czech mate expropriation and investor protection in a.pdf

Czech Mate: Expropriation and Investor Protection in a Converging World Mihir A. Desai Harvard University and NBER Alberto Moel Monitor Corporate Finance, Monitor Group December 2004 Abstract This paper examines the expropriation of a foreign investor by a local partner and the subsequent resolution of that case through international arbitration. Ronald Lauder, a U.S. investor, created a media holding company for investments in Eastern Europe that included a once-successful joint venture with Vladimir Zelezny in the Czech Republic. Despite Lauder’s 99% interest in the underlying Czech entity, Zelezny managed to divert the value of the underlying entity for his personal benefit. Subsequent to the expropriation, Lauder employed international agreements and tribunals to recoup 354.9 million USD from the Czech Republic. This clinical examination of an expropriation and its aftermath illustrates how ownership shares can be of secondary importance in determining control, how corporate control is shaped by geography, and how differential access to investor protections in global capital markets can contribute to the persistence of differences, rather than convergence, in investor protections. JEL Classifications: F21, F23, F36, F42, G15 Keywords: Investor Protection, Bilateral Investment Treaties, Diversion, Multinational Firms Kathleen Luchs, Stephen Marks and Hardy Tey provided excellent research assistance. The authors thank Sasha Greenawalt and Michael Ostrove of Debevoise Plimpton, Petr Panek of White Case, and Milan Smid of Charles University for help in understanding the Czech legal and regulatory environment; and Dan Bergstresser, John