Italy defeats claim over Mafia-linked wind farm brought by German bank

Italy has defeated a €300m ($353m) international arbitration brought by a German bank over the seizure of a wind farm that was claimed to be indirectly owned by the Ndrangheta Mafia.

A three-member tribunal hearing the case issued its decision in the claim brought by Hamburg Commercial Bank – previously HSH Nordbank – last week.

Hamburg Commercial provided a €230m loan to build the Isola Capo Rizzuto wind farm located in the Calabria region on Italy’s southern coast in the early 2000s.

It was commissioned in 2009 and consists of 48 Enercon 2MW wind turbines, giving it a 96MW installed capacity. The developer is identified online as Germany’s Pommer & Schwarz EE GmbH & Co. KG (PSEEG).

Three years after coming online, financial police seized the wind farm as part of a probe into the Ndrangheta Mafia, a mafia group based out of Calabria. Citing wiretaps, investigators reportedly claimed that the group's leader's nephew, Pasquale Arena, had supervised the construction of the site through frontmen and shell companies.

That seizure order and another were subsequently lifted. However, authorities had in parallel initiated proceedings to liquidate the local entity set up to run the wind farm. Italian law holds that investors who have assets seized in anti-Mafia proceedings can only recoup up to 60% of the value of their assets, even if they were acting in good faith.

Hamburg Commercial launched its claim against Italy in 2020 under the Energy Charter Treaty (ECT), a multilateral treaty designed to protect cross-border investments in the energy industry. The case was heard by a tribunal at the International Center for Settlement of Investment Disputes, which is based in Washington, DC.

The bank argued Italy’s measures breached provisions of the ECT, including those that require fair and equitable treatment of investments and prohibit expropriation, and is understood to have sought in excess of €300m plus interest.

Italy argued that the measures – adopted in the context of legitimate criminal investigations and not directed at the bank itself – were proportionate, lawful and consistent with its public order obligations.

The tribunal, it is understood, ruled that the fair and equitable treatment standard had not been breached as this does not extend to third parties who are not the direct addressees of the state’s measures, particularly where those measures are lawful and adopted in pursuit of legitimate public policy objectives.

Counsel to Hamburg Commercial declined to comment on the outcome of the case.