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Dealing with Allegations of Corruption in International Arbitration

  • Lucinda A. Low (a1)

Extract

With the rise of corruption as a subject of international instruments and the convergence of obligations around its prevention, detection, and remediation in both the public and private sectors, corruption has increasingly figured as an issue in international arbitration. Indeed, its acceptance as a public policy issue at both the international and transnational levels has resulted in the need for tribunals, in both commercial and investor-state disputes, to grapple with questions of jurisdiction, admissibility, and consequences, as well as standards of proof. As this essay demonstrates, the challenges presented by the issue of corruption pose special difficulties for arbitration. Time will tell if tribunals will move from their current largely binary, all-or-nothing approach to a more nuanced one based on proportionality.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

References

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2 See, e.g., Lucinda A. Low & Jonathan Drimmer, We'll Take That Mine: The Corruption Defense by Governments in International Arbitrations, 64 Rocky Mtn. Min. L. Inst. 20–21 (2018).

3 Methanex Corp. v. U.S., Final Award of the Tribunal on Jurisdiction and Merits, 44 I.L.M. 1345 (NAFTA Ch. 11 Arb. Trib. 2005).

4 See, e.g., Union Fenosa Gas, S.A. v. Egypt, ICSID Case No. ARB/14/4, Award, para. 7.48 (Aug. 31, 2018).

5 Council of Europe Civil Law Convention Against Corruption art. 8(1), adopted Nov. 4, 1999, E.T.S. No. 174 [hereinafter CLCAC].

6 Id. art. 8(2).

7 UNCAC, supra note 2, art. 34.

8 Spentex Netherlands, B.V. v. Uzb., ICSID Case No. ARB/13/26, Award (Dec. 27, 2016) (Award not yet published), in Kathrin Betz, Proving Bribery, Fraud and Money Laundering in International Arbitration 83 (2017) [hereinafter Betz]; Metal-Tech Ltd. v. Uzb., ICSID Case No. ARB/10/3, Award (Oct. 4, 2013); World Duty Free Co. v. Kenya, ICSID Case No. ARB/00/7, Award (Oct. 4, 2006).

9 See, e.g., Southern African Development Community Model Bilateral Investment Treaty and Commentary art. 10.1 (2012) (“Investors and their Investments shall not, prior to the establishment of an investment or afterwards, offer, promise or give any undue … advantage, … to a public official of the Host State.”) (emphasis added).

10 See, e.g., Valeri Belokon v. Kyrg., Cour d'appel [CA] [regional court of appeal] Paris, Feb. 21, 2017 (annulment of an UNCITRAL award on grounds of international public policy based on money laundering).

11 See, e.g., Aloysius P. Llamzon, Corruption in International Investment Arbitration (Loukas Mistelis et al. eds., 2014); Constantine Partasides, Proving Corruption in International Arbitration: A Balanced Standard for the Real World, 25 ICSID Rev. 47 (2010).

12 The Organisation for Economic Co-operation and Development Anti-Bribery Convention, widely regarded as the most successful of the anticorruption instruments, is solely focused on the supply side.

13 See supra note 12.

14 See CLCAC, supra note 5, arts. 2, 4; Niko Resources Bangladesh, Ltd. v. Bangl., ICSID Case Nos. ARB/10/11 & ARB/10/18, Decision on Jurisdiction (Aug. 19, 2013) (attempt insufficient to invalidate contract); Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award (June 18, 2010).

15 See U.S. Dep't of Justice & U.S. Sec. & Exch. Comm'n, A Resource Guide to the Foreign Corrupt Practices Act 22–23 (2012).

16 See, e.g., Int'l Chamber of Commerce, Guidelines on Agents, Intermediaries and Other Third Parties (2010)).

17 However, there have been virtually no criminal cases in the forty-plus year history of the U.S. Foreign Corrupt Practices Act prosecuted solely on this basis. Cf. United States v. Kozeny, 582 F.Supp.2d 535, 537–40 (S.D.N.Y. 2008), aff'd, 667 F.3d 122 (2d Cir. 2011) (conviction of Frederic Bourke on the alternative basis of actual knowledge along with willful ignorance of bribery scheme in Azerbaijan).

18 Metal-Tech, supra note 9, at paras. 359–64, 389.

19 In the recent Union Fenosa case, the majority wrote regarding one intermediary: “Several were classic ‘red flags’; but even the reddest of red flags does not suffice without proof of corruption before the tribunal.” Union Fenosa, supra note 4, at para. 7.113.

20 See, e.g., ICC Case No.12990 (Final Award, 2005) (excerpts reprinted in Collection of ICC Arbitral Awards 2008–2011, 831 (2013)). For “connect the dots” methodology, see Methanex, supra note 3, at 1410–12 pt. III, ch. B, 1–2.

21 Int'l Ctr. for Settlement of Inv. Disputes, ICSID Convention, Rules and Regulations, Rule 34(2), Doc. ICSID/15 (Apr. 2006) (giving the Tribunal the power “if it deems it necessary, at any stage of the proceeding,” to call upon the parties to produce documents, witnesses, and experts and to visit any place connected with the dispute or conduct inquiries there).

22 This has happened only rarely. See, e.g., Société Générale de Surveillances v. Phil., ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, para. 175 (Jan. 29, 2004), 8 ICSID Rep. 518 (2005).

23 See, e.g., Metal-Tech, supra note 8, at paras. 216, 267–73; Spentex, supra note 8, at 83.

24 Patel v. Mirza [2016] UKSC 42 (appeal taken from Eng.).

25 As noted above, the tribunal in WDF refused to do this, but this approach has been widely criticized. See, e.g., Llamzon, supra note 12 (the “attribution asymmetry”). But cf. Int'l Law Comm'n, Responsibility of States for Internationally Wrongful Acts art. 45 (2005).

26 See Betz, supra note 8, at 135 (citing Spentex, ICSID Case No. ARB/13/26, para. 981).

27 The Foreign Corrupt Practices Act does not impose such an obligation, although such a program is a mitigating factor. But laws such as the UK Bribery Act provide an “adequate procedures” defense to strict corporate liability, and are being adopted by other countries.

Dealing with Allegations of Corruption in International Arbitration

  • Lucinda A. Low (a1)

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