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Arbitration and Corruption: The Importance of the Seat of Arbitration
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1. The Notion of Corruption
[...]There are different forms of corruption. According to a well-accepted definition embedded in national laws and international instruments, bribery involves intentionally offering, promising or giving any undue pecuniary or other advantage to an official or decision maker, with the intention that the official or decision maker acts or refrains from acting in relation to the
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performance of their duties.4 Different types of bribery that arbitrators are likely to face when ruling on international commercial disputes are (i) kickbacks, which is a form of bribe paid to a person of influence within an organisation, in return for them securing some kind of benefit from their organisation for the person paying the bribe, whereby the organisation granting the contract is not aware of the payment to its official; (ii) secret commissions which are a form of bribery whereby an agent requests or accepts a payment to influence a contract, for instance to make sales in an overseas market, for the benefit of the payer, without the knowledge or consent of their principal; (iii) facilitation payments are made by a business to a government official in order to encourage or ensure that the official performs his or her normal duties, for instance a payment to a customs official to avoid unnecessary delays on clearing a shipment of goods (in many countries such payments are not illegal);5 (iv) influence peddling or trading or trafficking in influence occurs where an official seeks to obtain payment in return for using their influence to secure an undue advantage or favour for the payer.
Other forms of corruption include embezzlement and extorsion. Embezzlement concerns a public or private official appropriating money or other assets that they have been entrusted with in their official capacity. Embezzlement is a kind of financial fraud, which often involves the falsification of documents and records over a long period of time, while small amounts are regularly secreted in a systematic manner. Extortion is the illegal use of a person’s position to forcefully demand payment in return for granting an undue economic advantage. Like bribery, in extortion a payment is made to a person who is in a position of power or influence. However, in the case of extortion, the person in the position of power or influence demands the payment and does so using intimidation, threats or force.
There is today a consensus as to the definition of corruption at the international level which is beneficial for the international arbitration and provides certainty for arbitrators when ruling on the issues of corruption. Over the last two decades, most national laws have integrated the rules on private sector corruption in addition to those on corruption in the public sector. International anti-corruption legislation, such as the United Nations Convention Against Corruption (UNCAC), already includes privatetoprivate corruption.6
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3. The Judicial Review of the Issues of Corruption in Arbitration at the Setting Aside and Enforcement Stages
As we have seen above, it is beyond any doubt today that corruption is part of the transnational public policy which constitutes a ground for setting aside and refusal of enforcement of an arbitral award in most jurisdictions. Article 34(2)(b)(ii) of the UNCITRAL Model Law provides for the setting aside of an award on grounds of public policy in the following terms: “An arbitral award may be set aside by the court specified in article 6 only if: (...) the court finds that: (...) the award is in conflict with the public policy of this State”. Most developed national laws of arbitration are broadly similar to the UNCITRAL Model Law in this regard.[...]
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4. Conclusion
The last few decades have witnessed a consistent trend at national and international levels to reinforce the fight against corruption which has huge social and economic consequences for the society.50 It is in the interest of international arbitration as a generally accepted method of dispute resolution to be part of this trend and ensure that what is perceived as a “private” dispute resolution method does not in any way assist parties in hiding corrupt practices.At the same time, an allegation of corruption is a very serious one and has drastic consequences if proven, stretching from the possible invalidation or invalidity of the contract or at a later stage a potential annulment of an arbitral award as contrary to public policy to criminal prosecution of the actors involved. Thus, any judicial review of an arbitral award based on the grounds of corruption requires a certain threshold of evidence of corrupt practices and should not be based on unsubstantiated allegations or mere indirect evidence.
This threshold seems to vary between the main arbitral jurisdictions in Europe, being probably the highest in Switzerland, followed by England, with the recent French case law creating a risk of annulment of arbitral awards based on simple doubts of corruption. This divergence in approach between different national judges sheds light on the importance of the choice of the seat of arbitration and of the jurisdictions where the award will be enforced at a later stage.
Another consequence of this divergence resulting from the comparative analysis of the French, English and Swiss case law, is the existence of and the requirements for the duty of the arbitrators to raise the issue of corruption sua sponte and to request evidence from the parties relating thereto. Such sua sponte inquiries by the arbitral tribunals are necessarily expensive and time-consuming. It is also questionable whether they are consistent with an adversarial system such as arbitration.51 The so-called “red flags” of corruption discussed above in this article may constitute important indicators which could justify a sua sponte inquiry into corruption by arbitral tribunals.
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Ultimately, whether to raise the issue of corruption sua sponte is a fine balance that arbitral tribunals should strike in each specific case taking into account the particular factual circumstances of each case, the presence and the number of the so-called “red flags”, the evidence on the record and that available in the public domain as well as the review threshold set out by the case law of the national courts of the jurisdiction of the seat of the arbitral tribunal and of the jurisdictions where the award is likely to be enforced.
4On the definition of corruption, see also D. BAIZEAU, T. HAYES, The Arbitral Tribunal’s Duty and Power to Address Corruption Sua Sponte; A. MENAKER (ed.), International Arbitration and the Rule of Law: Contribution and Conformity, ICCA Congress Series, Vol. 19, Kluwer 2017, pp. 225 - 265 at p. 228 f.
5For instance, facilitation payments (otherwise known as ― speed or ― grease payments) to foreign public officials, which are payments made with the purpose of expediting or facilitating the provision of services or routine government action which an official is normally obliged to perform, are condemned under the UK Bribery Act 2010, though they are not specifically prohibited under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”), which leaves state parties to decide whether such payments are unlawful. Facilitation payments are expressly permitted within the defined limits in the United States by virtue of the Foreign Corrupt Practices Act 1977 (“FCPA”). See M. HWANG S.C., K. LIM, Corruption in Arbitration – Law and Reality, Herbert Smith-SMU Asian Arbitration Lecture, 4 August 2011, Singapore, para. 4 with further references, available under https://cdn.arbitration-icca.org/s3fs-public/document/media_document/media013261720320840corruption_in_arbitration_paper_draft_248.pdf.
6Art. 15 UNCAC deals with the bribery of national public officials. Art. 16 of the same Convention defines the bribery of foreign public officials and officials of international organizations. Art. 21 of the Convention reprimands corruption in the private sector.
50See in particular the works of Transparency International which describes itself as a non-profit “Global Anti-Corruption Coalition”.
51D. BAIZEAU, T. HAYES, op. cit. at footnote 4, p. 227.