There are a variety of ways you might attempt to learn more than you already know about how international arbitrators handle allegations of corruption that are presented as claims or defenses in a pending case. You might sign up for a conference and, at some expense, hear condensed remarks by very knowledgeable individuals who have participated in such cases as counsel or arbitrators (e.g. a one-hour session at the ICC event in New York on October 4, from 2:30 to 3:30 p.m.). You might download the GAR “tool kit” on corruption. (I will). You might download a recently published arbitral decision on the subject, like the 420-page ruling of the Tribunal in the Tethyan Copper v. Pakistan arbitration (ICSID Case No. ARB/12/1, Decision on Respondent’s Application to Dismiss the Claims, dated Nov. 10, 2017, now also located in the electronic docket of the US District Court for the District of Columbia in connection with Claimant’s petition to enforce the Final Award, Case 1:19-cv-02424-TNM, Document 1-1, filed Aug. 8, 2019, hereinafter the “Tethyan /Pakistan Corruption Ruling”). But I understand, you already vowed to read the Mueller Report on vacation, and you’re only up to page 125. OK. So perhaps you will read this Commentary – an incomplete and non-authoritative treatment of the subject, but it is FREE and right there on your mobile device for an easy beach read!
Seriously, readers, your Commentator who never sleeps (but often swims) took up the cudgels of the Tethyan/Pakistan Corruption Ruling, read much but not nearly all of it, and attempted to glean some useful points for your summer holiday consumption.
Let’s begin with what you really want to know, if you do not know already. Pakistan lost. Its corruption defense — that Claimant bribed and unlawfully induced State officials to make key decisions to advance its mining venture – failed. Pakistan also lost on the merits. In the Final Award dated July 12, 2019, Pakistan was found to have expropriated Claimant’s investment and to have denied Claimant fair and equitable treatment, under the applicable standards of the Australia-Pakistan BIT. Damages $4.087 billion, plus interest up to the date of the Award of $1.753 billion. This result motivated a Pakistani international arbitrator to comment on OGEMID that Pakistan is being victimized in international arbitral tribunals as a consequence of “intervention” by the Supreme Court of Pakistan to ferret out corruption. Said this commentator on OGEMID: “The present government is fighting a war against corruption and fragile institutions in Pakistan. The judicial activism and failure of relevant institutions to act is costing Pakistan billions of dollars before international tribunals.” It’s not clear whether this commentator is laying the blame on Pakistani institutions, or ICSID, or the Tribunal, or perhaps all of them. But the undercurrent seems to be that there was a legitimacy, at least in the origins, of Pakistan’s anti-corruption efforts, and that what began as a laudable initiative ends up as another good deed punished.
If you propose to stop reading the Commentary after this sentence, take away one key point (and LONG sentence): Pakistan first raised its motion to dismiss on the basis of corruption three plus years into the case, after the post-hearing briefing, after the Tribunal had been at work for months on an interim ruling on liability, and Pakistan did so on the basis of the work of a suddenly-convened State-appointed “Group of Experts” who in a matter of 8-12 weeks in the Summer of 2015 compiled a dossier of written admissions from various current and former government officials, none of whom had ever been, or have ever been as far as the Tribunal was informed, criminally prosecuted for the bribery and undue influence offenses to which they purported to admit.
