The curious case of S Alam and our investment treaty regime

The S Alam group has recently lodged an arbitration claim against Bangladesh at the International Centre for Settlement of Investment Disputes (ICSID). This event is significant for our investment law regime. The claim was made under one of our older Bilateral Investment Treaties (BITs) with Singapore from 2004.

It needs to be mentioned here that our older-generation BITs used too much 'investor protective language'. This is because at that time we had less experience in negotiation to protect our own interests. Hence, it is no surprise that the present claim could in fact be lodged.

The Bangladesh Singapore BIT defines an "investor" as any natural person who is a national of either contracting party, without requiring a genuine or effective link to nationality. Such an expansive definition allows for what is known as treaty-shopping, where individuals or companies restructure their nationality or corporate ownership to gain treaty protection.

Moreover, Article 3 of the treaty guarantees "fair and equitable treatment" (FET) and "full protection and security" provisions that have been interpreted liberally by arbitral tribunals to limit a state's regulatory discretion. The absence of qualifying texts around these terms has the effect of interpreting almost any administrative action as a potential treaty breach if considered adverse to investor expectations.

On the merits, Bangladesh may argue that its actions, whether in the form of bank supervision, asset recovery, or anti-money-laundering enforcement, were legitimate sovereign measures taken in the public interest. The claimant, for its part, will possibly assert that these steps were arbitrary, discriminatory, or procedurally unfair, thereby breaching FET and amounting to indirect expropriation. Whether such arguments succeed will depend heavily on evidence of proportionality and due process, as well as the tribunal's interpretive approach to the FET standard.

Perhaps most significantly, Article 7 permits investors to file an ICSID claim after only six months of failed negotiations, without any requirement first to exhaust local legal remedies. This is rather a "blank cheque" approach in the light of modern standards. Many countries have adopted more balanced approaches. India's 2016 Model BIT, for instance, introduced an 18-month "Exhaustion of Local Remedies" requirement before arbitration. Brazil abandoned investor–state arbitration altogether, preferring a system of Cooperation and Facilitation Investment Agreements built on preventive diplomacy. South Africa, after terminating its earlier BITs, enacted the Promotion and Protection of Investment Act 2015, which grants protection under domestic law rather than international arbitration. Bangladesh's treaties, by contrast, still retain the 1990s model of one-sided investor protection.

A number of jurisdictional and substantive questions will shape the S Alam dispute. The first concerns nationality and admissibility: can the claimant truly qualify as a "Singaporean investor"? If the investments were made before the claimant secured Singaporean citizenship, Bangladesh might argue that this effectively constitutes treaty-shopping. Notably, this BIT does not contain an explicit, specific clause that broadly bars treaty shopping. However, the treaty does include provisions that require investments to be made in accordance with the host state's laws and regulations, which can serve as a de facto mechanism against abusive routing of investments. Also, the prospective tribunal could apply an "effective nationality" test to determine whether the investor's connection to Singapore is genuine or merely formal.

The second question flags the definition of "investment." Article 1(a) limits coverage to investments made "in accordance with the laws" of Bangladesh. If the investments in question were not compliant with domestic law, or if accusations of financial misconduct are proven, Bangladesh could invoke the clean hands doctrine. This principle, increasingly recognised in arbitral jurisprudence, denies treaty protection to investors who have engaged in fraud, corruption, or other illegal acts in making or managing their investments. This invocation would challenge the tribunal's jurisdiction and strengthen Bangladesh's claim to sovereign regulatory authority.

On the merits, Bangladesh may argue that its actions, whether in the form of bank supervision, asset recovery, or anti-money-laundering enforcement, were legitimate sovereign measures taken in the public interest. The claimant, for its part, will possibly assert that these steps were arbitrary, discriminatory, or procedurally unfair, thereby breaching FET and amounting to indirect expropriation. Whether such arguments succeed will depend heavily on evidence of proportionality and due process, as well as the tribunal's interpretive approach to the FET standard.

Reportedly, the S Alam Group served its legal notice on the Government of Bangladesh on 18 December 2024, that is more than six months before the present arbitration, hence satisfying the consultation period requirement under Article 7 of the BIT. This timeline means the matter has now formally moved into the arbitration phase. Bangladesh must therefore respond promptly and accordingly nominate an arbitrator. Beyond the requirement of nominating an arbitrator, Bangladesh must also ensure legal representation before the tribunal. Under ICSID practice, the State is typically represented by the Office of the Attorney General or a designated international law firm instructed by the government. A delayed approach could severely undermine Bangladesh's position at the jurisdictional and merits stages. Since, under the ICSID Convention, proceedings may continue even if the respondent fails to appear, as the Secretary-General can appoint arbitrators on its behalf.

It is worth recalling that Bangladesh has faced ICSID arbitration before. In Saipem SpA v People's Republic of Bangladesh (ICSID Case No ARB/05/7), the tribunal ruled against Bangladesh and awarded millions in damages. That case, like the present one, revealed how loosely drafted BITs can restrict a state's rather lawful prerogative to regulate and expose it to costly claims.

The S Alam arbitration should therefore be seen not simply as a legal challenge but as a policy signal. Bangladesh must urgently modernise its investment-treaty architecture by adopting a comprehensive Model BIT that balances investor protection with the state's prerogative to regulate. Such a model should clarify definitions, include exhaustion of local remedies and mediation provisions, and recognise exceptions for legitimate public-interest regulation.

The writer is researcher in international investment law and arbitration, Member of the Young International Council for Commercial Arbitration (ICCA).