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Crime in International Investment Arbitration

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Abstract

While profit and power are great motivators, sometimes those that pursue them exceed the bounds of legality to do so. That means that there is a good possibility that some investment activities are against the law. This chapter recounts the developments occurring in the thinking about crime in international investment arbitration and suggests that a further attention needs to be given to investor claims of corruption and corruption-related crimes to ensure that treaty-based investment arbitration remains substantively and procedurally fair for all stakeholders. The chapter further sets out the types of crimes arbitrators are facing in the cases they are hearing and the general international law instruments addressing them. The chapter also reviews the current arbitral practice in relation to crime and points out where there are efforts to take on this problematic in a more systematic way.

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Notes

  1. 1.

    Letter from Abraham Lincoln to Col. William F. Elkins, 21 November 1864.

  2. 2.

    UN General Assembly (2003) United Nations Convention Against Corruption, A/58/422. Available at: https://www.unodc.org/unodc/en/corruption/tools_and_publications/UN-convention-against-corruption.html. Accessed 26 May 2019.

  3. 3.

    Aloysius Llamzon is one of the first scholars to broadly examine corruption in international investment dispute resolution. Llamzon AP (2014) Corruption in international investment arbitration. Oxford University Press. Kathrin Betz took a criminal law perspective on the same topic. Betz K, Bribery P (2017) Fraud and money laundering in international arbitration: on applicable criminal law and evidence. Cambridge University Press. See also Yackee J (2012) Investment treaties and investor corruption: An emerging defense for host states. Va J Int Law 52:723. Other scholars have looked more generally at unlawfulness and illegality in investment arbitration, although much of this work regards the treatment of the investor’s non-corruption related violations of domestic law. See, e.g., Douglas Z (2014) The plea of illegality in investment treaty arbitration. ICSID Rev 29:155; Kreindler R (2013) Competence-competence in the face of illegality in contracts and arbitration agreements. In: Recueil des Cours, Collected courses of the Hague Academy of International Law, vol 361. p 131; Newcombe A (2011) Investor misconduct: jurisdiction, admissibility or merits? In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration, vol 187. Cambridge University Press; Schill SW (2012) Illegal investments in international arbitration. Available at https://doi.org/10.2139/ssrn.1979734.

  4. 4.

    Tax violations are another area of crime of which investment tribunals need to be aware, as are questions of smuggling and sanction-breaking. Because corruption and money laundering are the crimes that have attracted the most tribunal attention, these will be the focus of the rest of this chapter.

  5. 5.

    Kofi Annan, Forward, UN Convention against Corruption.

  6. 6.

    Transparency International, Anti-corruption Glossary (available at https://www.transparency.org/glossary/term/corruption; visited 26 May 2019).

  7. 7.

    Huntington S (1968) Political order in changing societies. Yale University Press. For a more recent article supporting the idea that in systems of poor governance, corruption can benefit the economy, see Houston DA (2007) Can corruption ever improve an economy? Cato J 27(3):325. Available at: https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2007/11/cj27n3-2.pdf, viewed 15 July 2019. Houston’s proposal is not to glorify corruption but rather to indicate that governance reform would be a more effective policy for growth than an anti-corruption agenda in many contexts. Because “many corrupt activities substitute for missing or misguided law,” “in many nations with poor property rights protection, the positive aspects of corruption on GDP outweigh the negative effects”. Id. at 326, 337.

  8. 8.

    For a compact overview of reasons, corruption is viewed as a threat to sustainable development, see Lopez-Claros A (2014) Nine reasons why corruption is a destroyer of human prosperity. http://blogs.worldbank.org/futuredevelopment/nine-reasons-why-corruption-destroyer-human-prosperity

  9. 9.

    http://www.oxfordscholarship.com/view/10.1093/oso/9780198809975.001.0001/oso-9780198809975-chapter-2

  10. 10.

    Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”). See Salbu SR (2017) Redeeming extraterritorial bribery and corruption laws. Am Bus Law J 54:641, 646. But see id. at 647–649 (recalling numerous conceptual and practical problems with the FCPA approach); Klaw BW (2012) A new strategy for preventing bribery and extortion in international business transactions. Harv J Legis 49:303, 370 (arguing that the implementation “strategy” of FCPA has been “ineffective, inefficient, incomplete, and, in some cases, unfair”).

