Bribery, corruption and money laundering undermine democratic systems and harm the reputation of international trade. The main issues for consideration when allegations of such conduct are alleged during international arbitration are as follows:
Tribunals' Powers & Jurisdiction
The United Nations Convention Against Corruption and the OECD Anti-Bribery Convention give internationally approved definitions of bribery, corruption and money laundering. Where allegations of such conduct are raised, tribunals should ensure they have appropriate jurisdiction. The principle of 'kompetenz-kompetenz' permits the tribunal to decide on its own jurisdiction and is contained in the majority of arbitration rules, albeit recognising that the tribunal's decision can be subsequently reviewed by a court. Under the doctrine of separability an arbitration agreement is viewed as distinct from the main contract and, as such, corruption of the latter will not usually impact on the validity of the arbitration clause.
Once jurisdiction has been accepted by the tribunal they must then consider the alleged conduct by referring to national and international law, as well as transnational public policy.
Evidencing Economic Crime
It is recognised practice for the burden of proof to rest with the party alleging illegality. In respect of the standard of proof, the majority of arbitration rules leave this to the arbitrators' discretion, so the applicable standard will usually be based on the applicable law. Consequently whilst arbitrators frequently use the 'balance of probabilities' or 'inner conviction' standards, the higher 'clear and convincing' standard as seen in Westinghouse and another v National Power Co and the Republic of the Philippines (ICC Case No 6401) is often applied to corruption allegations. In a practical sense, tribunals lack investigative powers and resources when compared to state courts and law enforcement bodies. Whilst lacking coercive powers, when investigating the alleged illegality arbitrators can ask for evidence from the parties that would support or rebut the allegations. Red flags such as inaccurate/ incomplete financial statements or the lack of traditional documentation proving a normal commercial relationship can provide circumstantial proof to evidence illegality. Further, if the tribunal requests that a party produce specific evidence to rebut the allegations but they fail to do so without convincing reasons, then adverse inferences may be drawn by the arbitrators, as was the case in Metal-Tech Ltd v Republic of Uzbekistan (ICSID Case No ARB/10/3).
Consequences of Establishing Illegality
On 30 May 2019, the University of Basel's Competence Centre, Arbitration and Crime (UBCCAC) and the Basel Institute on Governance published Corruption and Money Laundering in International Arbitration: A Toolkit for Arbitrators. Although the national law applicable to the dispute will in principle decide the legal consequences, the toolkit sets out the probable legal consequences for when arbitrators have established illegality. Contracts for bribery are usually unenforceable under national laws, whilst contracts procured by bribery, whilst not necessarily being null and void, may well be unenforceable due to a party being victim to corruption, as was the case in World Duty Free v Republic of Kenya (ICSID Case No ARB/007). Sham arbitration for money laundering purposes should lead to tribunals denying arbitrability and jurisdiction or declaring claims inadmissible. Alternatively if the dispute is genuine but involves funds of an illicit origin, the tribunal should consider holding all claims involving those funds inadmissible.
With the scale of corruption uncovered by Operation Car Wash in Brazil and the consequent political and economic turmoil still fresh in the memory, arbitrators will continue to play an important role in identifying economic crime, whilst protecting the integrity of international arbitration as a mechanism for resolving international disputes.