Corporate courts: the latest threat to democracy in Armenia

A controversial mining development in Armenia has proven to be a major test for the post-revolutionary government. Now, international arbitration courts are poised to be involved in resolving the dispute.

James Angel
13 August 2019, 12.01am
Entrance to Amulsar mining site, July 2018
Source: Peter Liakhov

The history of Armenia is a story of brave struggle against violent colonialism and repression. The tragedy of the Armenian genocide of the early 20th century was followed by decades of Soviet rule. Independence in the 1990s then issued in almost thirty years of authoritarian government.

But in April 2018, Armenia’s “Velvet Revolution” saw mass peaceful protests topple the former kleptocratic regime, bringing new hope for democracy. With revolutionary leader Nikol Pashinyan elected as Prime Minister in May, a wave of optimism swept across the country. People everywhere were newly conscious of their collective power.

But, now, Armenia faces a different kind of threat: a shady parallel legal system known as investor state dispute settlement (ISDS).

ISDS gives foreign investors the right to sue governments in secretive corporate courts for policies they think could harm their profits. And Armenia’s new government now finds itself on the end of a possible $2 billion ISDS threat, brought by international mining firm Lydian International.

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Save Amulsar

This begins with a controversial gold mine in Armenia’s picturesque southern mountains. In 2016, Lydian began construction on the Amulsar open-cast gold mine, amidst serious local opposition. Armenia has been plagued by the toxicity of the mining industry for years. Mining projects have failed, leaked, been abandoned and wreaked havoc with local ecosystems and livelihoods.

Amulsar is located near a reservoir that feeds Lake Sevan, Armenia’s largest and most important source of fresh water. Scientists have warned that acidic drainage from the mine would inevitably seep into the lake, posing a threat to the country's water system.

Amulsar sits just kilometres above the celebrated spa town of Jermuk, which since Soviet times has been an iconic centre of health tourism. Despite Lydian’s promise of jobs, the likely reality is that much of these would be outsourced beyond the local community and, in any case, only be on offer across the ten-year lifespan of the mine. With the mine threatening the more abundant and long-term employment opportunities provided by Jermuk’s spa industry, locals are clear which economic development pathway they prefer.

CC BY-NC 2.0: Raffi Youredjan / Flickr. Some rights reserved.

When Lydian’s operations began, locals made fleeting and sporadic attempts to block the roads leading to the mine in an attempt to stop construction. Yet these protests were always met with heavy-handed police opposition and quickly quashed.

That is, until the 2018 revolution, at which point two things changed. Firstly, the stage was set for a much less repressive government, opening up new possibilities for protest. Secondly, the triumph of people power over authoritarianism inspired the communities surrounding Amulsar to take their resistance to the next level.

In June 2018, one month after the Pashinyan government was elected, locals began a permanent 24/7 blockade of all three roads approaching the mine. The blockade continues to this day, having stopped all construction at the site for the past year and prevented any gold from been extracted.

Taking action

Amulsar is Lydian’s principal asset, and international investors behind the company – from US and UK hedge funds through to the European Bank of Reconstruction and Development (EBRD) – are counting on Lydian to deliver the goods.

It seems that the authoritarianism of the pre-revolution regime was a vital component of Armenia’s mining industry. Local opposition is no real issue when the state is willing to violently crack down to eliminate any obstacles.

The Pashinyan administration remains on the fence over Amulsar. Pashinyan himself has publicly criticised both the blockade and Lydian, and even visited Jermuk to facilitate a meeting between protestors and the company in July last year. The new government has yet to use force against the protests and has taken no action to remove the blockade.

Lydian have now resolved to take action against the government. Its mechanism for doing so: investor state dispute settlement.

Corporate courts

ISDS provisions are now commonplace in today’s trade and investment deals under the guise of “investor protection” – and are becoming increasingly widely used. With ISDS invented in the 1960s, there were just two ISDS cases brought in 1995, compared to 83 in 2015.

ISDS operates outside of domestic legal systems, offering a bespoke set of legal privileges accessible only to foreign investors. Companies cannot bring cases against the governments of countries they are registered in, and there is no means by which governments or individuals can bring ISDS cases against investors. Indeed, it’s fair to say the government can never really win. Whatever the verdict, governments must cover their own legal fees, with the average legal defence over £6 million.

Investors use ISDS to claim so-called monetary “compensation” – not just for money already invested, but also for projected future profits. The average pay-out is $522 million, yet awards often reach into the billions, with the highest ever an eye-watering $50 billion for a bankrupt oil company, courtesy of the Russian government.