  11. 11.

    Regional anti-bribery instruments include: African Union Convention on Preventing and Combating Corruption (in effect 5 August 2006) (https://au.int/en/treaties/african-union-convention-preventing-and-combating-corruption); Civil Law Convention on Corruption, Nov. 4, 1999, Eur. T.S. No. 174 (in effect 1 November 2003; https://www.coe.int/en/web/conventions/search-on-treaties/-/conventions/treaty/results/subject?_coeconventions_WAR_coeconventionsportlet_formDate=1563208643652&_coeconventions_WAR_coeconventionsportlet_mode=subject&_coeconventions_WAR_coeconventionsportlet_codesMatieres=43&p_auth=rUyBiNyF); Criminal Law Convention on Corruption, January 27, 1999, Eur. T.S. No. 173 (in effect 1 July 2002; https://www.coe.int/en/web/conventions/search-on-treaties/-/conventions/treaty/results/subject?_coeconventions_WAR_coeconventionsportlet_formDate=1563208643652&_coeconventions_WAR_coeconventionsportlet_mode=subject&_coeconventions_WAR_coeconventionsportlet_codesMatieres=43&p_auth=rUyBiNyF); Inter-American Convention Against Corruption, March 29, 1996, 35 I.L.M 724 (http://www.oas.org/en/sla/dil/inter_american_treaties_B-58_against_Corruption.asp).

  12. 12.

    OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, (in effect on 15 February 1999). The OECD Anti-Bribery Convention applies to all 36 of the OECD Member states as well as eight non-OECD countries. See http://www.oecd.org/corruption/oecdantibriberyconvention.htm (viewed 15 July 2019).

  13. 13.

    United Nations Convention Against Corruption (in effect 14 December 2005; https://www.unodc.org/unodc/en/corruption/tools_and_publications/UN-convention-against-corruption.html).

  14. 14.

    UNCAC, Art. 15(a), (b). The Convention’s Article 16 requires State Parties to criminalize the bribery of officials of international organizations.

  15. 15.

    While both active and passive bribery are condemned by the UNCAC, State Parties do not have to criminalize acts of bribery between private actors. For this reason, arbitral tribunals in commercial arbitration have more room for discretion in addressing bribery claims than do tribunals in treaty-based arbitration contexts.

  16. 16.

    Compare, e.g., United States Department of Justice, Criminal Resource Manual 2001–2099 at 2042 (available at https://www.justice.gov/jm/criminal-resource-manual-2042-elements-common-both-bribery-and-gratuity-offenses; viewed 26 May 2019).

  17. 17.

    UNCAC, Arts. 15-16 (defining the acts considered bribery as any inducement to an official to act or refrain from acting in his/her official capacity). See also, United Nations Office on Drugs and Crime, Anti-Corruption Policies and Measures of the Global Fortune 500, p. 2 (available on www.unodc.org).

  18. 18.

    See OECD Negotiating Conference, Commentaries on the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Article 1, Re-paragraph 1, at para. 3 (adopted 21 November 1997) (noting that “a statute which defined the offence in terms of payments ‘to induce a breach of the official’s duty’ could meet the standard” of the Convention’s rules on prohibiting bribery). The US Foreign Corrupt Practices Act, for example, categorizes facilitation payments as exceptions to bribery. 15 U.S.C. §78dd-1(b) (Exception for routine governmental action). Australia’s federal criminal statute, too, separates facilitation payments from bribes. Australia Criminal Code Act 1995, ss. 70.2(b) and 70.2(c)(ii) (provision on bribery describing the elements as including the intent to obtain an advantage that is “not legitimately due”).

  19. 19.

    OECD Convention, Art. 1 (criminalizing bribery “whether directly or through intermediaries”); UNCAC, Art. 16 (calling for criminalizing bribery “whether directly or indirectly” conducted).

  20. 20.

    For an illustrative analysis of the possible problems that can occur in agency relationships, see OECD Working Group on Bribery in International Business Transactions, Typologies on the Role of Intermediaries in International Business Transactions: Final Report (9 October 2009).

