VJIL Symposium: Jarrod Wong Comments on “Investment Treaties and Investor Corruption”

[Jarrod Wong is an Associate Professor of Law at the University of the Pacific McGeorge School 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.

This intriguing Essay by Jason Yackee proposes that host states may well have a corruption defense against claims brought by investors under bilateral investment treaties (BITs) based on underlying investment contracts that, while facially unobjectionable, have been procured by bribing public officials. The argument extrapolates nicely from the denial of claims in an arbitration, decided in 1963 by Judge Lagergren, involving a politically well-connected Argentine seeking to enforce a “commission” contract guaranteeing some percentage of state contracts awarded by Argentina to the foreign investor, and in the World Duty Free ICSID case, in which the investor sought compensation for expropriation by Kenya of a concession acquired by bribing the then President of Kenya. While neither claim arose under BITs, both were denied on grounds of violating international public policy, which one — or least these tribunals — might conceivably extend to BIT claims.

However, I wondered whether Yackee, in his determination to clear a path to the promised land, sufficiently acknowledges the perils on the road. For instance, neither tribunal above was expressly authorized to apply international law; indeed, ICSID tribunals — which determine many BIT claims — are to apply “applicable” international law only “in the absence of [the parties’ agreement on applicable law].” While noting this fact, Yackee was prepared to interpret the willingness of both tribunals to invoke (with how much deliberation?) international law as indicating an inherent authority to do so, rather than question the assumption. All the more troubling when the supposed “rule” of international law applied is of the nebulous variety conveniently labeled “international public policy.” (The wry among us might freshly inquire as to how this description differentiates other international law rules.)

Shouldn’t we require such policy to crystallize into something akin to customary international law before permitting its application under these tenuous circumstances? Further, should the host state bear no responsibility when a state official accepts the bribe and is equally culpable? The World Duty Free tribunal neglected to weigh this fact in the context of international public policy, although it considered the issue under applicable national laws, only to hide behind Latin maxims —- the in pari delicto and ex turpi causa principles — in refusing to calibrate the equities more precisely. (Really? The President of Kenya walks off with $2 million, and the best the Tribunal’s got is a dead language?) Would the World Duty Free outcome not perversely incentivize host states to encourage bribery behind dummy anticorruption legislation since this gives license to flout BIT obligations?

But wait, Yackee would slam the door harder yet. To secure the host state’s right to a corruption defense, he presents an admittedly “state-centric” model BIT clause that would treat investor misconduct as a matter of jurisdiction rather than substance, because the latter puts the state at risk of accountability for its blameworthiness. (I know, don’t get me started.) Yackee’s soft spot for host states may be traced to the asymmetry of BITs insofar as the treaties grant investors rights but not obligations, while imposing upon states obligations unaccompanied by rights. Accordingly, he suggests that the corruption defense effectively creates investor obligations, which begin to address the BIT imbalance.

I am not entirely persuaded such a perspective adds to the analysis. After all, a corruption defense does not impose any meaningful obligation whose breach entitles states to bring claims against investors; it simply affords states cover from investor claims, cover that is surely undeserved if the states themselves participated in the misbehavior. In closing, let me assure you that Yackee and I are friends (at least pending this comment). However, as the quite dead but apparently authoritative Romans might have said, amicus Yackee, sed magis amica veritas.