On November 18, 2025, the South Korean government announced a decisive legal victory in a high-stakes, years-long international arbitration battle against the American private equity firm Lone Star Funds. The dispute, which centered on the sale of Korea Exchange Bank (KEB) and allegations of improper government intervention, has dominated headlines and fueled debate over foreign investment, national sovereignty, and the stewardship of public funds in South Korea.
At a press briefing held at the government complex in Seoul, Prime Minister Kim Min-seok delivered the news: "Today, the International Centre for Settlement of Investment Disputes (ICSID) annulment committee in Washington, D.C., has rendered a decision in favor of the Republic of Korea." According to Kim, the committee's ruling not only wiped out the government's obligation to pay approximately $216.5 million in damages to Lone Star—roughly 400 billion KRW at current exchange rates—but also ordered the private equity firm to reimburse the Korean government for about 7.3 billion KRW in legal costs within 30 days.
This outcome marks the conclusion of a saga that began more than a decade ago and, for a time, threatened to saddle South Korea with a massive financial burden. Lone Star, which acquired KEB in 2003 for 1.3834 trillion KRW, later sold the bank to Hana Financial Group in 2012 for 3.9157 trillion KRW. The American fund alleged that, during the sale process, the Korean government improperly interfered, costing Lone Star the opportunity to sell KEB at a higher price and forcing them to accept a lower offer. In 2012, Lone Star initiated an Investor-State Dispute Settlement (ISDS) claim, seeking $4.6795 billion (about 6.1 trillion KRW) in damages from the Korean government.
The ISDS mechanism, administered by ICSID—a World Bank-affiliated body—provides a forum for resolving disputes between foreign investors and states. Lone Star’s claim became one of the most prominent ISDS cases in Korea’s history, raising pointed questions about the limits of government regulation, the protection of foreign investors, and the responsibilities of public officials.
The arbitration process was long and contentious. On August 31, 2022, ICSID initially ruled that the Korean government should pay Lone Star $216.5 million—about 4.6% of the amount the fund had initially claimed. This decision, while far less than the sum Lone Star sought, was nonetheless a blow to the Korean government, which maintained that its actions were lawful and justified in the public interest. The Ministry of Justice promptly filed for annulment, arguing that the tribunal had overstepped its authority and committed serious procedural errors.
Meanwhile, Lone Star also filed for annulment in July 2023, contending that the damages awarded were insufficient. The two sides thus found themselves locked in legal combat, each seeking to overturn the partial victory of the other. The Ministry of Justice, led by Minister Jeong Seong-ho, marshaled resources across government agencies to mount a coordinated defense. As Jeong put it during the briefing, "The Ministry of Justice, with the full support of related ministries, devoted all its energy to responding to the lawsuit." He expressed gratitude for the dedication of the government officials involved in the case.
The ICSID annulment committee's final decision, rendered in November 2025, sided with Korea on every major point. The committee found that significant violations of due process had occurred during the arbitration, which weighed heavily in favor of Korea’s arguments. As a result, the government’s obligation to pay any compensation to Lone Star was "retroactively extinguished," as Kim Min-seok emphasized in his remarks. Furthermore, Lone Star was ordered to cover the legal expenses incurred by the Korean government during the annulment process.
Government officials hailed the outcome as a landmark achievement. Kim Min-seok described it as "a significant accomplishment that protected national finances and taxpayers’ money, as well as a recognition of Korea’s sovereignty over financial supervision." He also noted that this was a major diplomatic success for the Lee Jae-myung administration in the international arena. The Ministry of Justice echoed this sentiment, stating that the ruling represented the final word on the dispute and affirmed the fairness and utility of the arbitration process.
The Lone Star case was not only about money. It became a lightning rod for public frustration over foreign ownership of Korean financial institutions and the perception that international investors could use ISDS mechanisms to extract large settlements from governments. Critics of the ISDS system have long argued that it can undermine national sovereignty and expose public coffers to undue risk. Supporters, on the other hand, contend that ISDS is a vital tool for protecting investors from arbitrary or discriminatory state action.
The Ministry of Justice’s insistence on defending the case to the end was rooted in a desire to set a precedent for future disputes and to reassure the Korean public that the government would not back down in the face of foreign pressure. As one ministry official explained, the decisive factor in the annulment committee’s ruling was "the substantial and serious violations of due process that occurred during the arbitration." This, the official said, was crucial in persuading the committee to side with Korea.
Lone Star’s original acquisition and subsequent sale of KEB remain controversial topics in Korea. The fund’s involvement in the Korean banking sector, its profits from the sale, and the government’s role in overseeing the transaction have all been the subject of intense scrutiny. For many Koreans, the case symbolized broader anxieties about globalization, foreign capital, and the balance between attracting investment and safeguarding national interests.
With the ICSID ruling now final, the Korean government is free from the threat of a multi-billion dollar payout. The Ministry of Justice underscored that the government had not only avoided a massive financial loss but had also secured reimbursement for the costs of the legal battle. In the words of one official, "The government has protected the rights of the Korean people and the national treasury."
For observers of international investment disputes, the Lone Star case stands as a reminder of the complexities and stakes involved when private capital and public authority collide. As Korea moves forward, the lessons of this case will likely shape how the country approaches future foreign investment and manages its legal obligations on the world stage.
The dust is still settling, but for now, the Korean government is celebrating a hard-fought victory—one that, in the words of Prime Minister Kim, "defended the finances of the nation and the interests of its people."