{"id":16829,"date":"2026-01-19T15:30:03","date_gmt":"2026-01-19T14:30:03","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=16829"},"modified":"2026-04-21T19:14:18","modified_gmt":"2026-04-21T17:14:18","slug":"does-investment-treaty-protection-extend-gold-trading-aecaterini-loizidou","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2026\/01\/19\/does-investment-treaty-protection-extend-gold-trading-aecaterini-loizidou\/","title":{"rendered":"Does investment treaty protection extend to gold trading?"},"content":{"rendered":"

Kaloti Metals & Logistics, LLC v. Republic of Peru<\/em>, ICSID<\/span> Case No. ARB\/21\/29<\/strong><\/h2>\n

Overview<\/strong><\/h3>\n

Kaloti Metals & Logistics, LLC (\u201cKaloti\u201d or the \u201cclaimant\u201d), a U.S.-incorporated gold-exporting company, instituted proceedings against the Republic of Peru (\u201cPeru,\u201d \u201crespondent\u201d) under the U.S.\u2013Peru Trade Promotion Agreement (\u201cTPA\u201d) and the ICSID Convention<\/span>, alleging that Peru violated its obligations toward its investment in the Peruvian gold sector. Specifically, Kaloti alleged that Peru failed to provide FET<\/span> to its investment under Article 10.5 of the TPA, it was treated less favourably than Peruvian nationals or companies in like circumstances, contrary to Article 10.3 of the TPA, and that Peru\u2019s actions (including the unlawful seizure of its shipments of gold) amounted to an indirect expropriation of its investment in violation of Article 10.7 of the TPA. Consequently, Kaloti sought monetary compensation for loss of business and profits, value of its investment in Peru, and legal costs. In response, Peru raised two jurisdictional objections, on the grounds of ratione materiae<\/em> and ratione temporis<\/em>. It argued that Kaloti\u2019s investment was unlawful under the TPA and ICSID Convention, and that its claims were time-barred under Article 10.18 of the TPA. This case note relates specifically to the former objection, following the ICSID tribunal\u2019s award against Kaloti (the \u201caward<\/a>\u201d), rendered in May 2024, where it dismissed Kaloti\u2019s claims for lack of jurisdiction, as there was no \u201ccovered investment\u201d under the TPA.<\/p>\n

Brief background of the dispute<\/strong><\/h3>\n

As set out in paragraphs 42\u201357 of the award, Kaloti\u2019s business was gold processing and trading from Latin America to the United States. In 2012, it started engaging in business in Peru, and its operations expanded rapidly. It eventually opened a physical office in Lima, Peru. However, after 2013 there was a decline in purchases of gold and in 2018, this led to Kaloti\u2019s exit from the Peruvian market. Kaloti attributes its exit to the measures implemented by the Peruvian authorities that ultimately led to the decline of its business in Peru.<\/p>\n

Specifically, in 2013 and 2014, the Peruvian authorities temporarily immobilized five shipments of gold from Kaloti\u2019s suppliers in order to verify their lawful origin. This led to criminal investigations against the suppliers and \u201cprecautionary seizures\u201d of the shipments, due to evidence suggesting money laundering. The indicia of criminal activity prevented the Peruvian authorities from lifting the immobilizations, despite Kaloti\u2019s requests. In 2012, Peru strengthened its legislative framework in response to the growing problem of illegal mining and money laundering linked with gold mining, empowering its authorities to carry out investigations and issue orders to preserve evidence.<\/p>\n

Peru\u2019s jurisdictional objection (ratione materiae<\/em>)<\/strong><\/h3>\n

Peru raised a jurisdictional objection, arguing that Kaloti\u2019s investment was not made in accordance with Peruvian law and, therefore, fails to meet the requirements of a protected investment under the TPA and the ICSID Convention. Following the \u201cdouble key-hole\u201d approach, the tribunal assessed whether Kaloti had a \u201ccovered investment\u201d under the TPA and Article 25 of the ICSID Convention. It considered both an asset-based and enterprise-based definition, evaluating whether the five shipments of gold constituted a covered investment under the TPA and if Kaloti\u2019s \u201cgoing concern enterprise\u201d in Peru also met that threshold. (paragraphs 320 to 326 of the award).<\/p>\n

The five shipments of gold as an investment<\/strong><\/h4>\n

Kaloti argued that its investment in Peru included five specific shipments of gold that were seized or blocked by Peruvian authorities. However, Peru challenged the legality of these shipments on the basis that they were linked to illicit activities and therefore not protected under the TPA and the ICSID Convention.<\/p>\n

In its considerations on whether the five shipments of gold constituted an investment under the TPA and Article 25 of the ICSID Convention, the tribunal first considered whether Kaloti owned or controlled the shipments of gold. The evidence suggested that the suppliers were the ones exporting the gold and not Kaloti since none of the waybills and customs declarations were listed under its name. All customs formalities were completed by the suppliers. For that reason, the tribunal concluded that Kaloti failed to establish that it had ownership or possession. The act of purchasing the gold did not constitute a \u201ccovered investment\u201d itself under the TPA as it did not convert the commercial transaction into a proprietary interest capable of protection under the TPA.<\/p>\n

Instead, Kaloti\u2019s role resembled that of a \u201cbroker\u201d rather than that of an investor. It took out loans from Kaloti Jewellery (Dubai) to purchase the gold from the suppliers and then resell it. Since the suppliers made the required customs declarations for the gold upon its entry to the United States, the document trail also pointed out that the suppliers were its ultimate owners. At best, a transfer of ownership of the gold to Kaloti would have occurred only upon its arrival in the United States. Therefore, the seizure of the five shipments did not deprive Kaloti of its own assets, as it possessed neither ownership nor control of the gold at the time. The tribunal, therefore, found no need to take into account further considerations such as the territorial nexus of the investment, the legality of the transactions under Peruvian law, or whether the nature of the gold in itself constituted a \u201ccovered investment\u201d since the requirement of ownership and control would still not be satisfied (paragraphs 331 to 343 of the award).<\/p>\n

