to hand over 41.5% of his fortune—adding up to £453 million—to his ex-wife Tatiana, who has lived in the UK since 1994. The gas billionaire has not only refused to cough up the divorce payment, but has embarked on a no-holds-barred attack against the British legal system and has concocted what British judges described as elaborate schemes in order to evade the UK court decision.  

Akhmedov promptly declared that the London High Court decision was “worth as much as toilet paper” and suggested that the divorce judgment was part of a British conspiracy against Putin and Russia writ large—but he didn’t limit himself to inflammatory rhetoric questioning the integrity of the British judicial system. The controversial billionaire apparently enlisted his son, 27-year-old London trader Temur, to help him move and hide assets out of reach. Ahead of a court date to answer questions about the “gifts” his father showered him with, including a £29 million Hyde Park flat and £35 million to play the stock market, Temur fled the UK for Russia. His father, meanwhile, turned to a Dubai sharia law court—which did not recognise the Western legal principle of shared assets between spouses—in order to keep his £330 million superyacht safe from the UK High Court’s worldwide freezing order on his assets.

The extraordinary lengths to which Akhmedov apparently went to thwart the British justice system are sadly par for the course for the oligarchs who installed themselves in European capitals without adopting European values or leaving behind the complex cronyism on which they, and Putin’s regime, depend.

European policymakers have been slow to address this new breed of robber barons. Properly targeted, the next round of sanctions could kill two birds with one stone, ratcheting up pressure on Putin’s inner circle while also sending a message to tycoons who have long enjoyed their assets in the West with impunity.

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