  21. 21.

    Different industries are susceptible to different types of fraud. Gambling, for example, considers cheating “gaming fraud,” a common law cause of action. See Smith JT (2017) Cheater’s justice: judicial recourse for victims of gaming fraud. UNLV Gaming Law J 7:61, 70–74. Stock market, or “securities fraud,” involves either untrue statements or omissions of a “material fact” of the investment relevant information regarding stock issues. Securities Act of 1933, 15 U.S.C. §77q(a) (2018). Corporate fraud often relates to company directors breaching their duties of care to shareholders by misappropriating funds or knowingly entering into financial transactions that they know are unsustainable. See Paolini A (2015) Auditors’ liability and corporate fraud in the UK: does corporate size and structure matter? J Bus Technol Law 10:245. Fisheries fraud includes any of four types of misleading acts: mislabeling the species; mislabeling the weight; wrongly adding color or water to the fish; or using a shipping route to avoid customs regulations. Lampert T (2017) Note: stopping illegal fishing and seafood fraudsters: the Presidential Task Force’s Plan on tackling IUU fishing and seafood fraud. Boston Coll Law Rev. 58:1629, 1632–1633. Computer fraud and health care fraud are also areas of growing legal attention in the United States thanks to specific legislation targeting them.

  22. 22.

    Chicago Title Insurance Company v. Union Avenue Holding, et al., 2019 N.J. Super. Unpub. LEXIS 46, at 11 (decided January 8, 2019) (quoting from Chicago Title Ins. Co. v. Union Ave. Holding, LLC, 2016 N.J. Super. Unpub. LEXIS 1689 (Law Div., July 14, 2016)).

  23. 23.

    L 198/29, Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017, on the fight against fraud to the Union’s financial interests by means of criminal law, Art. 3.2(a).

  24. 24.

    Chicago Title Insurance, supra, at 12. See also Avon Hardware Company, et al. v. Ace Hardware Corporation, 2013 IL App (1st) 130,750; 998 N.E.2d 1281; 2013 Ill. App. LEXIS 743; 376 Ill. Dec. 348 at ∗P23 (filed October 28, 2013) (“Although the Illinois Consumer Fraud and Deceptive [∗∗∗19] Business Practices Act (ICFA) does not require reliance, it does require materiality”; citing White v. Daimler Chrysler Corp., 368 Ill. App. 3d 278, 283, 856 N.E.2d 542, 305 Ill. Dec. 737 (2006)).

  25. 25.

    The European Commission’s European Anti-Fraud Office (OLAF) is tasked with “detect[ing], investigat[ing] and stop[ping] fraud with EU funds.” See OLAF, “What we do” https://ec.europa.eu/anti-fraud/about-us/mission_en (viewed 1 June 2019). The Office has the power to investigate allegations, conduct its own investigations, assist Member State authorities with evidence collection, and coordinate information exchange among Member States in relation to fraud charges that affect EU funds. Id.

  26. 26.

    JIU/REP/2016/4 (UN).

  27. 27.

    But see US v. Michael Piervinanzi, Daniel Tichio, and John M. Bookhart, Jr., 23 F.3d 670, 679-680 (2d Cir., 1994) (noting that for international financial transactions to qualify as money laundering under the US statute, the criminal transfer itself can function as both the predicate crime and the transfer of illegal proceeds).

  28. 28.

    See, FATF (2012) International standards on combating money laundering and the financing of terrorism and proliferation: The FATF recommendations (Updated 2018). Available at http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html. Viewed 1 June 2019.

  29. 29.

    For example, the Netherlands-Argentina bilateral investment treaty (BIT), at issue in the TSA Spectrum v. Argentina dispute, ICSID Case No. ARB/05/5, Award (19 December 2008), defines an “investment” as “every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party, in accordance with the laws and regulations of the latter Contracting Party […].” Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Argentine Republic, Art. 1(a) (1992).

  30. 30.

    Interestingly, the Kim v. Uzbekistan tribunal noted that its “conclusion in the present case is all the stronger where the relevant language is found in a specific clause delineating the scope of application of the BIT.” Kim v. Uzbekistan, para. 366.

  31. 31.