The \u201cgoing concern enterprise\u201d as an investment<\/strong><\/h4>\n

Kaloti argued that its business in Peru constituted a going concern enterprise because it had a physical office in Lima, employed local staff, and engaged in continuous gold trading operations over several years, among other reasons. The tribunal examined whether Kaloti\u2019s activities qualified as an investment in a \u201cgoing concern enterprise\u201d in Peru. It found, in agreement with the respondent, that the TPA required an asset to have multiple characteristics of investment. The tribunal applied the \u201cSalini\u201d test when examining the aspects of Kaloti\u2019s business.<\/p>\n

Firstly, regarding Kaloti\u2019s commitment of capital and\/or other resources, the tribunal found that the trade in gold did not amount to a substantial investment in itself. In its claims, Kaloti had referred to its plans to create a refinery in Peru as part of its business expansion. However, no such plan was carried out, and the only expenses it bore were those that were part of normal commercial costs. Furthermore, Kaloti did not establish any employment relationships in Lima, Peru, as it hired independent contractors with agreements terminable on 30-day notice, reflecting a lack of commitment to its activities in Peru. All of the business decisions were made in the United States, and there were no other signs of a business operation in Peru, as Kaloti was not registered with the Peruvian Single Taxpayers Registry. There was also no substantial commitment of capital indicative of an investment in Peru (paragraphs 344 to 369 of the award).<\/p>\n

Secondly, in assessing the duration of investment, the tribunal did not consider that there was a long-term business enterprise that was operating and generating economic value in Peru. Even though Kaloti had been in Peru since 2013, its agreements did not reflect a lasting operational commitment. Its office spaces and service contracts were all short-term, of a 1-year duration, indicating a pattern of limited engagement rather than a stable, ongoing enterprise (paragraph 371 of the award).<\/p>\n

Thirdly, there was no real expectation of gain or profit arising from Kaloti\u2019s activities in Peru. The profits were made by Kaloti Jewellery (Dubai), the main buyer of the gold, through the subsequent sale of the gold in the United States. No real revenue was generated in Peru\u2014there was only the payment of costs tied to commercial dealings. The business did not function as a profit-generating enterprise, as Kaloti did not anticipate any financial returns from its activities in Peru (paragraphs 373 to 374 of the award).<\/p>\n

Fourthly, in considering whether there was an assumption of risk, the tribunal concluded that the type of risks Kaloti faced involved in sourcing and trading gold were merely ordinary commercial risks inherent in the industry. Commercial exposures such as fluctuations in market prices, variability in supply, and other logistical uncertainties were routinely encountered and did not amount to risks tied to an investment under the TPA and the ICSID Convention (paragraph 378 of the Award).<\/p>\n

The final consideration was whether Kaloti\u2019s activities contributed to the economic development of Peru. The tribunal noted that leasing a property and hiring personnel offered a minimal benefit to the domestic economy. The tribunal found it unnecessary to consider whether such a minute impact satisfied the criterion because all other essential elements of an investment under the \u201cSalini\u201d test were not met, rendering the assessment of this factor irrelevant to the overall jurisdictional analysis (paragraphs 380 to 381 of the award).<\/p>\n

In essence, the Tribunal found that Kaloti failed to establish that it had an investment in a \u201cgoing concern business enterprise\u201d in Peru. No sufficient evidence of a locally based operation was shown. Its activities there resembled periodic trade transactions rather than ongoing enterprise activities. The tribunal\u2019s lack of jurisdiction prevented it from deciding on parties\u2019 arguments concerning liability and damages, or the quantification of damages (paragraphs 382 to 387 of the award).<\/p>\n

Summary of the tribunal\u2019s decision on jurisdiction<\/strong><\/h3>\n

After evaluating the legality and nature of Kaloti\u2019s investment, the tribunal ultimately upheld Peru\u2019s objection ratione materiae<\/em> and declared that it had no jurisdiction in the dispute under the TPA and the ICSID Convention. Dismissing Kaloti\u2019s claim, the tribunal awarded USD 3,509,234.41 in costs to Peru and USD 367,949.63 in ICSID costs (paragraph 399 of the award).<\/p>\n

Key takeaways<\/strong><\/h3>\n

While there is no single binding test for what constitutes an \u201cinvestment\u201d under international investment law, there is a single element common to all cases. Tribunals continue to apply a strict threshold for establishing an investment. To obtain protection under a treaty, investors must demonstrate that their commercial operations evidence characteristics of an investment through something more than mere transactional activities. They must show a proprietary commitment capable of protection under a treaty. The \u201cSalini\u201d test is not a mandatory checklist; however, it remains a highly persuasive framework for assessing whether an investment exists and how investors can show that their assets fall within the definition of an \u201cinvestment.\u201d<\/p>\n

Author<\/em><\/h3>\n

Aecaterini Loizidou is a Cypriot-qualified lawyer currently pursuing the LL.M. in International Dispute Settlement (MIDS), Geneva.<\/p>\n

Note<\/em><\/h3>\n

The tribunal was composed of Professor Donald McRae (Canada and New Zealand national, president of the tribunal), Professor Dr. Jos\u00e9 Carlos Fern\u00e1ndez Rozas (Spain national, appointed by the claimant) and Professor Dr. Rolf Knieper (Germany national, appointed by the respondent).<\/p>\n