For the rest of you, who wish to read on, here are my observations:
1. Tribunal’s Treatment of Claimant’s Contention That Pakistan Waived, By Conduct, Its Jurisdiction Objection: You might suppose that when a State asks dismissal of an ICSID case for lack of jurisdiction — based on corruption vitiating the domestic lawfulness of the investment – and does so after the merits hearing and the post-hearing briefs, that a defense of waiver of the jurisdictional objection might gain traction. But read those ICSID Arbitration Rules with care! Rule 41(1) lets the dilatory objector State off the hook if “the facts on which the objection is based are unknown to the party” at the normal deadline: the time of its last pleading. Besides that, Rule 26 allows the Tribunal to let a dilatory party off the hook “in special circumstances.” So suppose the State says that “yes we had general knowledge of questionable payments but lacked the necessary specifics of the payors and payees and the influence resulting from the payments until a special commission of inquiry had completed its work”? If you are an ICSID Tribunal whose decisions finding a Host State liable might be attacked (as this Tribunal’s evidently have been) as having frustrated the State’s diligent efforts to ferret out official corruption, you might decide it’s better to deal with the corruption evidence on its merits than to steer off on the procedural exit ramp. (“Any possible delay in obtaining knowledge of the relevant facts can, and will, be taken into account in the Tribunal’s evaluation of the evidence.” Tethyan/Pakistan Corruption Ruling Para. 232). Waiver defense to the State’s Jurisdiction Objection?: unsuccessful.
2. What is the Standard of Proof?: On this question some of the world’s most eminent jurists and arbitrators appear to be at a loss for effective words, and they settle upon formulae that seem to mean “evidence that convinces us – and we will let you know by the end of this several hundred page decision if we are convinced.” The problem with achieving a more specific and enduring formula is bound up with the arbitrator’s duty of independence and impartiality, and the appearance thereof while acting in the very transparent environment of Investor-State arbitration. Here is why I believe this to be so. The State (Pakistan, for instance) argues that corruption is very difficult to prove because direct evidence is almost always lacking — people involved like State officials just always seem to forget to take selfies on their i-phones when pocketing or passing the bribes. Besides, says the State, corruption is nasty and internationally bad, it undermines the rule of law, its extinction is a goal of international public policy. So cut us some slack on the standard of proof so we don’t fail to prove it, says the State, stick with preponderance of the evidence. The Investor, on the other hand, tells the Tribunal that this is very very serious business, a level of gravity somewhere up the scale from garden-variety fraud, that not only threatens a forfeiture of Claimant’s entire investment if it precludes recovery against the State but has big collateral damage potential because some high level supposed perpetrators might have to do serious time. Therefore says the Claimant, the standard should be, more or less, really really clear and really really convincing. (Obviously there is more elegance in the submissions of Claimant’s counsel, and I couldn’t possibly measure up). Now let’s get inside your arbitrator mind for a moment. If you accept preponderance of the evidence, you establish a big margin for error that might allow a State to gin up and succeed with a bogus corruption defense, and effectuate what amounts to an expropriation of Claimant’s investment at the mere cost of counsel fees and a share of arbitrator fees. And to avoid this outcome you might have to apply preponderance in a fashion that gives the impression that you actually applied a more demanding standard. At the other extreme, adoption of the very stringent standard advocated by Claimant makes it appear that the standard rather than the evidence will be decisive, that the Tribunal, even before systematically assessing the evidence, has at least a skepticism about it — and in the eyes of some critics of the ISDS system that kind of arbitral skepticism reflects an implicit anti-State pro-Investor bias. These are reasons — not stated in the Tethyan/Pakistan Corruption Ruling but I would imagine discussed in a deliberation context by the arbitrators – to elide adoption of the Claimant’s position. And so the formula that emerges in the Pakistan case – with some parallels to prior cases like Niko Resources v. Bangladesh is that the Tribunal will require the evidence to be “compelling” and “persuasive” – which is only to say, effectively, that the Tribunal will look at all the evidence with an open mind as to its weight and authenticity and let you know at the end of the decision whether it is convinced. In summary, perhaps there is not, and in the framework of ICSID arbitrations cannot be, a fully satisfactory answer to the question of what is or should be the standard of proof.