    The El Salvador-Spain BIT, at issue in Inceysa Vallisoletana v. El Salvador, ICSID Case No. ARB/03/26, Award (2 August 2006) states that the protections extend to investments “efectuadas, conforme a su legislacion.” Acuerdo para la Promocion y Proteccion Reciproca de Inversiones entre el Reino de España y la Republica de El Salvador, Art. 3(1) (20 February 1996).

  32. 32.

    The Álvarez y Marín Corp. et al. v. Panama tribunal found an implicit legality requirement in the bilateral investment treaty, noting that one can assume that the host would only limit its sovereignty by consenting to arbitration with an investor if the investor has complied with its national laws. Álvarez y Marín Corporación S.A., Bartus van Noordenne, Cornelis Willem van Noordenne, Estudios Tributarios AP S.A., Stichting Administratiekantoor Anbadi v. República de Panamá, ICSID Case No. ARB/15/14, Award, para. 135 (12 October 2018). As a result, a serious illegality at the time of establishing the investment will result in a finding of no jurisdiction. Id. at paras. 296, 401. The Cortec Mining v. Kenya tribunal also noted that there is no need for an explicit legality requirement in the BIT, adding that the ICSID Convention only offers protection to “lawful investments.” Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya, ICSID Case No. ARB/15/29, Award, para. 333 (22 October 2018).

  33. 33.

    Salini Costruttori S.p.A and Italstrade S.p.A v. Kingdom of Morocco, Decision on Jurisdiction, ICSID Case No. ARB/00/4, para. 46 (July 23, 2001).

  34. 34.

    Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/I8, Decision on Jurisdiction (April 29, 2004).

  35. 35.

    Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (August 2, 2006).

  36. 36.

    The Inceysa tribunal explicitly envisages lawfulness requirements as “limitations on consent,” and therefore clearly jurisdictional. Inceysa, paras. 184–189.

  37. 37.

    Salini v. Morocco, supra, at para. 46.

  38. 38.

    Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (II) ICSID Case No. ARB/11/12 para. 328 (10 December 2014).

  39. 39.

    Karkey Karadeniz Elektrik Uretim v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1 (August 22, 2017).

  40. 40.

    Karkey, para. 489.

  41. 41.

    L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire, ICSID Case No. ARB/05/3, Decision, para. 83(iii) (12 July 2006) (“des principes fondamentaux en vigueur”).

  42. 42.

    Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, para. 104 (6 February 2008) (giving fraudulent misrepresentation as an example).

  43. 43.

    Tokios Tokeles, para. 8

  44. 44.

    Tokios Tokeles, para. 86.

  45. 45.

    Kim v. Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction (8 March 2017).

  46. 46.

    Kim at para. 396 (emphasis removed).

  47. 47.

    Kim at para. 541.

  48. 48.

    Besides Kim v. Uzbekistan, see, e.g., Cortec v. Kenya; Metalpar S.A. and Buen Aire S.A. v. Argentine Republic, ICSID Case No. ARB/03/5, Decision on Jurisdiction (27 April 2006); Anderson v. Costa Rica.

  49. 49.

    See Kim, para. 172 (Respondent’s challenge to jurisdiction “and/or the admissibility” on the basis of corruption as a violation of international public policy); id. at para. 553 (discussing the corruption allegations as questions of jurisdiction insofar as they allege corruption at the time of establishing the investment).

  50. 50.

    Kim, para. 543.

  51. 51.

    Kim, para. 543.

  52. 52.

    See August Reinisch, Jurisdiction and Admissibility in International Investment Law, in: Andrea Gattini, Attila Tanzi, and Filippo Fontanelli, eds., General Principles of Law and International Investment Arbitration 130- (Brill-Martinus Nijhoff, 2018). Reinisch explains further that admissibility questions go to the “quality of a claim.” Id. at 132. See also Douglas Z (2014) The plea of illegality in investment treaty arbitration. ICSID Rev., 29(1):155 (arguing that the illegality defense is one that goes to the claim’s admissibility and not to the tribunal’s jurisdiction).

  53. 53.

