4.1 Introduction
There are multiple international agreements that require states to criminalise corruption. This chapter deals with the effects of such international anti-corruption agreements in the field of investment treaty arbitration. Focus will be placed on Asia. This Asian perspective is pertinent given the continued prevalence of corruption in many Asian jurisdictions, despite their growing economic importance.1 International agreements on corruption and their implementation in domestic law can have an unintended consequence in the field of investment treaty arbitration. This is because anti-corruption laws can provide states with an effective defence against an arbitral tribunal’s jurisdiction and scrutiny. This chapter will conclude with a proposal on how this consequence can be tempered by applying to international investment law the more nuanced approach to illegality established in recent common law jurisprudence.
This chapter is divided into four sections. Section 4.2 surveys multilateral and bilateral international agreements on corruption. Section 4.3 discusses how international agreements on corruption have been implemented in the domestic laws of various Asian jurisdictions. It will consider differences in the anti-corruption laws of Asian states and whether such differences give rise to uncertainty as to the scope of corruption crimes. Section 4.4 looks into how host states can use anti-corruption laws as a means of evading scrutiny by arbitral tribunals of confiscatory conduct. Section 4.5 argues that the ‘all or nothing’ approach to investments tainted with corruption should be replaced with a balancing approach to illegality.
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4.2 Corruption in International Law
4.2.1 Multilateral Agreements on Corruption
On a multilateral level, the Organisation for Economic Co-operation and Development (OECD), as well as the United Nations (UN), have adopted conventions aimed at combatting corruption. There are also a few regional multilateral agreements on corruption, with none yet in Asia.
4.2.1.1 OECD Anti-Bribery Convention
In 1997 the OECD passed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention). It was the first multilateral agreement addressing corruption. The OECD has 38 member states, most of which are capital-exporting countries. If a broad definition of ‘Asia’ is adopted, there are only four Asian members within the OECD: Israel, Japan, South Korea and Turkey. The OECD Anti-Bribery Convention became effective in 1999. Member countries were the original signatories. But the convention is open to accession by any state. As of today, all OECD members have ratified the convention.2 In addition, six non-members have ratified the convention, but none from Asia.3
The OECD Anti-Bribery Convention requires signatories to implement domestic legislation making it a crime directly or indirectly to bribe a foreign official. Signatories are also required to criminalise complicity in such bribery. Articles 1.1 and 1.2 of the OECD Anti-Bribery Convention state:
1.1Each Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.1.2Each Party shall take any measures necessary to establish that complicity in, including incitement, aiding and abetting, or authorisation of an act of bribery of a foreign public official shall be a criminal offence. Attempt and conspiracy to bribe a foreign public official shall be criminal offences to the same extent as attempt and conspiracy to bribe a public official of that Party.
Apart from this, attention is drawn to two further obligations in the OECD Anti-Bribery Convention. First, Article 3 requires each state to establish the liability of legal persons (such as companies) for the bribery of a foreign public official, in accordance with its own legal principles. However, this obligation is qualified. If under the law of a state, criminal liability is not attributable to legal persons, the state is not required to establish such criminal responsibility.4 Second, under Article 3, countries are obliged to take measures to ensure that a bribe and its proceeds can be seized and confiscated. In this context, the ‘proceeds of the bribery’ refers to the profits or other benefits derived from the corrupt act.5
The domestic legislation called for by the OECD Anti-Bribery Convention is not meant to have effect only within a country’s borders. Each member is also to ensure that its laws provide for extraterritorial jurisdiction with respect to corrupt acts. In particular, a member’s domestic law has to cover corrupt acts by its nationals abroad.6
The OECD Anti-Bribery Convention was a milestone in combatting corruption internationally. It was the first multilateral agreement requiring parties to adopt a domestic legal framework outlawing the bribery of foreign public officials. This was a remarkable accomplishment. However, the OECD Anti-Bribery Convention has its shortcomings. For instance, Dr Wendler has identified two deficiencies.7 First, the convention only covers active corruption, which refers to the act of bribing an official. Passive corruption refers to the receipt of such a bribe. The convention does not require measures to be taken against the recipients of bribes (i.e., public officials acting as influence peddlers). The convention thus only concerns the supply side of corruption (active corruption) and does not deal with the demand side (passive corruption). Second, there is a significant loophole. Under the Convention, a corruption payment is legal if it is permitted by the law of a foreign official’s country.8 This gives states a discretion to exempt payments that may be widely considered to be corrupt elsewhere. The exception allows members to decide which payments fall outside the Convention’s ambit. It is also possible for domestic anti-corruption law to exclude ‘facilitation payments’ (see below). The OECD Anti-Bribery Convention is therefore far from perfect. From an Asian perspective, it has limited relevance since only two jurisdictions squarely in Asia (Japan and South Korea) have so far ratified it.
4.2.1.2 UN Convention Against Bribery
The UN has also played a key role in multilateral efforts to fight corruption. In 2003 the UN General Assembly adopted the UN Convention Against Corruption (UNCAC). The instrument became effective in 2005. To date, 189 states have ratified UNCAC. Signatories include virtually all Asian countries.9 Like the OECD Anti-Bribery Convention, UNCAC requires state parties to criminalise corruption. UNCAC does not define corruption. Instead, it tackles different forms of corruption.10 UNCAC differentiates between (1) bribery of national public officials (Article 15) and (2) bribery of foreign public officials (Article 16).
