United States: Anti-Corruption In International Arbitration: A Toolkit For Arbitrators

Last Updated: July 3 2019
Article by Anna Gaudoin

Last month, the Competence Centre Arbitration and Crime, together with the Basel Institute on Governance, released a toolkit for arbitrators aimed at helping them to identify and deal with allegations of corruption and money laundering in international arbitration.1 Acknowledging that international public policy increasingly demands attention to these important issues in arbitration, the toolkit sets out a step-by-step guide to help arbitrators recognise corruption, investigate it, and consider the possible consequences for the arbitration going forward. 

However, while the toolkit provides a basic framework, the detail of how each step should be applied is, at times, somewhat vague. It is evident throughout, particularly with regards to the choice of law and the burden and standard of proof, that there is scope for confusion and inconsistency, and that the consequences of a finding of corruption will largely be left to the arbitrator's discretion. It is therefore possible that more than one divergent body of jurisprudence may develop which may contribute to misunderstandings and, ultimately, a lack of clarity in how corruption allegations in arbitrations should be handled.

Which law applies?

The first section of the toolkit deals with how to identify potential allegations of corruption in an arbitration, outlining a non-exhaustive list of "red flags" which arbitrators should look out for. The indicators, such as disproportionate remuneration and a lack of proper documentation, are familiar hallmarks of corruption cases and provide a strong foundation on which an arbitrator can build. 

However, problems arise when moving on to the next stage of the guide: identifying and applying the relevant national (and international) concepts and laws. Although the toolkit provides some helpful definitions of bribery and corruption from international treaties such as the 2003 UN Convention against Corruption and the 1997 OECD Anti-Bribery Convention, confusion arises when attempting to distil exactly which national criminal law is applicable to the particular allegations. 

On one hand, a contract's governing law clause should provide a helpful starting point; on the other, the principles of territoriality (that a state exercises jurisdiction if bribery has been committed in its territory) and nationality (that a state exercises jurisdiction if a national of that state was involved in bribery anywhere in the world) could provide second, or even third, options as to what is the applicable criminal law. 

Such a conflict of laws could realistically lead to a situation in which conduct may be deemed illegal under one option but legal under another. Which is the arbitrator to apply? There is no correct answer, and the toolkit provides little guidance. This creates a very real danger that corruption may go unchecked, either intentionally or unintentionally, based on the choice of law applied.

The standard and burden of proof

A similar pitfall arises in the context of both the standard and burden of proof. 

The guide suggests three possible standards of proof: firstly, the "balance of probabilities", which is known and accepted to be the default standard in UK civil litigation, and would be applied if criminal allegations were made during such proceedings; secondly, the "clear and convincing evidence" standard, which is a higher threshold than the balance of probabilities; and finally, the principle of "intime conviction" – an arbitrator's inner conviction that there is enough evidence to substantiate the corruption allegations. Not only do these variations again risk inconsistency of outcomes, but, given the potential for a more stringent standard to be applied than in civil litigation, could make establishing corruption in arbitration more difficult than would be in other forums of dispute resolution.

The toolkit approaches the burden of proof as a primarily fact-finding exercise, suggesting that both parties may be asked for further evidence to substantiate factual assertions. However, it goes further than this, stating that "arbitrators may ask the party that denies the corruption allegations to produce supporting evidence to prove the facts." This, effectively, is a reverse burden of proof: a party is being asked to prove that no corruption occurred i.e. to prove a negative. This is something which in many situations will be nigh on impossible, and is one of the primary reasons why, in the case of most UK criminal offences, the burden is on the party alleging criminal conduct to prove its case to the requisite standard. If an arbitrator chooses to impose a reverse burden of proof, this, again, could lead to unfairness and inconsistencies, both between arbitrations and as against the wider civil and criminal justice system.

What are the consequences?

The big question hanging over most arbitrations, and the one with which most parties will be most concerned, is: what happens if allegations of corruption are proven? This will of course vary, both depending on when the corrupt activity occurred and how severe it was. At the most extreme end, the toolkit suggests that it is possible that a claim could be rendered completely inadmissible if it is based on an investment procured by corruption. When compared to an analogous situation in civil proceedings, this seems draconian. While a substantiated allegation of corruption in litigation could result in a party being deemed to have come to the process with "unclean hands" and thus barred from equitable remedies, this would ordinarily not jeopardise the entirety of the claim; default remedies such as damages would usually remain available. Alternatively, in cases where corruption has occurred during the performance of a contract, an arbitrator could take a more holistic view, balancing the practical effects of corruption against the untainted remainder of the claim.

The key here will be proportionality. The real effects of corrupt conduct may pale into insignificance when compared to the value of a multi-billion-dollar contract or investment, and corruption allegations should not be used as a get-out-of-jail free card for parties seeking to evade their contractual obligations. At the same time, however, it must be acknowledged that often corruption is endemic, and efforts must be made to ensure that parties cannot profit from it. A fine balance must be struck, made all the more difficult by the fact that criminal allegations are being made in the context of a commercial dispute.

A balancing act

The new toolkit provides a solid framework to assist arbitrators in identifying and handling allegations of corruption which may arise in international arbitration. Due to the fact that these disputes are, by there very nature, international, there will be inevitable conflicts of laws and inconsistencies in how those laws are applied. It may be that the dynamic nature of such disputes means that hard and fast rules will never be appropriate, but, nonetheless, care must be taken to ensure that, in the absence of accepted and agreed norms relating to issues such as the standard and burden of proof, the wide discretion available cannot be manipulated for the gain of either party. However, the guide is a sensible and much-needed first step in the right direction, helping to raise awareness of these important issues and providing arbitrators with the tools to handle them.


1 Corruption and Money Laundering in International Arbitration: A Toolkit for Arbitrators 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions