Government Saves 400 Billion Won in Compensation Liabilities
The government announced on Nov. 18 that it won the annulment application case filed in objection to the International Investment Dispute Settlement (ISDS) arbitration ruling related to the sale of Korea Exchange Bank by foreign private equity fund Lone Star. The government also decided to recover the full amount of legal costs it incurred during the annulment process from Lone Star. This marks the end of the prolonged dispute with Lone Star that lasted over 20 years, concluding with a victory for the Republic of Korea government.
Prime Minister Kim Min-seok said in a briefing at the Government Complex Seoul, “The government today received a ruling in favor of the Republic of Korea from the Lone Star ISDS Annulment Committee of the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C.”
Kim explained, “The Annulment Committee canceled all payment obligations for the principal amount of $216.5 million in compensation to Lone Star and interest thereon that the government was required to pay under the arbitration ruling dated Aug. 30, 2022.” This retroactively extinguished the government’s compensation liability of approximately 400 billion won based on current exchange rates that was recognized in the previous ruling. The Korean government achieved the best possible outcome of zero compensation after waging an all-out battle to prevent treasury outflow.
Kim also conveyed, “The government also received a recovery decision from the Annulment Committee stating ‘Lone Star shall pay the Korean government approximately 7.3 billion won in total legal costs incurred during the annulment proceedings within 30 days.’” He added, “This is a significant achievement in protecting national finances and citizens’ tax money, and represents recognition of the Republic of Korea’s financial supervisory sovereignty,” evaluating it as “the result of active litigation response by relevant government departments centered on the Ministry of Justice.”
Previously, Lone Star acquired a 51.02% stake in Korea Exchange Bank, which was experiencing management difficulties during the 1997 foreign exchange crisis, for 1.383 trillion won in August 2003. Subsequently, controversy arose over the low-price sale of Korea Exchange Bank, leading to continued Board of Audit and Inspection audits and prosecution investigations, while Lone Star pursued the resale of Korea Exchange Bank.
Lone Star signed a sale contract worth approximately 5.9 trillion won with Hong Kong and Shanghai Banking Corp. (HSBC) in 2007, but the sale fell through when HSBC abandoned the acquisition of Korea Exchange Bank due to delays in approval from the Korean government. Lone Star proceeded with the sale of Korea Exchange Bank again, transferring it to Hana Financial Group for 3.915 trillion won in 2012.
In this process, Lone Star filed an ISDS worth $4.6795 billion (6.259 trillion won based on exchange rates at the time) in December 2012, claiming damages from unfair intervention by the Korean government. The claim was that government intervention caused them to lose the opportunity to sell at a higher price and forced them to lower the price. This was the first ISDS filed against the Korean government.
After prolonged international litigation, ICSID declared the end of arbitration proceedings in June 2022, 3,508 days after the lawsuit was filed and shortly after the inauguration of the Yoon Seok Youl government. Subsequently, in August of the same year, it ruled that the Korean government should pay $216.5 million (approximately 280 billion won, based on an exchange rate of 1,300 won), equivalent to 4.6% of the damages claimed by Lone Star. Later, the arbitration tribunal accepted the Korean government’s correction application claiming the compensation amount was miscalculated, and the compensation was corrected to $216,018,682.
However, Lone Star filed an annulment application in July of the following year, claiming the compensation amount was insufficient, and the Korean government also filed an annulment application along with a stay of execution application two months later, citing the tribunal’s excess of authority and serious violations of procedural rules.
With ICSID ruling in favor of the Korean government on Nov. 18 after receiving annulment applications from both sides, the international litigation between Lone Star and the Korean government concluded after 13 years. Complete annulment of ICSID rulings is extremely rare. According to ICSID, out of 503 total rulings from 1972 to 2025, only 25 cases had their annulment applications accepted. Among these, only 8 cases were completely annulled. The probability of victory was merely 1.6%.
Jung Hong-sik, director of the International Legal Affairs Bureau of the Ministry of Justice, who conducted the arbitration proceedings, explained, “What was most effective (in the victory process) was that significant violations of due process occurred during the arbitration proceedings, which can be seen as the decisive factor for the Annulment Committee to accept the Korean government’s annulment application.”
Minister of Justice Jung Seong-ho said, “In January, with the President and the (Ministry of Justice) minister absent, they did their best on their own to go to ICSID and conduct oral arguments, and it seems these efforts combined to produce good results this time.” The government plans to analyze the decision document once received from ICSID and report to the people again.
The Presidential Office expressed welcome regarding the government’s victory ruling. Presidential Office Spokesperson Kang Yu-jeong stated, “The error in the previous arbitration ruling that recognized the government’s compensation liability despite no illegal acts by the government regarding the sale of Korea Exchange Bank has been corrected,” adding, “This means the Republic of Korea government’s compensation liability to Lone Star was never established from the beginning.”