    World Duty Free Company Limited v. Republic of Kenya, ICSID Case No. ARB/00/7, Award (4 October 2006). A domestic arbitration following the ICSID proceedings led to a finding in favor of the investor in December 2012, but that award was set aside on grounds of public policy by the Kenyan High Court. Damien Charlotin, Analysis: Kenyan High Court finds that an arbitral award secured by World Duty Free against Kenyan Airport Authority must be set aside as “in conflict with public policy” due to earlier findings of ICSID tribunal that bribery underlay the investment, IA Reporter, 9 October 2018; Kenya Airport Authority v. World Duty Free Ltd. t/a Kenya Duty Free Complex, [2018] eKLR, para. 15(2)8b)(ii) (available at http://kenyalaw.org/caselaw/cases/view/159886/). Kenya High Court Judge Tuiyott found that the ICSID award’s determination that a bribe had secured the contract underlying the investment was “a final pronouncement in respect to [its] illegal nature […] and […] that the Kenya Government was entitled to avoid it.” [2018] eKLR, para. 31.

  54. 54.

    WDF concluded the contract as a national of the United Arab Emirates. See ICSID Case No. ARB/00/7 para. 6 (with Article 9 of the contract).

  55. 55.

    Originally, the contract was between WDF’s company, House of Perfume.

  56. 56.

    Id.

  57. 57.

    Id. at para. 67.

  58. 58.

    The scheme involved the name of WDF as a receiver of precious stones and gold that it never received. Id. at para. 68.

  59. 59.

    Id. para. 70.

  60. 60.

    Interestingly, part of Kenya’s “Preliminary Preliminary Response” was that WDF’s fraud allegations were invalid because the statute of limitations on fraud had passed by then. Id. para.

  61. 61.

    WDF, para. 157.

  62. 62.

    WDF, para. 161 (quoting from H.G. Beale, ed., 1 Chitty on Contracts, 28th edition, para. 17-007 (Sweet and Maxwell 1999)).

  63. 63.

    WDF, paras. 166–181.

  64. 64.

    WDF, para. 178.

  65. 65.

    WDF, para. 178.

  66. 66.

    Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (February 8, 2005).

  67. 67.

    Plama, paras. 88, 126.

  68. 68.

    See Plama, para. 127.

  69. 69.

    Plama, para. 128.

  70. 70.

    Plama, para. 127–128.

  71. 71.

    Plama, para. 178.

  72. 72.

    Explicit on this point was the Pezold v. Zimbabwe Award, in which the tribunal faced a defense of inadmissibility on account of illegality and a reply by the investor that its invocation of the MFN clause would maintain the admissibility of its claim, even if, it suggested, jurisdiction would not be covered by MFN. The tribunal responded by saying that the difference “is immaterial” outside of the MFN context. Bernhard Pezold et al. v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, para. 346 (28 July 2015). The Annulment Committee maintained the blurred lines by asserting that the Respondent’s original admissibility defense meant that the Host could not invoke jurisdictional failures on this account in annulment proceedings. Berhard Pezold et al. v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Annulment Proceeding, paras. 285–287 (21 November 2018) (in dicta finding that Zimbabwe did not prove that a different finding would have changed the outcome of the case, therefore there was no “manifest” failure).

  73. 73.

    Plama, para. 129.

  74. 74.

    Fraport II, paras. 346–347.

  75. 75.

    See Lim K (2013) Upholding corrupt investors’ claims against complicit or compliant host states – where angels should not fear to tread. In: Yearbook on international investment law and policy 2011–2012. Oxford University Press, 601–680, paras. 75–79 (citing Fraport II, Kardassopoulos, Tokios Tokeles, Tecmed v. Mexico and Desert Line v. Yemen).

  76. 76.

    See Matt Reeder, State Corruption in ICSID BIT Arbitration: Can it be Estopped? Kluwer Arbitration Blog (9 March 2017) (http://arbitrationblog.kluwerarbitration.com/2017/03/09/state-corruption-in-icsid-bit-arbitration/ viewed 7 July 2019).

  77. 77.

    Ionnis Kardassopoulos v. Georgia, paras. 191–192. See also Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case No. ARB18413, Award, paras. 82–85 (20 May 1992).

  78. 78.

