STATEMENT OF CLAIM
August 21, 2023
TABLE OF CONTENTS
II. FACTS RELEVANT TO AMORRORTU AND HIS INVESTMENT IN PERU
A. Amorrortu's Early Life in Peru
1. Amorrortu's Family Settled in Peru over a Century Ago
2. Amorrortu's Education and Early Professional Experience
B. Amorrortu's Substantial Experience in the Petroleum Industry
1. Amorrortu's Initial Investment in the Peruvian Oil Industry
2. Amorrortu was Awarded the Operation of Block III in the 1990s
C. Political Persecution Against Amorrortu
D. Amorrortu's exile from Peru and asylum in the United States
1. The U.S. Department of Justice grants asylum to Amorrortu
2. Lawsuits in the United States for Human Rights violations
E. Amorrortu's investment in Peru as a U.S. Citizen
1. Investment in Baspetrol
2. Baspetrol undertakes several projects prior to presenting a Proposal for Blocks III & IV
3. Baspetrol commences Direct Negotiations with PeruPetro
4. Baspetrol's Direct Negotiation Proposal for Blocks III & IV
5. PeruPetro violates Amorrortu's legitimate right to Direct Negotiation for Blocks III & IV
III. GRAÑA Y MONTERO'S CORRUPTION SCHEME
A. Graña y Montero
B. The Corruption Scheme
1. Graña y Montero is a company owned by a family that is politically, socially, and economically well-connected and has control over information dissemination
2. Graña y Montero paid covert funds to electoral campaigns
3. Graña y Montero contributed millions of dollars in bribes to corrupt public officials to win major public projects
4. Graña y Montero has acknowledged its responsibility in the Corruption Scheme of various public projects in which it acted either alone or as part of the consortium with Odebrecht
C. The Corruption Scheme to award the contracts to operate Blocks III & IV to Graña y Montero
1. Peru abruptly and arbitrarily decided to terminate the Direct Negotiation Process initiated by Amorrortu
2. Evidence of corruption in the 2014 Block III & IV tender
IV. THE TRIBUNAL HAS JURISDICTION TO DECIDE THE DISPUTE
A. Amorrortu is an investor of the United States of America
B. Amorrortu has a protected investment under the USPTPA
1. "Covered investment" is broadly defined in the USPTPA
2. Amorrortu invested in an "enterprise" that two years later acquired the rights to directly negotiate a contract to operate Blocks III & IV
3. The definition of covered investment in the USPTPA includes the right to Direct Negotiation for Blocks III & IV acquired by Amorrortu through Baspetrol
C. Amorrortu timely commenced this arbitration within the statute of limitations period and complied with all the USPTPA requirements
V. PERU HAS BREACHED ITS OBLIGATION UNDER THE USPTPA
A. PeruPetro awarded Blocks III & IV as part of Graña y Montero's Corrupt Scheme
1. Applicable standard to prove corruption
2. The evidence overwhelmingly proves corruption
B. Peru is responsible for the Corruption Scheme
C. PeruPetro's corruption violated Peru's Fair and Equitable Standard obligations
1. Fair and Equitable Treatment: Violation of Customary Principles of International Law
2. Fair and Equitable Treatment: Violation of Legitimate Expectations
3. Fair and Equitable Treatment: Violation based on arbitrary and discriminatory conduct
4. Fair and Equitable Treatment: Violation of transparency
VI. PERU'S CONDUCT CAUSED SIGNIFICANT LOSSES TO AMORRORTU'S INVESTMENT
A. There is a causal link between Peru's breaches and Amorrortu's loss
B. Peru's actions are the proximate and foreseeable cause of Amorrortu's loss
C. Peru cannot argue that the amount of damages caused by its breach is uncertain
VII. AMORRORTU IS ENTITLED TO FULL REPARATION
VIII. A. Amorrortu is entitled to "full reparation" wiping out the consequence of Peru's breaches to the USPTPA
B. The appropriate date of valuation is the date PeruPetro announced the International Public Bidding Process
C. An income and market based valuation methodology is appropriate here
D. Damages Peru must compensate Amorrortu
1. Income approach valuation
2. Market approach valuation
E. Peru must pay Amorrortu interest
F. Peru must compensate for all costs incurred in this arbitration
G. Peru may not deduct additional taxes from the award
H. Total damages due to Amorrortu
PRAYER FOR RELIEF
Corruption is an international evil; it is contrary to good morals and to an international public
policy common to the community of nations.
ICC Award 1110 of 1963 at ¶ 20
1. This principle, chiseled in one of the first arbitral awards denouncing the evil of corruption, echoes throughout this arbitration. This dispute is about corruption, the antithesis of fair and equitable treatment.
