From 2003 to 2012, the Karma between foreign private equity fund Lone Star and the Korean government stemming from Lone Star's acquisition and sale of Korea Exchange Bank (merged with Hana Bank) has finally come to an end. Lone Star demanded trillions of won in compensation, claiming the Korean government prevented it from selling Korea Exchange Bank in a timely manner and caused losses, but the government won the case to annul the investor-state dispute settlement (ISDS) award, meaning it will not pay a single penny. With this ruling, the officials involved in the acquisition and sale of Korea Exchange Bank at the time also shed the label of "responsibility for the Lone Star affair."
According to the government and the financial sector on the 19th, the annulment committee of the International Centre for Settlement of Investment Disputes (ICSID) canceled the obligation to pay $216.5 million in compensation and interest that had been recognized in the arbitral award on Aug. 30, 2022. The annulment committee also concluded that Lone Star must pay the expense incurred in the litigation process.
In Nov. 2012, Lone Star filed an ISDS arbitration claiming $4.6795 billion (about 6.86 trillion won) in losses on the grounds that the Korean government improperly intervened in the sale process of Korea Exchange Bank. Lone Star's arguments in the ISDS dispute were largely twofold. It said it could not sell Korea Exchange Bank to HSBC due to the Korean government's delayed approval in 2008, and that the government delayed approval when it later sold to Hana Financial Group.
The first claim was not accepted at all in the previous ISDS trial. The tribunal fully upheld the Korean government's argument that it was outside the arbitral tribunal's jurisdiction because it occurred before the 2011 entry into force of the Korea-Belgium Bilateral Investment Treaty (BIT).
When Lone Star sought to sell to HSBC, the approval authorities were the Financial Supervisory Commission (FSC), the predecessor of the Financial Services Commission (FSC) and the Financial Supervisory Service, and the Financial Supervisory Service. At that time, the FSC chairperson was former Chairperson Kim Yong-duk. The FSC was later reorganized under the Lee Myung-bak administration into the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), and Jun Kwang-woo, head of the Institute for Global Economics, served as the inaugural chairperson. Rhee Chang-yong, the current Bank of Korea governor, was then the FSC vice chairperson in charge of working-level affairs.
Lone Star signed a share purchase agreement with Hana Financial Group in Nov. 2010 and received regulatory approval in Jan. 2012, but also argued that approval was delayed after the contract. The tribunal initially said, "The Korean government violated the fair and equitable treatment obligation under the investment protection treaty," acknowledging partial responsibility and ordering payment of compensation to Lone Star.
From the signing of the purchase agreement with Hana Financial Group to regulatory approval, former Chairpersons Chin Dong-soo and Kim Seok-dong led the Financial Services Commission (FSC). The ministers of the Ministry of Economy and Finance (MOEF) were former Ministers Yoon Jeung-hyun and Bahk Jae-wan, and Choo Kyung-ho, former People Power Party floor leader, served as FSC vice chairperson at the time. They had carried the label of having given Lone Star a pretext to bring international arbitration, but with ICSID not accepting Lone Star's claims this time, they have been freed from the responsibility narrative.
Some also stood trial over the Lone Star affair. In June 2006, after the Board of Audit and Inspection issued an audit finding to the effect that "Lone Star lacks eligibility to acquire Korea Exchange Bank," prosecutors indicted former Korea Exchange Bank President Lee Kang-won and former Ministry of Finance and Economy Financial Policy Director Byun Yang-ho on charges including breach of duty. The two were finally acquitted by the Supreme Court in 2010. At the time, an atmosphere dubbed the "Byun Yang-ho syndrome," meaning civil servants were refraining from proactive administration, also emerged in government circles.
Former People Power Party leader Han Dong-hoon also has deep ties with Lone Star. As justice minister in 2022, Han led the filing for annulment of the ICSID arbitral award. He had also been a member of the Central Investigation Department when the former Supreme Prosecutors' Office investigated the case of Lone Star's fire-sale of Korea Exchange Bank.
Han wrote on his Facebook page, "When I was justice minister, I pushed forward the Lone Star ISDS suit that won today, and the Democratic Party nitpicked the likelihood of victory and strongly opposed it. Despite the Democratic Party's nitpicking and opposition, I thank the officials at the Ministry of Justice and other public servants who did their best for the national interest of the Republic of Korea."