    Reporting on the unavailable tribunal award in the case of TRACO v. Poland suggests that the tribunal approached Poland’s jurisdictional objection based on fraudulent misrepresentation in an unusual manner. Luke Eric Peterson, “In Heretofore-confidential Traco v. Poland BIT Award, Veeder-Chaired Tribunal Canvases Prescription, Illegality, Estoppel Objections, and Concurrent Causation,” IA Reporter, 19 February 2019 (https://www.iareporter.com/articles/in-heretofore-confidential-traco-v-poland-bit-award-veeder-chaired-tribunal-canvases-prescription-illegality-estoppel-objections-and-concurrent-causation/). The TRACO tribunal responded to Poland’s illegality claims by saying that they cannot “found an objection to the Tribunal’s jurisdiction, as distinct from the exercise of its jurisdiction or the admissibility of the Claimant’s claims, forming part of the merits of the Parties’ dispute.” Id.

  79. 79.

    Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award (8 December 2000).

  80. 80.

    Wena Hotels, para. 116.

  81. 81.

    The Kim tribunal referred to the illegality arguments’ “temporal dimension.” Kim, para. 374. If the legality requirement found in the BIT’s scope provision is limited to investments that are “made” in accordance with the laws, the temporal scope of the requirement ends with the establishment. Id. (“The word “made,” both in terms of its ordinary meaning and its use in the past tense, indicates that the test applies at the time the investment is established. It is not a requirement subsequent to the making of the investment”). See also id. at para. 375 (citing other awards that find similarly, including Quiborax v. Bolivia; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award (18 June 2010); and Metal-Tech v. Uzbekistan).

  82. 82.

    Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Award (16 August 2007) (“Fraport I”; this award was annulled on other grounds, see Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceeding, Art. 218 (23 December 2010)).

  83. 83.

    Fraport I, Award, para. 345 (initial emphasis supplied).

  84. 84.

    Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award (26 January 2006).

  85. 85.

    See Llamzon at 217 (table indicating that in the five cases reviewed in which the investor makes a claim of corruption, in four of them all the claims were dismissed and only in one was the claim “substantially” upheld).

  86. 86.

    EDF (Services) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award (8 October 2009).

  87. 87.

    EDF, para. 221.

  88. 88.

    See EDF, paras. 223–224, 227.

  89. 89.

    EDF, paras. 221, 237.

  90. 90.

    EDF, para. 221.

  91. 91.

    EDF, para. 221.

  92. 92.

    EDF, para. 221.

  93. 93.

    Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005).

  94. 94.

    RSM Production Corporation and others v. Grenada, ICSID Case No. ARB/10/6, Award (10 December 2010).

  95. 95.

    Methanex, Part I, Preface, p. 3. See also Howard Mann, The Final Decision in Methanex v. United States: Some New Wine in Some New Bottles (IISD, August 2005) (https://www.iisd.org/pdf/2005/commentary_methanex.pdf; viewed 17 July 2019).

  96. 96.

    Methanex, Part I, Preface, p. 5, para. 7.

  97. 97.

    Methanex, Part IV, Chapter D, page 5, para. 11. (“political contributions to candidates for office in the United States are not prohibited and there is no indication in the record, still less any allegation from Methanex, that ADM’s contributions were in violation of the law or that Mr. Davis behaved in violation of the law”).

  98. 98.

    Methanex, Part III, Chapter B, page 26, para. 56.

  99. 99.

    Methanex, Part III, Chapter B, pages 25–28, paras. 53–60.

  100. 100.

    Id.

  101. 101.

    RSM Production Company v. Grenada, ICSID Case No. ARB/05/14, Final Award (13 March 2009); RSM Production Company v. Grenada, ICSID Case No. ARB/05/14, Decision on RSM Production Corporation’s Application for a Preliminary Ruling of 29 October 2009 (Annulment Proceedings) (7 December 2009); RSM Production Company v. Grenada, ICSID Case No. ARB/05/14, Order of the Committee Discontinuing the Proceeding and Decision on Costs (Annulment Proceedings) (28 April 2011); Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation, ICSID Case No. ARB/10/6, Award (10 December 2010).

  102. 102.