2. Bacilio Amorrortu (Amorrortu or Claimant) is the victim of a reprehensible Corruption Scheme concocted at the highest spheres of the Peruvian Government (Peru or Respondent), a mere few years after Peru had committed to fight corruption and to afford U.S.
investors, like Amorrortu, fair and equitable treatment under the United States-Peru Trade Promotion Agreement (the USPTPA). The USPTPA, explicitly states as one of its objectives "to promote transparency and prevent and combat corruption, including bribery, in international trade and investment,"2 and has a full chapter devoted to anti-corruption measures and transparency.3 But Peru never took this commitment seriously. Instead, Peru set up a scheme to award government contracts through public bidding processes that had the facial appearance of transparency, but had actually been designed and manipulated to ensure that Graña y Montero (Graña y Montero) -- a company that in conjunction with the Brazilian emporium Norberto Odebrecht (Odebrecht), had paid millions of dollars in unlawful bribes -- was the only company "qualified" for the international public bidding process (the International Public Bidding Process) for block III (Block III) and block IV (Block IV) of the Talara Basin (together, the Blocks).
3. This was not a victimless crime. Legitimate proposals that could benefit the local communities in Peru and generate more revenue for the government were arbitrarily disqualified or simply "lost" in the vast abyss of the corrupt government bureaucracy, causing significant losses to any company that dared to compete with Graña y Montero. The local community was harmed. The competitors of Graña y Montero were harmed. This is hardly surprising. Corruption hurts honest investors and affected citizens alike: The former through competitive disadvantages, e.g., in tendering procedures, and the latter through the frustration of good-governance efforts and higher prices.4 That was the case here.
4. As part of one of the largest corruption schemes in the history of Latin America, Peru and Graña y Montero snatched the contract to operate Blocks III and IV in the Talara Basin from Amorrortu and his company Baspetrol. This deprived Amorrortu of his valuable rights under Peruvian law which entitled him to a Direct Negotiation Process to resume the operations in Blocks III and IV.
5. Since 1976, Amorrortu had been involved in drilling and extraction operations in the Talara Basin. Indeed, Block III of the Talara Basin is popularly known in the industry as the "Amorrortu block" because it was successfully serviced and operated by the Amorrortu family company for more than twenty years.
6. In 1995, Amorrortu's company was forced to surrender the license to operate Block III because of the fierce political persecution launched by the dictatorial government of President Alberto Fujimori. This political persecution led Amorrortu to seek asylum in the United States, which he obtained from the United States Department of Justice on April 26, 2000
7. In the United States, Amorrortu embraced his adopted country and became a citizen of the United States in 2010.
8. In 2012, after the return of democracy in Peru and the execution of the USPTPA with its anti-corruption promises, Amorrortu formed Baspetrol S.A.C. (Baspetrol) with the expectation to operate oil fields in Peru and recover the contractual rights to operate Block III of the Talara Basin. Amorrortu assembled a team of experts in the region, all of whom had unmatched experience servicing the oil wells in the Talara Basin. Armed with this wealth of experience, unique know-how, and willingness to waive any pending claim he had against Peru for the expropriation of his former company and the abuse of human rights that led to his asylum, Amorrortu commenced a process known as "direct negotiation" (the Direct Negotiation Process) under Peruvian law with PeruPetro, S.A. (PeruPetro) -- the government entity responsible for the administration of oil blocks -- for the operation of Blocks III and IV. The commencement of this Direct Negotiation Process gave Amorrortu a bundle of rights under Peruvian law, including the substantive right to have a good faith exclusive consideration of the Baspetrol Proposal, through a number of well-defined phases established in PeruPetro's Rules and Procedures for the Direct Negotiation of Contracts
9. In the absence of corruption, Amorrortu would have secured the contract to operate Blocks III and IV. The commencement of a Direct Negotiation Process in essence, guarantees the execution of a contract, particularly when the oil company has a successful track record operating the blocks.7 Indeed, there is no record of any Direct Negotiation Process that had not culminated in the execution of a contract after the completion of the required phases.8 This is why the Direct Negotiation rights are so valuable to oil companies. Further, the Baspetrol Proposal had an attractive component which guaranteed 5% of the expected revenues to the local communities.
10. But Graña y Montero had set its eyes on Blocks III and IV and had paid bribes in advance to the highest Peruvian authorities to obtain any government contract it desired during the administration of President Ollanta Humala in coordination with Nadine Heredia. As part of this Corruption Scheme, PeruPetro, instead of commencing the Direct Negotiation Process and honoring Amorrortu's acquired rights, as it was required to do under PeruPetro's own rules and procedures and which it had done with other similarly situated companies, shelved the Baspetrol Proposal, and arbitrarily commenced a public bidding process in which, unsurprisingly, the only purportedly qualified company was Graña y Montero. As fully discussed below, this was the same pattern of corruption in the Southern Gas Pipeline Project from which Odebrecht and its partner, Graña y Montero, benefitted. It is also the same corrupt process through which numerous other government projects were awarded to Graña y Montero through phony public biddings.
