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The Viability of Corruption Defenses in Investment Arbitration When the State Does Not Prosecute

Published on April 15, 2015        Author: 

Corruption has become a focal point in international investment arbitration, as investors and respondent States both have alleged corruption as the basis for claims and defenses in a number of recent investment arbitrations. Decisions in cases such as World Duty Free v. Kenya and Metal-Tech v. Uzbekistan confirm that corruption is contrary to international public policy and the laws of nearly all nations. Accordingly, if an investment tribunal finds that the investor obtained its investment through corruption, the tribunal will conclude that it lacks jurisdiction over the dispute or that the investor’s claims are inadmissible.

Certain commentators have suggested, however, that respondent States should be required to prosecute the allegedly corrupt parties in order to raise defenses based on corruption. A threshold question thus is whether a State should be deemed to have acquiesced in the alleged corruption and thus be estopped from asserting any related defenses, if it failed to prosecute the allegedly responsible individuals.

As early as 2000, the tribunal in Wena Hotels v. Egypt remarked that it was “reluctant to immunize Egypt from liability in this arbitration,” because the government of Egypt had been aware of the consulting agreement that allegedly was used to conceal corrupt payments, and had “decided (for whatever reasons) not to prosecute” the consultant (para. 116). More recently, in the set-aside proceeding of Congo v. Commisimpex, the Paris Court of Appeal held that Congo’s mere allegations of a general climate of corruption within the government administration, without indicating the persons likely to be involved in the corruption or prosecuting the alleged beneficiaries of the corruption, were an insufficient basis to set aside the award against Congo. Notwithstanding the comments in these decisions regarding the State’s failure to prosecute, the State’s failure to prosecute was not dispositive in either case, because neither the Wena tribunal nor the Paris Court of Appeal was presented with persuasive evidence of corruption. As the Wena tribunal explained, Egypt bore “the burden of proving such an affirmative defense” of corruption, and had “failed to present any evidence that would refute Wena’s evidence that the [consulting agreement] was a legitimate agreement. . . .” (para. 117). Read the rest of this entry…

 
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