    Interestingly, in the first arbitration brought by RSM, Grenada counter-claimed on the basis of an illegality claim against RSM. The tribunal denied the counterclaim. See Damon Vis-Dunbar, ICSID tribunal dismisses RSM Production Corporation’s Claim against Grenada, Investment Treaty News, 26 March 2009 (https://www.iisd.org/itn/2009/03/26/icsid-tribunal-dismisses-rsm-production-corporations-claim-against-grenada/; viewed 5 July 2019).

  103. 103.

    The tribunal was helped along in this by a contemporary New York court case in which RSM tried to use the Foreign Corrupt Practices Act (FCPA) against Grenada. In that case, the court refused to allow such a claim, finding that a private party could not invoke the FCPA. RSM Prod. Corp. v. Fridman, 643 F.Supp.2d 382 (S.D.N.Y. 2009). In dicta, however, it had stated that there was nothing to back up the claims of corruption anyway. The RSM tribunal was aware of the facts on which the NY court’s was based and the fact that the NY court had not found sufficient evidence to support a claim of corruption to back up its determination that Grenada had not acted illegally. Grynberg et al. v. Grenada at 7.1.24. See also Betz at 97-98. A final attempt to sue the lawfirm representing Grenada also failed. RSM Production v. Freshfields Bruckhaus Deringer, 800 F. Supp. 2d 182 (D.C. 2011).

  104. 104.

    Decision on RSM Production Corporation’s Application for a Preliminary Ruling of 29 October 2009, para. 30. The annulment committee ultimately dismissed the claim on unrelated grounds. Order of the Committee Discontinuing the Proceeding and Decision on Costs at para. 41.

  105. 105.

    Decision on RSM Production Corporation’s Application for a Preliminary Ruling of 29 October 2009, para. 29 (“the Committee’s function is to consider and determine the Applicant’s Request for Annulment. The Committee considers that the issues raised in the Application are not directly relevant to that Request”).

  106. 106.

    RSM v. Grenada, ICSID Case No. ARB/10/6, Award (10 December 2010).

  107. 107.

    The DC Circuit case brought against the lawfirm failed on grounds of res judicata, as the individuals named in the NY case were in privity with the lawfirm. RSM, 800 F.Supp.2d at III.B.2.

  108. 108.

    CMS Gas Transportation Company v Argentine Republic, ICSID Case No. ARB/01/8, Award, para. 208 12 May 2005).

  109. 109.

    RSM, ARB/10/6, paras. 7.2.24–7.2.25. See also 7.2.5–7.2.7.

  110. 110.

    Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award (19 May 2010).

  111. 111.

    Anderson v. Costa Rica, para. 53.

  112. 112.

    Anderson v. Costa Rica, para. 55.

  113. 113.

    Anderson v. Costa Rica, para. 55.

  114. 114.

    Anderson v. Costa Rica, para. 57.

  115. 115.

    Anderson v. Costa Rica, para. 58.

  116. 116.

    ICC Case No. 1110 of 1963 by Gunnar Lagergren, YCA 1996, at 47 et seq. (text available at https://www.trans-lex.org/201110/_/icc-award-no-1110-of-1963-by-gunnar-lagergren-yca-1996-at-47-et-seq-/; viewed 19 July 2019).

  117. 117.

    ICC Case No. 1110, para. 17.

  118. 118.

    Judge Lagergren’s statement on the effects of bribery on international arbitration have become much-cited by tribunals who choose to apply the corruption defense:

    16. Finally, it cannot be contested that there exists a general principle of law recognised by civilised nations that contracts which seriously violate bonos mores or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators […].

    17. Now, reverting to the facts in this case. – As might be expected the documents drawn up seem on their face to be legal and bear the semblance of ordinary commercial documents. However, it is, in my judgment, plainly established from the evidence taken by me that the agreement between the parties contemplated the bribing of Argentine officials for the purpose of obtaining the hoped-for business.

    18. In saying this I do not mean to imply that Mr. [X] had no more to do than to hand over a commission to his respective collaborators; on the contrary, I am convinced that Mr. [X] had to perform other, important, and quite irreproachable, functions. This has to be taken into consideration, but does not obscure the general image that the major part of the commissions to be paid to him were to be used for bribes.