11. The evidence of corruption is overwhelming, and more evidence continues to surface in the ongoing corruption investigation conducted by Peru's prosecutors. On August 31, 2020, media reports of the investigation indicated that Graña y Montero's records confirmed that executives met with the First Lady of Peru in April 2014, October 2014, and February 2015 to discuss "businesses" and "Blocks III and IV" of the Talara Basin.9 Why are the executives of Graña y Montero meeting with the First Lady, the person in charge of doling out the corrupt government contracts during the Humala administration, to talk "business" the month before the Baspetrol Proposal is shelved in favor of opening a public bidding in which Graña y Montero was the only qualified company?10 And why were they meeting to talk about Blocks III and IV right before the execution of the contracts? The answer is clear considering the undisputed evidence of corruption and irregularities in this case: the contracts for Blocks III and IV were part of the Corruption Scheme. This conclusion cannot be seriously disputed:
i. It is undisputed that the former president of Peru, together with his advisers, concocted a plan to award government contracts to Graña y Montero through a rigged public bidding processes in which Graña y Montero was the only qualified bidder;
ii. It is undisputed that Graña y Montero paid millions of dollars in bribes to obtain any government contract it requested;
iii. It is undisputed that the vast majority of contracts awarded during this period to Graña y Montero were awarded consistent with this Corruption Scheme: (1) a facially legitimate public bidding process where (2) all competitors of Graña y Montero failed to qualify and (3) Graña y Montero was the only qualified bidder;
iv. It is undisputed that Amorrortu, through Baspetrol, commenced the Direct Negotiation Process before the public bidding had been announced or decided;
v. It is undisputed that PeruPetro, contrary to its own practices and procedures, decided to open Blocks III and IV for the International Public Bidding Process without evaluating the Baspetrol Proposal;
vi. It is undisputed that the two other companies interested in participating in the International Public Bidding Process for Blocks III and IV were disqualified;
vii. It is undisputed that Graña y Montero did not comply with the qualification requirements for the International Public Bidding Process;
viii. It is undisputed that the qualification requirements were amended to allow Graña y Montero to qualify;
ix. It is undisputed that PeruPetro, acting against its own interest, relinquished its 25 % ownership interest in the Blocks in favor of Graña y Montero after its selection; and
x. It is undisputed that Graña y Montero failed to comply with its contractual commitments, and that PeruPetro has ignored these violations.
12. Not surprisingly, a number of relevant government documents have been "lost."11 The same is true of most of the files of the government contracts that Graña y Montero won as the sole qualified bidder during the Humala administration
13. For years, Peru -- and Graña y Montero -- denied this corruption and blocked any effort to investigate its unlawful practices. Indeed, as late as February 24, 2017, Graña y Montero issued a press release denying any involvement in any Corruption Scheme with Peru
14. But that defense is no longer sustainable. After years of denials, Graña y Montero has now admitted that it paid bribes to the Humala administration in exchange for the government contracts it selected, and new details have emerged from the International Public Bidding Process for Blocks III and IV confirming that Blocks III and IV were part of the package of government contracts awarded to Graña y Montero as a result of these bribes.14 Numerous government officers involved in this Corruption Scheme are now being prosecuted in Peru, Brazil, and the United States
15. Peru's corrupt practices are in breach of its fair and equitable treatment obligations under the USPTPA, in that a government that exercises its discretion to contract based on corruption to the detriment of a foreign investor: (i) violates established customary principles of international law; (ii) betrays the investor's reasonable expectations; (iii) engages in arbitrary, grossly unfair, unjust, and discriminatory conduct; and (iv) violates its transparency obligations.
16. Peru cannot seriously deny that it has violated the USPTPA's fair and equitable treatment obligations. This Tribunal has the power to remedy the harm suffered by Amorrortu because the Corruption Scheme frustrated Amorrortu's investment at its inception before Amorrortu had completed the Direct Negotiation Process.
17. The USPTPA clearly requires Peru to compensate protected investors for the harm caused by violations to the USPTPA, irrespective of when the violation occurs. Amorrortu is a U.S. investor with a protected investment that was frustrated by Peru's breach of its Treaty obligations.
18. Amorrortu is a U.S. national. While it is true that Amorrortu was born in Peru, Amorrortu has renounced his Peruvian citizenship and does not have the citizenship of any other country, other than the United States.
