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A business conglomerate, now infamous for allegedly siphoning billion of dollars from Bangladesh, has issued a threat to the country's central bank governor, indicating its intention to initiate international arbitration procedures against Bangladesh. This development, stemming from the governor's public disclosure that the conglomerate, S Alam group, allegedly transferred a staggering Tk 1.2 trillion (approximately $10 billion) from Bangladeshi banks to other countries during the tenure of ousted former prime minister Sheikh Hasina, has notable implications for the nation's economy. The news, as reported by the Financial Times, also revealed that the group's owners were seeking to protect their investments as Singaporean under the 1980 Bangladeshi law on foreign private investment. They have further warned of their readiness to invoke the International Centre for Settlement of Investment Disputes (ICSID) to safeguard their investments.
The S Alam group's claim for investment protection is a significant development. As one of the key beneficiaries of the ousted Hasina regime, the group's chairman, along with his wife and three sons, renounced their Bangladeshi citizenship in 2022 and were immediately granted permanent residency in that country. This move, necessitated by Singapore's citizenship law that does not allow dual citizenship, raises questions about the timing of their Singaporean citizenship acquisition. Now, they are seeking investment protection as foreign investors, a move that could have far-reaching implications.
All the investments made by S Alam, chairman, and his four family members, who are also the directors of the conglomerate, before availing themselves of Singapore citizenship were Bangladesh citizens. So, those investments are not FDI from Singapore, and there is no scope to claim protection as foreign investors. It is also important to know how much investment they made after becoming Singaporean citizens.
Statistics available from Bangladesh Bank showed that the net inflow of FDI from Singapore to Bangladesh dropped to US$169.81 million in 2023 from $269.93 million in 2022. The highest amount of FDI from the island country was recorded at $573.05 million in 2016. The stock of FDI from Singapore to Bangladesh stood at $1558.23 million at the end of last year. As the investors' details are not publicly available, the central bank now needs to clarify whether S Alam made any investment as FDI from Singapore or not.
It is also possible that there was a good amount of round-tripping of FDI in the country. The round-tripping of FDI is the flow of domestic funds channelled back into the local economy through direct investment using offshore hubs. In other words, money siphoned or stashed away from Bangladesh to any other country and then brought back as FDI from tax havens is known as round-tripping. It is not easy to detect and estimate it. Nevertheless, through a rigorous exercise, it is possible to identify the round-tripping in some particular cases including S Alam's.
As S Alam wanted to drag Bangladesh into an investor-State dispute, it had to do so by invoking the Bangladesh-Singapore Bilateral Investment Treaty (BIT). The treaty, signed in 2004, outlines the legal provisions to do so in Article 7 of the treaty. It said that any dispute "shall, as far as possible, be settled amicably through negotiations between the parties to the dispute." It is the first step to resolve the dispute, where the parties must move through negotiations or consultations. If the parties fail to resolve the dispute through consultation, they can go for arbitration by the ICSID, as per Paragrah-2 of Article 7 of the treaty.
As the BIT was signed two decades ago, it clearly favoured the investor at the expense of the host state, and that was the trend at that time. Experts observed that BITs often provided for 'disproportionate protection of investors and deprived the host states of some of the fundamental rights'. These include the protection of health, the environment and national treasures. Moreover, in several dispute settlement lawsuits, big amounts of compensation for damages were imposed against developing countries. After facing such backlash by foreign investors, developing countries have recently started revising the BITs to make these balanced. India is one of the leading nations in this connection.
Bangladesh has signed 34 BITs so far. Two were terminated, and seven are still not enforced. The country signed its first BIT with the United Kingdom (UK) in 1980 and the last one with Kuwait in 2016. The country also faced eight lawsuits by foreign investors at ICSID of the World Bank Group, all of which were in the power and energy sector. Of these, three are still pending.
Investor-State Dispute Settlement (ISDS) is costly for states, especially for developing nations like Bangladesh. In many cases, foreign investors can deploy highly qualified and experienced lawyers on their behalf, which is difficult for developing nations. Lack of understanding of the significance of BITs is another problem for the states as these were designed skilfully to favour international investors. The vague and broad language of BITs put the developing nations in trouble as many of arbitration awards by the arbitration tribunals went against the host states. Some analysts also argued that in many cases, arbitration tribunals' treated sovereign regulatory measures of host states as breaches of BITs.' Moreover, some of these 'awards imposed on the host states large amounts of damages.'
The S Alam group's threat to involve Bangladesh in an Investor-State dispute serves as a warning for the country to re-evaluate its BITs. This threat could potentially pave the way for other foreign investors to follow suit, especially if the government is compelled to re-examine major foreign investment projects in the public sector. Notably, investments from China and India have seen a significant increase in the past decade, with allegations that the Hasina regime awarded contracts in violation of various laws and in exchange for bribes.