3. What Can We Learn About Arbitral Method in Evaluation of the Evidence?
Let’s take this in two parts (a. and b.) : Issue identification, and decision method.
a. Evidence evaluation issues that arise (examples):
1) status and potential influence of the putative bribe takers;
2) causation, in the sense that influence was exercised based on inducement;
3) causation, in the sense that the person allegedly influenced would have made a different decision;
4) whether allegedly influenced persons actually supported the action sought by the Investor, casting doubt on motivation to bribe;
5) whether the official act allegedly produced by the bribe was discretionary or was something already required to be done, by law or by contract.
b. Techniques for resolution in evidence evaluation (examples):
1) The party with burden of proof of a fact cannot satisfy the burden merely by pointing to the absence of evidence of the non-existence of that fact (compare: affirmative evidence that a discussion was held at a meeting about the amount of the bribe vs. evidence lacking clear indication that amount of the bribe was not discussed);
2) The party with burden of proof on the issue of whether an of corruption occurred fails to sustain the burden if it fails to establish any specific impact that the allegedly bribed official had on the State’s favorable decision in regard to the investment. (Tethyan/Pakistan Corruption Ruling Para. 824);
3) The Tribunal’s insistence on persuasive evidence of corruption may entail, for example, insistence on clear identification of the persons who made the payments, and convincing evidence that the bribe recipient would not have supported the official action desired by the investor had the bribe not been tendered. (Id., Para. 840);
4) The Tribunal will be keen to resolve credibility issues, presented by virtue of conflicting retrospective accounts given by witnesses, by using objective tools, and thus will look to contemporaneous evidence (travel and meeting itineraries, e mails written by the witnesses, etc.) that corroborates or conflicts with the retrospective account given by a witness. (Id., Paras. 856, 859).
4. What Does A Tribunal Do With Its Natural Skepticism About a Late Submission of a Corruption Defense?: A Tribunal will be strongly influenced by circumstances concerning the presentation of the claim of corruption that affect the overall credibility of the presentation. In the Tethyan/Pakistan case, the dominant circumstance was that Pakistan had convened a “Group of Experts” at the end of the merits phase of the case, and in the space of a several weeks this Group had compiled a remarkable dossier of incriminating written confessions from current and former government officials, concerning events as much as 15 years earlier. Without the saying so, readers and observers with even a passing exposure to the tensions surrounding Investor-State arbitration (like this Commentator, in his bleacher seat with a hot dog and a beer) will have a keen sense that the Tribunal felt obliged to subordinate this consideration to a painstaking objective review of the evidence presented by both sides, thereby perhaps more effectively subduing the predictable criticism of the outcome by pro-State ISDS critics, and reducing the prospects of success for an ICSID Annulment attack. Thus it is only at page 417 of a 420-page Decision that the Tethyan/Pakistan Tribunal “take[s] note of the context in which the testimony provided by the Respondent’s witnesses arose and was produced in this arbitration” (Para. 1491) and finds it to be “remarkable that as far as the Tribunal has been informed, [Pakistan] has to date not initiated a prosecution against any of these individuals” (Para. 1493). One could imagine that in a United States court, a foreign State over which the Court had jurisdiction would not receive such tolerant and thorough treatment, and that a delay-based objection of waiver, acquiescence, laches, etc. might be heard and granted as a basis for dismissal at the pleading stage or after minimal discovery about the origins and motivations of the State’s corruption inquiry. The transparency of ICSID arbitration and the ongoing controversy about its fairness and efficacy appears to lead to more tolerance of what might elsewhere be seen and dealt with as unacceptable scorched earth tactics.
There seems to be a common belief that, as corruption is a crime, the tribunal faced with corruption as a defence should apply the criminal burden of proof to the evidence of that corruption. May I – a layman – submit that such is not the case. A mere allegation of corruption cannot be a sufficient defence to a claim. The evidence of corruption must be sufficient to enable the tribunal to find on the balance of probability that a) there was corrupt conduct, and then b) the conduct was such as to vitiate any agreement. There may remain issues such as whether goods or works of value have changed hands. It will remain open to a Court to punish but the public imposition of penalties arguably is not the purpose for which the parties appointed the Arbitrator(s) whose Award, in any event, has no coercive effect of itself.
One could conjecture that an Award might be made that included reasons why a court should not enforce it (that might conflict with those institutional rules that require enforceability – I propose the idea to provoke debate).