19. Amorrortu has a protected investment. He formed the enterprise Baspetrol and invested more than three years of his time and effort to recruit a top tier team of professionals with the expertise to service the oil industry in Talara. Amorrortu also contributed his multi-million dollar claim against Peru for the abuses committed during the Fujimori dictatorship. He leveraged this investment to commence a Direct Negotiation Process through Baspetrol and acquired a bundle of substantive rights, including the right to negotiate directly with PeruPetro with mutual good faith. This investment, and the bundle of rights created by virtue of this investment, fall under the broad definition of investment of the USPTPA, which explicitly includes an investment in "an enterprise."16 The USPTPA also protects as an investment any rights acquired by Amorrortu under Peruvian law, to wit: the right to a good faith Direct Negotiation Process.17 Furthermore, the USPTPA protects attempts through "concrete actions" to make an investment
20. Several arbitral tribunals have recognized that a party who has acquired rights under the applicable state law to negotiate in good faith a government contract has a protected investment. The awards in the case of Lemire v. Ukraine19 and Bosca v. Lithuania20 are illustrative on this point. Lemire and Bosca make clear that an investor who has acquired the exclusive legal right to negotiate a contract with a government entity has a protected investment.21 The tribunal in EDF v. Romania assumed, as an established principle of law, that a party that had been selected by a government agency to commence a contract preparation and negotiation process had acquired rights protected as an investment under the applicable trade agreement.22 The reasoning behind these decisions is that an investor who makes an initial investment in an enterprise and then acquires the right to exclusively negotiate a contract to expand that enterprise, has a protected investment. That protected investment is entitled to the fair and equitable treatment by the host state.
21. Indeed, Amorrortu has a protected investment under the USPTPA and acquired the right to expand his investment through the Direct Negotiation Process for the license contract to operate, maintain, and exploit Blocks III and IV. Amorrortu's investment in Baspetrol and his legal rights in the Direct Negotiation Process are protected under the USPTPA and entitled to fair and equitable treatment.
22. If Peru had complied with its obligation to protect Amorrortu's investment, Baspetrol would be operating Blocks III and IV, contributing its expertise and know-how to the development of the Talara community, and contributing its proposed 5 % of the revenues generated to the development of the local community. There is simply no doubt that the exclusive Direct Negotiation Process to which Amorrortu was entitled, would have culminated with the execution of the contracts to operate Blocks III and IV in favor of Baspetrol.
23. The quantification of damages here is facilitated by the fact that Graña y Montero has received the benefits of the operation of the Blocks for approximately eight years. This performance, which Amorrortu had achieved during his tenure as operator of Block III and, without a doubt, would have achieved again, provides the Tribunal with a concrete basis to quantify the value of the contract that was snatched from Baspetrol and the harm that Amorrortu has suffered.
24. The tribunals in Lemire, EDF, and Bosca had to wrestle with the speculation surrounding the possibility that the State may decide not to conclude the negotiation process. That speculation is not present here. PeruPetro had a mandate to award the contracts to operate Blocks III and IV, and the Direct Negotiation Process, with its well-established exclusive phases and decision tree, all but guaranteed the contracts to a company like Baspetrol, which commenced the Direct Negotiation Process, and which was supported by the experience Amorrortu has of operating the Blocks. In addition to Graña y Montero and Baspetrol, there was only one other bidder for Block IV, and no other bidder for Block III. Indeed, PeruPetro had struggled to attract bidders for most of its blocks, leaving PeruPetro with a binary choice between Baspetrol and the corrupt Graña y Montero. This binary choice between a co-conspirator of the Treaty violation on one side, and Claimant, on the other, is what distinguishes this case from Bosca and the struggle to quantify damages with a reasonable degree of certainty.
25. The inescapable truth that will remain a constant throughout this arbitration is that PeruPetro had no basis to abort its Direct Negotiation Process with Baspetrol, a company led by the same expert that had successfully serviced and operated the Blocks for more than two decades, and to deprive Amorrortu of his rights to a Direct Negotiation. The only reason that Baspetrol is not operating Blocks III and IV today is because of the Corruption Scheme of Peru and Graña y Montero, which this Tribunal must condemn with an exemplary award that punishes Peru for its flagrant and callous violation of its Treaty obligations.
VIII. PRAYER FOR RELIEF
416. On the basis of the foregoing, without limitation and reserving Amorrortu's rights to supplement these prayers for relief, including without limitation in the light of further action by Peru, Amorrortu respectfully requests that the Tribunal:
a. DECLARE that Peru has breached Article 10.5 of the USPTPA by failing to accord Amorrortu's investment in Peru fair and equitable treatment; and
b. ORDER Peru to pay damages to Amorrortu for its breaches of the USPTPA in the amount of US $266,636,979, plus interest.
c. AWARD such other relief as the Tribunal deems appropriate; and
d. ORDER Peru to pay all the costs, attorneys' fees, and expenses of this arbitration, including Claimant's legal and expert fees, the fees and expenses of any experts appointed by the Tribunal, the fees and expenses of the Tribunal, and the PCA's other costs, in accordance with Article 10.26(1) of the USPTPA and Article 38 of the UNCITRAL Rules.