    19. Even so, however, there are other circumstances which should be taken into account before it could be established that the action brought before me seriously affects bonos mores. I have to accept [Witness 3’s] statement that during the Peron regime everyone wishing to do business in the Argentine was faced with the question of bribes, and that the practice of giving commissions to persons in a position to influence or decide upon public awards of contracts seems to have been more or less accepted or at least tolerated in the Argentine at that time. On the other hand it must be remembered that we have to do here not with a mere favour which could be overlooked, or even with the “little bit of money” […]. Huge amounts are involved […].

    20. Although these commissions were not to be used exclusively for bribes, a very substantial part of them must have been intended for such use. Whether one is taking the point of view of good government or that of commercial ethics it is impossible to close one’s eyes to the probable destination of amounts of this magnitude, and to the destructive effect thereof on the business pattern with consequent impairment of industrial progress. Such corruption is an international evil; it is contrary to good morals and to an international public policy common to the community of nations. […]

    23. After weighing all the evidence I am convinced that a case such as this, involving such gross violations of good morals and international public policy, can have no countenance in any court either in the Argentine or in France, or, for that matter, in any other civilised country, nor in any arbitral tribunal. Thus, jurisdiction must be declined in this case. […] Parties who ally themselves in an enterprise of the present nature must realise that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.

    See (https://www.trans-lex.org/201110/_/icc-award-no-1110-of-1963-by-gunnar-lagergren-yca-1996-at-47-et-seq-/; viewed 6 July 2019).

  119. 119.

    Metal-tech v. Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013).

  120. 120.

    Metal-tech, para. 293.

  121. 121.

    Metal-tech, paras. 194ff.

  122. 122.

    Metal-tech, para. 371.

  123. 123.

    Metal-tech, para. 372.

  124. 124.

    Metal-tech, para. 422.

  125. 125.

    Metal-tech, para. 422.

  126. 126.

    ASA, Arbitration and Corruption (Geneva, 1 February 2019).

  127. 127.

    Competence Centre Arbitration and Crime and Basel Institute on Governance, Corruption and Money Laundering in International Arbitration: A Toolkit for Arbitrators (2019).

  128. 128.

    See UNCTAD, Taking Stock of IIA Reform: Recent Developments, IIA Issues Note (June 2019) (describing the content of the new IIA and listing which new treaties have which new features). See particularly id. at 9 (table 1 explains the “Salient features of new IIAs,” including “parity,” which refers to the no corruption requirement).

  129. 129.

    Agreement for the Reciprocal Promotion and Protection of Investments Between the Argentine Republic and the United Arab Emirates (signed 16 April 2018; not yet in force).

  130. 130.

    Annex to the Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between the European Union and its Member States, of the one part, and the Socialist Republic of Viet Nam of the other part, Brussels, 17.10.2018 COM(2018) 693, ANNEX 1, Section B, Subsection 1, Article 3.27(2).

  131. 131.

    Treaty between the Republic of Belarus and the Republic of India on Investments (signed 24 September 2018) (“India-Belarus BIT”).

  132. 132.

    India-Belarus BIT, Art. 1.4.

  133. 133.

    India-Belarus BIT, Art. 2.1.

  134. 134.

    India-Belarus BIT, Art. 13.3.

  135. 135.

    Id.

  136. 136.

    Argentina-UAE BIT, Art. 14.

  137. 137.

    Agreement Between Japan and the United Arab Emirates for the Promotion and Protection of Investment), (signed 30 April 2018) (“Japan-UAE BIT”).

  138. 138.

    Japan-UAE BIT, Art. 3(1).

  139. 139.

    Japan-UAE BIT, Art. 10.

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  1. Swiss Institute of Comparative Law, Lausanne, Switzerland

    Krista Nadakavukaren Schefer

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  1. Faculty of Law, The Chinese University of Hong Kong, Shatin, Hong Kong

    Julien Chaisse

  2. Professor of International Law; and Director of the Research and Innovation Theme in Democratic Citizenship, University of Portsmouth, Portsmouth, UK

    Leïla Choukroune

  3. Institute of Malaysia and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia

    Sufian Jusoh

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Nadakavukaren Schefer, K. (2020). Crime in International Investment Arbitration. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_47-1

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