Marc J. Goldstein Arbitrator & Mediator NYC
June 27, 2019

Distilling the Arbitral Law of Corruption

Preliminary Remarks

Corruption, usually bribery or solicitation for bribery, occupies much attention among parties and tribunals in international arbitration. In investment arbitration, there is evidence of this in the Awards and other records of proceedings collected at and elsewhere in online repositories. In commercial arbitration, we know this mainly from experience and anecdotal evidence. The discussion in this Commentary pertains to corruption as it bears upon the enforceability of the underlying transactions in the arbitration. Possible corruption in the arbitral process itself – such as attempts (actual or alleged) to bribe an arbitrator or a witness – are a worthy topic but are reserved for future treatment.

The substantive international arbitral law of corruption is rather straightforward (a characterization certainly not intended to diminish its paramount importance). Stated in broad strokes for this introductory purpose: it is a matter of international public policy that corruption should be ousted from the interactions of commercial actors with public officials. In furtherance of that objective, commercial rights and assets obtained by corrupt means should be denied protection, and the withholding of commercial rights and assets based on the commercial party’s refusal to pay a bribe gives rise to a claim of unfair treatment by a State in violation of treaty rights and/or international law.

The procedural arbitral law of corruption is a creature with more tentacles. One reason is that the Arbitral Tribunal is often only one of multiple fora in which the same allegations of corruption have been or may yet be examined. Law enforcement investigations or criminal prosecutions may be on foot in the host State or in the home State of the investor/private actor. Some host States may have also examined the allegations before an administrative body whose charge is to ferret out official corruption. Tribunals are called upon to consider the value of the evidence already adduced, and to assess the incentives parties may have to present evidence in the arbitration for later re-use in such proceedings. Tribunals may also be in the difficult position of having to consider whether a host State’s domestic anti-corruption initiatives are themselves corrupt – proceedings possibly taken, as an adjunct to the arbitration, to bolster a corruption defense to the claims of an investor or commercial counterparty.

Why this subject for a Post, at this time, in this format? Mainly because I find the topic interesting and timely, and I hope others share this view. A final caveat: I have elected to omit citations to cases and decisions examined in connection with this writing. Some of you will recognize cases from the statements of principles. If any of you would like to be directed to the source materials underlying this Commentary, please send an inquiry. Finally, this is an initial, and protean, effort. If you have suggestions for additions to it, they are most welcome.

I. General Legal Framework for Tribunal Consideration of Corruption

1. An Arbitral Tribunal asked to hear and determine a claim or defense based on corruption, and possibly to do so in a bifurcated and accelerated fashion relative to other issues in the case, may initially wish to consider the legal framework for its approach to the matter. General reliance on “international public policy” may seem imprecise as a source of practical guidance.

2. A useful point of departure for thinking systematically about a Tribunal’s powers and duties is the 2005 United Nations Convention Against Corruption. Article 15 of that Convention entitled “Bribery of National Public Officials” provides:

Each State Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally:
(a) The promise, offering or giving, to a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties;
(b) The solicitation or acceptance by a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties.

And Article 26 of the Convention entitled “Liability of Legal Persons” provides:

(1) Each State Party shall adopt such measures as may be necessary, consistent with its legal principles, to establish the liability of legal persons for participation in the offences established in accordance with this Convention.
(2) Subject to the legal principles of the State Party, the liability of legal persons may be criminal, civil or administrative.
(3) Such liability shall be without prejudice to the criminal liability of the natural persons who have committed the offences.
(4) Each State Party shall, in particular, ensure that legal persons held liable in accordance with this article are subject to effective, proportionate and dissuasive criminal or non-criminal sanctions, including monetary sanctions.

3. Considering that the Corruption Convention has been ratified by at least 140 countries, and signed by nearly 190, an Arbitral Tribunal may take note that the Convention indicates not only the status of anti-corruption as a principle of customary international law, but also that the Convention itself is likely to have been integrated into the domestic law of the countries of domicile of the parties to the dispute.

4. Thus where a Claimant’s claim is met with a defense that the Claimant bribed a public official to secure valuable contract rights, and that the contract is therefore illegal at least under the laws of the Claimant’s domicile if not also under the laws of the counter-party State, the Tribunal may be invited to stay proceedings on all other issues and to conduct an initial phase of the arbitration on corruption as a preliminary issue. Whether to do so of course is a matter of discretion and will depend on the applicant’s prima facie presentation and other circumstances including the status of domestic proceedings or investigations.

5. Corruption may also be a source of an affirmative claim. A Claimant may have a breach of contract claim or, under an investment treaty, a claim of unfair and inequitable treatment, where an opportunity or benefit has been denied by a State on the basis of the Claimant’s refusal to accede to a solicitation for a bribe. In principle a Claimant might seek to have this issue treated as a preliminary issue and ask that it be given accelerated treatment. Deciding such a question, a Tribunal would have to balance the public policy significance of the bribery solicitation claim against the probability that the claim will be seen in a more fulsome context if it were fully joined to the merits of the other claims.

II. Legal Consequences of Corruption in International Arbitration

6. If corruption is proved in the arbitration, the guilty party will suffer the [non-penal] consequences flowing therefrom under the applicable law.

III. Sufficiency of Evidence of Corruption

1. Generally

7. Corruption must be proved by evidence that convinces the Tribunal that the allegation has been made out.

2. Role of the Procedural Law of the State Party

8. Where corruption of an official of a State party is alleged, the Tribunal will take into account (but not necessarily apply) the law of the State defining corruption, and its elements as a criminal and/or civil offense. So too, the civil and criminal consequences of establishment of a corruption offense under the law of the State will be taken into account.

