The Corruption Defense in Investment Disputes: A Discussion of the Imbalance between International Discourse and Arbitral Decisions
Transnational Dispute Management, Vol. 6, No. 1, March 2009
19 Pages Posted: 15 Aug 2010
Date Written: March 2009
Corruption is a defense to expropriation. Disputes submitted for arbitration look to international conventions and domestic laws that universally chastise corruption. Arbitrators are accordingly willing to punish those that participate in such illicit conduct through the denial of a favorable award. But the actual operation of the corruption defense raises uncertainty with respect to how the defense is applied, uncertainty that often leads to inequitable results; between two parties that engaged in corrupt practices, one will not recover their expenses and one will walk away with an economic windfall.
Arbitrators should be concerned with the impact and harms of a corrupt practice on the daily lives of a country’s citizens, but the interests of this unrepresented group are not reflected in arbitral awards. Corruption poses risks of harm to four separate targets: the host state, citizens of the host state, investors, and the independent judgment of arbitrators.
This paper proposes a shift in the corruption defense to reflect the apparent evils that normative policies against corrupt practices are designed to address. Arbitrators should consider whether a cognizable harm was caused by the investment to determine if the influence and benefits exchanged in a corrupted agreement were in fact ‘undue’ and thus whether the defense of corruption applies to a dispute.
Keywords: corrupt, investment, arbitration, culture
JEL Classification: J52, M14
Suggested Citation: Suggested Citation