Corruption in International Investment Arbitration. By Aloysius P. Llamzon. Oxford, New York: Oxford University Press, 2014. Pp. xxvii, 328. Index. $250, 125 [pounds sterling].
Fighting corruption has become a major focus of legal practice in recent years, and thus Aloysius Llamzon's comprehensive and well-written book, Corruption in International Investment Arbitration, should find a wide and appreciative audience. Dramatic changes in the last twenty or so years in the development of international anticorruption standards have resulted in the emergence of both international norms and national measures. International organizations, such as the Organisation for Economic Co-operation and Development (OECD) and the World Bank, have been at the forefront of developing norms and procedures for fighting corruption.
Corruption is also a topic dujour in international arbitration, particularly arbitration brought by foreign investors against states under investment treaties, where states invoke, with increasing frequency, corruption on the part of an investor/claimant as a defense and seek to dismiss the investor's claims based on the investor's unlawful conduct. Given the heightened sensitivity to corruption, it will undoubtedly remain one of the key issues that investor-state tribunals will have to tackle in the years to come. The critical question is how arbitration tribunals encountering allegations of corruption will implement the general policies reflected in the multiple sets of international and national norms against corruption.
This question is more than academic: it is as real and practical as it is complex. With the exception of a few recent investment treaties, the vast majority of such instruments do not contain any specific rules relating to corruption. Some, but not all, investment treaties include a provision requiring that investments be made (or, in some cases, made and maintained) in accordance with the law of the host state. While the "in accordance with domestic law" provision can certainly be invoked to filter out claims where the investment has been procured by corruption, it is arguably broader and can serve as the grounds to dismiss claims where violations of domestic law other than corruption are involved. Where such a provision is not included in an investment treaty, tribunals have invoked the doctrine of "unclean hands" to dismiss claims involving corruption. In so doing, one investor-state tribunal quoted Judge Gunnar Lagergren's famous observation in a 1963 International Chamber of Commerce arbitration, noting that "such corruption is an international evil; it is contrary to good morals and to an international public policy common to the community of nations." (1)
Corrupt investors and investments procured through corruption should not be protected by investment treaties. Thus, extending the scope of protection to such investors and investments would not only violate international public policy but would also be inconsistent with the object and purpose of investment treaties to promote economic development, facilitate capital flows, encourage investment, and create a level playing field for investors. This view is hardly controversial. The devil, as they say, is in the details.
Investor-state tribunals are not criminal courts. They lack the instruments that law-enforcement authorities and criminal courts have in their arsenal to investigate and prove corruption. Investor-state tribunals have used the powers that they possess to order, on their own initiative, the production of documents and other evidence. But this option is effectively where the authority of an investor-state tribunal to discover evidence ends. Following this production, investor-state tribunals rely on the record created by the parties, including the evidence of the witnesses proffered by the parties or presented at the hearings.
Investor-state tribunals can, of course, rely on domestic law enforcement and judicial systems to establish the facts relevant to a finding of corruption. Such reliance, however, raises a number of questions. Can the tribunal rely on the domestic authorities to be objective and impartial? In fact, in many cases, the investor complains of harassment by law enforcement and judicial authorities as an integral part of its claim of treaty violation. Indeed, tribunals have concluded that criminal investigations and prosecutions have, in some cases, amounted to unfair treatment of the investor, including for the purpose of punishing it for initiating a dispute against the state. Thus, reliance on the findings of fact by domestic law enforcement and judicial authorities requires a tribunal to take a critical approach that involves the tribunal's own evaluation of the evidence. Further, what if no domestic investigation and prosecution in relation...