9. As regards the standard of proof, the Tribunal will take into consideration the procedural law of the State whose officials are alleged to have acted corruptly. But the Tribunal will also take into consideration principles of international law relevant to the standard of proof, unless bound to apply mandatory principles of the State law.

3. Articulation (or not) of an Arbitral Standard of Proof of Corruption

10. Also as regards the standard of proof, the Tribunal will be mindful that an accusation of bribery raises the spectre of serious misconduct, at least on a par with misrepresentation or willful endangerment, but at the same time will also be mindful that before the Arbitral Tribunal the party accused of bribery does not face criminal penalties such as incarceration. Therefore a standard of proof more stringent that “preponderance of the evidence” or “balance of probabilities,” but not as exacting as “beyond a reasonable doubt” may be found to be appropriate.

11. And yet it is difficult and perhaps unnecessary in many cases for a Tribunal to attempt to articulate its instinct for stringency in the standard of proof with a catch-phrase such as “clear and convincing” or “comfortable satisfaction,” or the like. A Tribunal may instead simply acknowledge that the severe gravity of a bribery accusation calls for the sufficiency of the evidence to be measured with commensurate stringency.

12. In fashioning a satisfactory articulation of the standard of proof appropriate to the particular case, a Tribunal may factor in the possibility that efforts were made to conceal the corrupt activity, and that difficulties to prove corruption have resulted from such concealment.

4. The Burden of Proof

13. While the burden of proof as to corruption ordinarily will fall upon the party alleging that there has been such an occurrence, this general rule does not foreclose the possibility of a context-specific shifting of the burden. For example, if an accused Claimant admits to the making of a payment to an intermediary that the accusing State contends was forwarded on as a bribe to a State official, the burden may be shifted to the accused Claimant to explain actual legitimate purposes of the questioned payment.

5. Issues of Evidentiary Privilege

14. Issues of lawyer-client and “work product” (or comparable) privilege are apt to arise in the context of arbitration where corruption issues arise. It will not be unusual for a corporation facing allegations of bribery in an arbitration context – and perhaps in parallel criminal or regulatory investigations — to engage outside counsel to conduct an internal investigation, and the outside counsel may in turn engage forensic consultants. Where this occurs, an initial question for the Tribunal may be what law of privilege applies, and if this is disputed a Tribunal will likely apply general principles of conflicts to select the applicable privilege law based on the locus of the activity giving rise to the privilege claim.

6. A “Best Evidence” Rule Applicable to the State Party?

15. An Arbitral Tribunal often will be sensitive to the opportunism that might underlie a State’s initiative to nullify a large claim on the basis of the alleged corruption of a State official. And while a Tribunal maybe understandably reluctant to refer to such motives directly, this concern is reflected in the rigors Tribunals may impose on a State in the presentation of its case. Thus in one recent case, the State produced as a testifying witness the allegedly corrupt official, but relied on the record from a criminal investigation. The State failed to put questions to the witness to allow him to explain his conduct, and for this reason of “fairness” the Tribunal rejected the State’s claim of corruption as not adequately proven. This seems to be more or less a “best evidence rule.” If the allegedly corrupt State official testifies before the Tribunal, the Tribunal need not rely as heavily on the record in a prior State administrative or judicial proceeding whose procedural regularity is not fully transparent to the Tribunal.

IV. Tribunal Requests to Domestic Courts For Assistance in Collection of Evidence

16. Whether an ICSID Tribunal is empowered to make its own legal assistance request to a domestic court is controversial. The ICSID Convention and Additional Facility Rules neither expressly permit nor prohibit such a request for support in gathering evidence. This may be seen as a measure that is at odds with the overall design of ICSID arbitration as an autonomous self-contained process. However, proponents of the exercise of such power may respond that it entails no intrusion of domestic courts into the deliberations or decisions of the Tribunal.

17. This question may arise in the corruption context when, for example, a Claimant investor accused by the Respondent State of bribery in connection with the investment has been investigated by law enforcement in the investor’s home State. The investigators may have interviewed witnesses whose testimony before the Tribunal cannot be secured by the parties. Further the party seeking the evidence may regard the investigators’ impressions of the witnesses as having probative value especially to resolve credibility issues.

18. Tribunals may be generally inclined to leave evidence gathering to the parties, especially in regard to requests for legal assistance to domestic courts, because the authority of an interested party to submit such a request is well defined in municipal law. But the party seeking the evidence may contend that a legal assistance request made by the Tribunal in its own name carries more persuasive force with a domestic court than the party could evoke by reporting to that court that it has leave from the Tribunal to submit the request.

19. The controversial question of the Tribunal’s authority to submit such a legal assistance request may tend to be avoided where the Tribunal as a matter of discretion is disinclined to present the request. For example if the Tribunal concludes that the proponent of the request has other access to substantially all of the probative evidence that might be obtained, and/or has not fully explained its efforts to secure the evidence by other means, the Tribunal might deny the request without ultimately deciding the question of its power.

V. Corruption In An Arbitral Interim Measures Context

20. A corruption claim may be the central factual issue in a case, as where a State seeks to void an investor’s contractual rights based on alleged bribery of a former State official who made or influenced the selection of the investor to receive the contract. If the State seeks provisional measures, its prima facie case on the merits may consist entirely of a controversial record of proceedings in the State’s criminal court. A Tribunal may be even more reluctant than is typically the case in a provisional measures context to evaluate critically the applicant’s merits case. But the Tribunal may reflect its unexpressed concerns in other ways, such as by affording only the most minimal relief to the applicant based on principles of necessity, urgency and proportionality.

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