VJIL Symposium: Andrea Bjorklund and Daniel Litwin Comment on “Investment Treaties and Investor Corruption”

[Andrea K. Bjorklund is currently the Visiting Professor (Guest of the L. Yves Fortier Chair in International Commercial Arbitration), McGill University Faculty of Law; she is also a Professor of Law at the University of California, Davis. Daniel Litwin is a B.C.L./LL.B. Candidate, McGill University Faculty of Law.]

This post is part of the Virginia Journal of International Law/Opinio Juris Symposium, Volume 52, Issue 3. Other posts in this series can be found in the related posts below.

Thank you very much to the Virginia Journal of International Law and Opinio Juris for hosting this series of discussions. We are very happy to participate.

Jason Yackee’s Essay takes what might be described as an orthodox position on corruption. It rests on a long line of international commercial arbitration precedents whose focus has consistently been on the “supply” side of corruption and not on its “demand” side. (We are grateful to McGill student David Rapps for this nomenclature). This focus on the “bribe payer” (supply side) is reminiscent of the approach taken by the US Foreign Corrupt Practices Act and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Professor Yackee adopts this same focus in suggesting that an investor’s corrupt or fraudulent behavior should prevent it from taking advantage of the protections afforded by any applicable investment treaty.

Yet experience in the fight against drug trafficking suggests that seeking to limit supply without eradicating demand will never be successful. The UK apparently takes this view: its recently-adopted Bribery Act penalizes both bribing (supply side) and receiving bribes (demand side). The same even-handed approach to fighting corruption is present in the anti-bribery laws of Germany and of China. We too believe that if both an investor and a host state engage in corrupt behavior, sanctioning both is the best way to achieve the goal of eradicating corruption that has animated the international community (at varying levels of enthusiasm) for the past several decades.

Like Professor Yackee, we agree with the position taken by the tribunal in World Duty Free v. Republic of Kenya that corruption is properly viewed as a violation of transnational public policy or truly international public policy. We cannot, however, agree with his refusal to adopt a balanced approach that would proportionally ascribe blame to all parties involved in a corrupt exchange. Penalizing only the party actively committing the wrong is reminiscent of the approach taken in the investor misconduct cases cited by Professor Yackee. But in both Inceysa Vallisoletana S.L. v. Republic of El Salvador and Plama Consortium Ltd. v. Republic of Bulgaria the investors were guilty of misrepresentation, a unilateral offense involving a single guilty party. Since corruption is normally bilateral, any parallels between cases involving misrepresentation and corruption should be properly nuanced.

In line with his unilateral approach, Professor Yackee proposes that states include in their treaties an explicit provision requiring tribunals to treat allegations of fraud or corruption as preliminary issues and, when proven, to dismiss such cases on jurisdictional grounds. Not only would this significantly undermine an effective evenhanded approach to combating corruption but, as evoked by Bernado M. Cremades in his dissent in Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, if legality is only addressed as a jurisdictional issue, the tribunal may “examine the speck in the eye of the investor […] and maybe never address the beam in the eye of the Host State.” Dismissal at the jurisdictional stage risks sweeping under the rug evidence of corruption whose public airing might at the least constructively affect the future behavior of both the investor and the host state.

Professor Yackee’s Essay does not discuss the appropriate evidentiary burden a state alleging corruption should bear before dismissal on those grounds would be deemed appropriate. Corruption, due to its secretive nature, is notoriously difficult to prove as is convincingly demonstrated by the plethora of international commercial arbitration cases and commentaries. These difficulties are not limited to international commercial arbitration; the investment arbitration tribunals in African Holdings v. Congo and EDF v. Romania dismissed allegations of corruption due to the failure of the complainant (the investor in EDF v. Romania) to meet the high standard of proof. Cases like World Duty Free v. Republic of Kenya where the bribe payer publicly inculpates himself by admitting to bribing an official are scarce. In the light of these difficulties, Professor Yackee’s preference for a jurisdictional approach, which would likely address the corruption allegations divorced from context and generally involve no substantial analysis of the merits, is surprising. Corruption should go to admissibility to give tribunals the necessary tools to properly ascertain the existence of corruption, investigate the corrupt actions of all parties, and determine the appropriate response given the facts of individual cases.

Finally, Professor Yackee’s general proposal (requiring automatic dismissal of an investment case should there be any evidence of corruption) would give a state every incentive to require a bribe from an aspiring investor, award a contract, and permit construction of the concession involved which the state could then expropriate, secure in the knowledge that the investor would have no recourse under an investment treaty. This would effectively create for the host state a “license to expropriate.”