The Authority of Arbitration in Determining the Liability of Multiple Actors in Foreign Investment Corruption

Document Type : Original Article

Authors

1 Department of Private Law, Faculty of Law, Farabi Campus, University of Tehran, Tehran, Iran

2 Department of Private Law, Farabi Campus, University of Tehran, Tehran, Iran

Abstract

The importance of investment and the necessity for its legality, alongside the occurrence ofcorruption due to the involvement of multiple actors in the investment process, render itsexamination - especially in arbitration - unavoidable. Corruption may manifest through foreigninvestors and pressures from their home states or affiliated intermediaries, taking the form ofbribery and collusion with domestic officials of the host state or through threats against them.Furthermore, the emergence of corruption may stem from structural weaknesses or corruption-laden processes within the host state’s system. At times, a combination of all the aforementionedfactors, alongside the involvement of third parties, can create a corrupt and illegal investmentprocess. Given the private nature of arbitration, the primary question arises: does an arbitraltribunal possess the jurisdiction and authority to examine and determine the liability of each ofthe aforementioned actors? Through an analytical and documentary investigation, this articleestablishes that, firstly, arbitral tribunals generally do not have the power to investigate criminalbehavior and related inquiries; secondly, due to secrecy and threats against witnesses, collectingand maintaining the security of evidence within the sovereign territory of the host state ischallenging; thirdly, ICSID tribunals often rely on the “balance of probabilities” and significantlyon “red flags” and reports from anti-corruption organizations. Fourthly, the consideration of theinitiating factor of corruption, the degree of influence of participating actors (the prevalenceof corruption in the host state and the level of the host state’s involvement in the occurrenceof corruption), as well as the circumstances of “duress” and “hostage” situations and thenature of the bribe (transactional / variance), may lead, depending on the case, to the completecondemnation of the investor ( and a finding that the investment is unjust) or a reduction ofliability or immunity for the host state.

Keywords

Main Subjects

References

Llamzon AP, Corruption in International Investment Arbitration (Oxford University Press 2014) https://doi.org/10.1093/law/9780198714262.001.0001 accessed 20 November 2024.
Menaker A, International Arbitration and the Rule of Law (vol 19, Kluwer Law International 2017).
Rose-Ackerman S and Palifka BJ, Corruption and Government (2nd edn, Cambridge University Press 2016) https://doi.org/10.1017/cbo9781139962933 accessed 20 November 2024.
Teramura N, Nottage L and Jetin B, Corruption and Illegality in Asian Investment Arbitration (Springer Nature 2024) https://doi.org/10.1007/978-981-99-9303-1 accessed 20 November 2024.
Tussupov A, Corruption and Fraud in Investment Arbitration (Springer International Publishing 2022) https://doi.org/10.1007/978-3-030-90606-1 accessed 20 November 2024.
Articles
Busco P, ‘The Defence of Illegality in International Investment Arbitration: A Hybrid Model to Address Criminal Conduct by the Investor, at the Crossroads between the Culpability Standard of Criminal Law and the Separability Doctrine of International Commercial Arbitration’ (2018) https://theses.hal.science/tel-03494710 accessed 20 November 2024.
Dalir R, Delshad E and Amini I, ‘Evaluation of Evidence and Standards of Proof in International Commercial Arbitration’ [2023] 19 Comparative Law Quarterly 245 (In Persian).
Galagan D, ‘Provisional Measures in International Arbitration as a Response to Parallel Criminal Proceedings’ (University of Victoria 2019) http://hdl.handle.net/1828/10822 accessed 20 November 2024.
Mills K, ‘Corruption and Other Illegality in the Formation and Performance of Contracts and in the Conduct of Arbitration Relating Thereto’ (2006) 3 TDM 2.
Ong SS, ‘Dismantling the Safe Harbour: Solving the Evidentiary Problems in Corruption Allegations in Investor-State Arbitration’ (2019) SSRN Electronic Journal http://dx.doi.org/10.2139/ssrn.3708186accessed 20 November 2024.
Raeschke-Kessler H and Gottwald D, ‘Corruption in Foreign Investment-Contracts and Dispute Settlement between Investors, States, and Agents’ (2008) 9 Journal of World Investment & Trade 1.
Reisman DAA, ‘Apportioning Fault for Performance Corruption in Investment Arbitration’ (2021) 37 Arbitration International 1 https://doi.org/10.1093/arbint/aiaa044 accessed 20 November 2024.
Schill SW, ‘Illegal Investments in Investment Treaty Arbitration’ (2012) 11 Law & Practice of International Courts and Tribunals 281 https://doi.org/10.1163/157180312X640697 accessed 20 November 2024.
Torres-Fowler R, ‘Undermining ICSID: How the Global Antibribery Regime Impairs Investor State Arbitration’ (2012) Virginia Journal of International Law https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2322129 accessed 20 November 2024.
Uilenbroek L, ‘The Power of Investment Tribunals to Enjoin Domestic Criminal Proceedings’ (2020) 36 Arbitration International 323 https://doi.org/10.1093/arbint/aiaa018 accessed 20 November 2024.
Valle MD and de Carvalho PS, ‘Corruption Allegations in Arbitration: Burden and Standard of Proof, Red Flags, and a Proposal for Systematization’ (2022) 39 Journal of International Arbitration 817.
Yan Y, ‘Returning the Home State to the Global Anti-Corruption Campaign’ (2023) 14 Journal of International Dispute Settlement 469 https://doi.org/10.1093/jnlids/idad016 accessed 20 November 2024.
Yin H, ‘The ICSID Tribunals in Deciding International Investment Corruption Cases: Possible Solutions’ (2020) 6 China and WTO Review 351 https://doi.org/10.14330/cwr.2020.6.2.05 accessed 20 November 2024.
Cases
EDF (Services) Ltd v Republic of Romania (ICSID Case No ARB/05/13, Procedural Order No 3, 29 August 2008)
Lao Holdings N.V. v Lao People's Democratic Republic (ICSID Case No ARB(AF)/12/6)
Quiborax S.A., Non-Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia (ICSID Case No ARB/06/2)
Siemens A.G. v. Argentine Republic (ICSID Case No ARB/02/8, Award, 6 February 2007)
Tethyan Copper Company Pty Ltd v Islamic Republic of Pakistan (ICSID Case No ARB/12/1)
Unión Fenosa Gas, S.A. v. Arab Republic of Egypt (ICSID Case No ARB/14/4)
Iranian Journal of International and Comparative Law
Volume 3, Issue 1
June 2025
Pages 130-146

Files

Share

How to cite

Statistics