KIO’s Legal Battle Against Former Employees and Its Likely Spillover Effect on London Markets

  • Jul 27, 2020 BST
  • Team Kalkine
KIO’s Legal Battle Against Former Employees and Its Likely Spillover Effect on London Markets

Summary

  • The Kuwait Investment Office has started legal proceedings against a number of its former employees
  • The dispute between the Kuwait Investment Authority and its former employees started after Saleh Al-Ateeqi, a former McKinsey partner and former associate of Tony Blair was appointed president of KIO in April 2018.
  • The KIO which employs nearly 100 staff members in its London office has lost more than 30 employees since 2018

The world’s oldest sovereign wealth fund, the Kuwait Investment Office (KIO) has started legal proceedings against a number of its former employees involving alleged conspiracy to inflate pay packages of certain key former office-bearers. These former employees who were some of the senior-most employees of the investment office have also initiated counter proceedings against the KIO over allegations of harassment, whistleblowing detriment, discrimination, victimisation, and unequal pay. While both sides have denied any wrongdoings KIO has additionally asked for damages amounting to £440,000 from these former employees, with additional potential damage claims which it points is in the process of being quantified, what is interesting here though is that the KIO enjoys diplomatic immunity in the United Kingdom and has made it a defence in the employment tribunal where it is defending the lawsuits filed by its former employees. This case has again broached the thorny subject in the UK as to how far a foreign entity can get away with alleged misconduct in the guise of diplomatic privileges.

Allegations and the top honchos under fire

The Kuwait Investment Office is effectively the fund managers of the $600 billion fund of the Kuwait Investment Authority (KIA). The KIO’s London arm directly invests in equities, fixed income, real estate, alternative investments as well as infrastructure projects, while the investment office’s Wren House subsidiary has investments in Associated British ports, Thames water and London City Airport.

The employees against whom proceedings in the High court have been instituted are Simon Hard the former head of the Fixed income division and a thirteen year veteran at the KIO and Prashant Vithlani former head of equities and a twenty-two year veteran at the investment office who was fired in January. Along with them, former human resource head at KIO Caroline Taylor has also been made part of the proceedings who was fired in the month of March. While the proceedings were instituted by the former employees before they were fired in the employment tribunal, the hearing for the KIO case is scheduled to take place on 27 July 2020 whereas the hearing of the employee case is provisionally scheduled in the month of September. Thus, the KIO enjoys an advantage as to getting a favourable judgement against its former employees in the jurisdiction of the High court even before the employee tribunal sits to decide if indeed proceedings can be instituted against KIO.

The allegations brought in by KIO involve a breach of contract and conspiring to cause financial harm to the investment office, among others. Mr Simon Hard, on the other hand, has also petitioned the high court to stay proceedings on the KIO case till a decision is made on the contractual and statutory answerability of KIO to people of UK is decided by the employment tribunal. The high court will hear the petition on Monday 27 July 2020 itself.

About KIA and KIO

Kuwait investment authority (KIA) is the world’s oldest and one of the largest sovereign wealth funds having assets of close to $600 billion. The KIA came into being in the year 1953 to manage the excess of funds of the Kuwaiti government it had left after fulfilling its budgetary needs. It is to be noted here that Kuwait is one of the richest countries in the world in terms of per capita income and has been a country with a financial surplus since crude oil reserves were discovered there. For the Kuwait government, the KIA manages its Kuwait Future Generations Fund, the Kuwait General Reserve Fund as well as any other asset entrusted to it by the Kuwait ministry of finance.

KIA is known to have made many successful investments over the years and is highly regarded and respected in the investment community for the same. Kuwait Investment Office (KIO) also opened its office in London in 1953, but KIA became its parent Organisation only in 1982.

Regarding the legal position in the case involving its former employees, questions have also been raised in the parliament proceedings of the Kuwaiti parliament. The fund's office in London is preparing an appropriate response for the legislators in the Gulf country as per people privy to the issue.

Conclusion

The Britishers have a tight rope walk before them while dealing with the KIO. On the one hand, it is one of the largest and most powerful wealth funds in the world being one of the oldest and most respected sovereign wealth funds in the country. On the other hand, the leeway that the fund is seeking is bound to see some major friction in the British financial markets in times to come. In case the courts decide to allow proceedings against the KIO to be instituted, a major correction on the London Stock Exchange may take place which will also risk its long-term suitability as a preferred investment destination by many institutional and individual investors.

The presence of KIO in London gives the depth of its financial markets. However, compromising on its laws and regulations will not be in the interest of the country as it will set a precedent for others also to exploit the system. If such a situation is allowed to fester, it will develop into a very chaotic situation in the UK and will end up completely destroying the investment climate in the country.

Though nothing can be said now of the merits of the allegations both parties have brought on each other, it is high time a stand needs to be taken on the way these entities need to be treated in the United Kingdom in the long term economic and diplomatic interests of the country.

 


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