VJIL Symposium: Jason Webb Yackee Responds to Bjorklund/Litwin and Wong

[Jason Webb Yackee is an Assistant Professor of Law at the University of Wisconsin 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.

It’s a pleasure to receive such thoughtful (and in Professor Wong’s case, humorous) feedback on my short VJIL Essay, and I greatly appreciate their engagement with the piece.

I intended the Essay to be provocative but not absurd in its policy recommendations. My main suggestion (that states should think seriously about incorporating “corruption defense” in their investment treaties) is, I think, not inconsistent with the views of either commenter. Neither is my more basic suggestion, which is that even in the absence of corruption-specific BIT language, the fact of an investor’s involvement in public corruption related to its investment is likely to be of legal relevance to the investor’s ability to fully access the procedural and substantive protections of BITs. In other words, I think that we would all probably agree that there is already a viable “corruption defense,” and also that it might be useful to better specify the contours of the defense through explicitly corruption-related treaty language.

Where we primarily differ is on the desirable contours of the defense. My scheme is self-consciously pro-state. It imposes serious consequences on the investor who engages in corruption. It is, as Professor Bjorklund accurately points out, supply-side in its focus, just as are the U.S. Foreign Corrupt Practices Act and its non-U.S. equivalents. This supply-side focus bothers Professors Wong and Bjorklund. It seems unfair to them to exclusively punish investors when corruption, by its nature, takes two to tango. It doesn’t bother me as much to sanction one partner and not the other. My premise — unstated in the essay, I admit — is that the supplier of corruption (here, the investor) is probably in some meaningful sense the “least cost avoider” of corruption. The tort law equivalent is a liability regime that places the full cost of compliance on the person who throws a banana peel on the sidewalk, rather than on the inobservant pedestrian who slips on it and falls.

My sense (and it is just that at this point) is that it is comparatively difficult for developing countries already afflicted with corruption to prevent it, let alone to eradicate it. It is hard for states to monitor and control the actions of their agents, or to adjust incentive structures to discourage corruption. In contrast, corporations have an advantage in implementing effective training and compliance programs, in disciplining corporate actors who violate corruption laws, and in rewarding those who abide by corporate anti-corruption policy. Indeed, corporations are already spending heavily to implement effective corruption-prevention programs in order to avoid violations of or liability under the US and UK anti-bribery statutes, the penalties for violation of which can be immense. I would suggest, in effect, that the BIT regime should piggyback on these efforts by imposing on companies whose compliance systems fail the additional cost of the loss of their BIT privileges, rather than insisting that the high-cost avoider — the state — be expected to successfully duplicate the already expensive anti-corruption investments of multinational corporations.

Such an approach admittedly lets state actors get away with accepting bribes. But the alternative — allowing tribunals to weigh and balance state and investor fault in a particular corrupt transaction — risks placing tribunals in a dangerous position. Domestic political regimes, especially after political transitions, may depend for their domestic political support in part on their efforts to “clean house,” that is, to expose and remedy the malfeasance of the prior regime. Those efforts should be supported to the extent that they may help to start a virtuous circle of self-reinforcing anti-bribery norms within the political system. For an ICSID tribunal to hold that a prior regime’s involvement in corruption means that a corruptly-obtained concession can still benefit from BIT protections risks interfering with those efforts to move to a political equilibrium characterized by less frequent corruption. It may also exacerbate public dissatisfaction with the international investment law system by further inflaming popular misperceptions that the system is “biased” against the well-meaning policy decisions of developing-country governments. In contrast, a clean-hands approach, which has clear analogues in domestic contract law, allows tribunals to strongly signal the BIT system’s support for the state’s own anti-bribery efforts.

Professor Bjorklund also argues that corruption is best treated as an issue of admissibility, not jurisdiction. Other equally eminent observers of international investment law have made a similar suggestion. But I would question whether there is any inherent or logical reason why corruption has to be treated as such. It can be treated either as jurisdictional or as a question of admissibility, depending on what the relevant law commands, or on what the law is trying to achieve. The question for rule drafters is “which approach is functionally better.” If we view public corruption as a serious evil, and if we view investors as the least-cost-avoider of public corruption, treating corruption as going to jurisdiction (or, more exactly, treating it as a preliminary question that, if proven, extinguishes the investor’s right to access the BIT’s substantive protections), may be perfectly justifiable, and even preferable.

A final comment: I agree with Professor Bjorklund that proving public corruption will often be very difficult. I would expect a corruption defense to be infrequently raised, and, if raised, infrequently proven. Absent a political transition of the kind discussed above, a state respondent will typically have little incentive to admit to the corruption of current government officials. For that reason, my proposed corruption defense stands little chance of causing any widespread harm to the BIT system. On the other hand, even if infrequently invoked, the defense stands to benefit the system by ensuring that BIT tribunals are not perceived as being complicit in supporting corrupt transactions.