While ISDS was initially invented solely to protect against the expropriation of foreign investors' assets, vague definitions of “investment” within trade and investment deals allow cases to be brought to challenge all manner of policies

Cases are brought to ad hoc private tribunals of arbitrators, which are paid huge sums on a case-by-case basis. Because cases can only be brought by investors, the system builds in a financial incentive for arbitrators to reach investor-friendly verdicts. Very little is known about the operations of these tribunals as there is little to no transparency. What we do know, however, is that an “inner mafia” of just 15 arbitrators have decided 55% of all known cases, according to the Transnational Institute.

Arbitrators have no obligation to consider any factors external to trade and investment law, such as human rights or environmental protection. There is no mechanism for representing the concerns of communities affected by the investors and policies in question. And governments have no right to appeal verdicts.

While ISDS was initially invented solely to protect against the expropriation of foreign investors' assets, vague definitions of “investment” within trade and investment deals allow cases to be brought to challenge all manner of policies. Cases have been brought, for instance, in opposition to fracking bans, sugar taxes, plain cigarette packaging, caps on water rates - the list goes on.

Lydian is by no means the first mining firm to be utilising ISDS. Canadian-based Gabriel Resources, for example, are currently suing the Romanian government for $5.7 billion over what could, if approved, be Europe’s largest open-cast gold mine: Roşia Montană. This is the site of a heroic 20-year battle waged by local residents, who recently won a case in the Romanian courts that revoked the firm’s permit to mine - a decision now being challenged in a corporate court.

Or take the case of Infinito Gold, who in 2014 launched a $94 million lawsuit against Costa Rica following a decision to revoke their permit for the Las Crucitas open-cast gold mine on environmental grounds. In this instance, Infinito folded its operations as a mining enterprise, re-orientating their entire business around the ISDS case.

Ransom note

What, then, of the Lydian case? After the community blockade at Amulsar began, Lydian established two subsidiary companies in the UK and Canada. Both countries hold investment treaties with Armenia that include ISDS provisions. In March 2019, the company “formally notified” the Armenian government of a dispute it was bringing under both of these investment treaties. This formal notification is the first step investors must take to initiate ISDS proceedings, offering governments the chance to resolve the dispute before the case goes to arbitration.

Whether or not this threat has now been realised, we do not know. Investors have no legal obligation to publicly announce if and when arbitration has begun - further testimony to the opacity of the system. Nor, indeed, have Lydian confirmed what the precise grounds of the case are. All Lydian themselves will say is that the dispute has been brought “in connection with the ongoing blockades of road access to the Amulsar Gold Project”.

Reporting in the investment press offers a little more detail, noting that “they [Lydian] believe the country’s failure to remove road blockades cutting off access to the Amulsar gold project violated its investment treaties with the U.K. and Canada.” When campaigners from Global Justice Now and War On Want wrote to Lydian to request confirmation that this reporting was accurate, no response was forthcoming.

Short of formal confirmation, however, matters seem fairly clear. Lydian’s dispute notice functions as a ransom note to the Armenian government: forcefully remove the blockade at Amulsar or face a possible $2 billion lawsuit, according to numbers reported in the Armenian press.

People power vs corporate power

A year on, and the future of Armenia’s 2018 revolution remains to be seen. As the new government’s response to the protests at Amulsar illustrates, political freedoms have no doubt been expanded in the past year. Yet, at the same time, the signs are that the Pashinyan administration’s scramble to welcome foreign investment might lead to a doubling-down on pro-business and pro-market policies, irrespective of the human and environmental costs.

Amulsar, then, makes for the new government’s first major test. Will Pashinyan side with the people that brought him to power, or else bow down to powerful investors? As yet, matters seem too close to call.

It seems that Lydian’s threat of ISDS is intended to bully the Armenian government into taking a side. How remarkable that a little-discussed clause within unknown investment treaties could undermine years of bitter struggle on the part of the Armenian people. What a damning indictment of this anti-democratic shadow legal system, in which the future of a country's water system can be seen as nothing short of irrelevant.

Canada, South Africa, India, Ecuador, Tanzania, Indonesia and New Zealand have all taken steps to review, limit or end trade deals including ISDS and are refusing to sign new ones. And now, Armenia is becoming the latest flashpoint in the global struggle against corporate courts. If this country’s recent history tells us anything, it’s that however bleak circumstances may seem, it’s always worth taking a stand.

"More Precious Than Gold" is a new short documentary film about the threat of corporate courts in Armenia, produced by Global Justice Now and War On Want. You can watch the film here.

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