September 12, 2012
By Rachel Vandenbrink
A China-based company says authorities in Laos are poised to seize its casino—its last remaining asset in the country—after it sued the government for allegedly breaking treaties protecting foreign investment.
Sanum Investments Ltd. said it has learned that the government will take over the Savan Vegas casino and entertainment complex in southern Laos’s Savannakhet province if it refuses to pay millions of dollars in back taxes the company says it does not owe.
“We’ve learned that the Ministry of Finance and the Department of Tax are moving to close down the Savan Vegas integrated resort, which is the last project we have operational in the country. Everything else has been stripped from us already,” Sanum’s president Jody Jordahl told RFA’s Lao service Tuesday.
He said the two agencies had recently filed a request with a commercial court to force Sanum, which has been a partner in several hotel and casino projects throughout Laos, to pay over U.S. $23 million in retroactive taxes that are “clearly incorrect.”
Authorities will first close the casino for 30 days and if Sanum still has not paid at the end of that time, the two agencies will be allowed to seize the luxury entertainment site and liquidate it to pay the “improper” taxes, he said.
The company has until Sept. 17 to respond to the filing in the commercial court, but has heard from contacts among officials that the seizure of the casino is imminent.
“We had heard through some of our connections within the government that the seizure was going to happen this [past] weekend, and thankfully it didn’t. But we are still under the constant threat of closure and it’s getting more and more heated every day,” Jordahl said.
Lao officials contacted by RFA refused to comment on the casino, but an official from the Lao Ministry of Planning and Investment, speaking on condition of anonymity, had told RFA last month that its policy is not to make any response yet about the company.
“The other side can say what they want to say—let them say it. On this side we will not say anything.”
The threat of the casino’s seizure comes a month after Sanum filed a lawsuit against the Lao government with the World Bank’s International Centre for the Settlement of Investment Disputes alleging that the government had broken international treaties it signed promising to protect foreign investment.
The lawsuit said Laos violated multiple treaties in imposing the U.S. $23 million in back taxes and penalties, which went back on written promises and agreements, and in threatening to use the tax claims as an excuse to auction off the company’s investments.
Sanum also said the government used its judicial branch and tax authorities to allow members of a well-connected Lao family and their entities to seize control of Sanum’s prize asset, the Thanaleng Slot Machine Club, near the capital Vientiane.
Sanum initially invested U.S. $85 million in the country five years ago, but the Lao government began to strip it of its projects once they began to generate substantial revenue, it says.
The company alleges that its investment in Laos is worth at least U.S. $400 million.
But without the slot machine business, the Savan Vegas casino—which employs about 2,000 people, 90 percent of them Lao—is Sanum’s only remaining project in the country.
Jordahl said that government officials had refused to meet with the company about the casino and that Sanum had been completely “frozen out” of any discussion.
“They won’t even respond to us,” he said.
But the company hopes that through the international arbitration process, which is still in the beginning stages, the Lao government will honor its contractual and international agreements.
“We continue to hope and expect that the government will recognize its obligations under contractual law, under the agreements that we signed with them, and under international treaties.”
The International Centre for the Settlement of Investment Disputes, an independent arm of the World Bank, and an ad hoc tribunal expected to hear the company’s suit against the Lao government are authorized to issue binding damages awards, Sanum said.
Jordahl said that while he had no doubt that the arbitration would impose a fine in Sanum’s favor on the Lao government, enforcing the ruling could be difficult.
“As a foreign [company] operating in the country of Laos, you depend heavily on the rule of law. If the law is used to strip us of our rights, it’s just not very useful,” he said.
Laos, one of 10 member states of the Association of Southeast Asian Nations (ASEAN) that seeks to promote economic growth across the region, has welcomed massive investment from China, Thailand, and Vietnam in recent years.
But cases like Sanum’s could discourage foreign companies from investing in Laos, Jordahl said.
“They’ve been working for the past 20 years to become a part of the international community and pull themselves out of Least Developed Country status. Now they’re putting all that at risk, because when the foreign investment community looks and sees that the government cannot be trusted and that the rule of law is not enforced, they will take their money elsewhere,” Jordahl said.
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