Regarding Article 15, state parties are required to criminalise the active and passive bribery of national public officials. Article 15 states:
Each State Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally:(a)The promise, offering or giving, to a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties;(b)The solicitation or acceptance by a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties.
By contrast, Article 16 concerns the bribery of foreign public officials. Unlike Article 15, Article 16 does not require states to criminalise the passive bribery of foreign public officials. It states:
1.Each State Party shall adopt such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the promise, offering or giving to a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties, in order to obtain or retain business or other undue advantage in relation to the conduct of international business.2.Each State Party shall consider adopting such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the solicitation or acceptance by a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties.
The reason for Article 16 limiting itself to the active bribery of foreign public officials is presumably because, by definition, a foreign public official would be beyond a given state’s jurisdiction based on nationality or territory. It would be for the relevant foreign state to criminalise the passive bribery of its public officials. Thus, states are only obliged by Article 16.2 to ‘consider’ a corresponding offence to active bribery and there is no binding obligation to criminalise the passive bribery of foreign public officials.11 In short, UNCAC encourages state parties to establish broad jurisdiction over corruption offences. As a basic rule, state parties must ensure their jurisdiction over corruption committed inside their territory.12 UNCAC goes further and allows extra-territorial jurisdiction. A state may exercise jurisdiction over corruption committed outside its territory if the perpetrator or the aggrieved party is a national of the state.13 UNCAC thus goes further than the OECD Anti-Bribery Convention. UNCAC criminalises the bribery of foreign and national public officials. It covers active and passive bribery.14 It does not accept payments to foreign officials which are legal by a foreign official’s domestic law.15
4.2.1.3 Regional Multilateral Agreements
There are multilateral agreements dealing with anti-corruption at a regional level. For instance, in 1996 the Organization for American States (OAS) adopted the Inter-American Convention Against Corruption (IACAC). As of today, 34 countries have ratified the IACAC. All parties are OAS members (i.e., countries located in North, Central and South America). Much as the UNCAC and the OECD Anti-Bribery Convention, the IACAC identifies corrupt acts that its signatories are required to criminalise.16 In Europe, the Council of Europe adopted two Anti-Corruption Conventions in 1999: (1) the Criminal Law Convention on Corruption and (2) the Civil Law Convention on Corruption. The Criminal Law Convention on Corruption obliges states to criminalise a wide range of different forms of corruption (including the active and passive corruption of domestic and foreign officials),17 while the Civil Law Convention on Corruption focuses on the civil law consequences of corruption.18 For Africa, the African Union adopted the Convention on Preventing and Combating Corruption (AUC) in 2003. That lists corrupt practices which the parties are required to criminalise.19
By contrast, in Asia, there is no multilateral agreement that exclusively deals with corruption. This lack of a regional instrument on corruption for Asia is unfortunate, given that corruption is perceived to be as widespread in many Asian jurisdictions. Such perception of corruption can impact adversely on foreign investors’ willingness to transact business in Asia.
Nonetheless, there are anti-corruption provisions in some trade agreements between Asian countries (see Sect. 4.3). Asian countries also launched an anti-corruption policy initiative, known as the ‘ADB/OECD Anti-Corruption Initiative for Asia–Pacific’, in 1991. The initiative operates under the joint secretariats of the OECD and the Asian Development Bank (ADB). It currently comprises 34 Asian economies,20 of which 28 have adopted an ‘Anti-Corruption Action Plan for Asia and the Pacific’ (Action Plan).21 The Action Plan sets out a range of policy measures aimed at reducing corruption in Asia. But it is merely a ‘plan’ and not a binding instrument. It is merely soft law. It does not require members to incorporate identified corruption crimes into domestic law. The Action Plan is therefore a blunt sword when compared to the multilateral agreements in other continents.
4.2.2 Free Trade Agreements
Apart from multilateral agreements specifically targeting corruption, there are international agreements that contain anti-corruption provisions even though their main purpose is the liberalisation of transnational trade. Typically, states conclude free trade agreements (FTAs) to liberalise the cross-border flow of goods, services and capital between themselves. Countries reduce or eliminate tariffs as set out in the FTAs and address ‘behind the border’ issues going beyond the commitments adopted through World Trade Organization agreements. Traditionally, FTAs were bilateral. Recently, there has been a trend towards regional FTAs (RTAs). FTAs and RTAs will usually guarantee minimum standards of treatment by a state towards investors from a counterparty. But increasingly FTAs and RTAs also include provisions on a range of issues (environmental standards, labour rights, anti-corruption, etc.) instead of being restricted to purely economic measures.
Two instances of trade agreements containing anti-corruption provisions will be examined here. The first is the Japan Philippines Economic Partnership Agreement (JPEPA), a bilateral FTA between Japan and the Philippines signed in 2006. The second is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a multilateral agreement among states in the Asia–Pacific and elsewhere signed in 2018.
4.2.2.1 Japan Philippines Economic Partnership Agreement
JPEPA entered into force in 2008. It was the Philippines’ first bilateral FTA. It was modelled on EPAs between Japan and other states.22 JPEPA goes beyond the content of a traditional FTA. It deals not just with the elimination of tariffs and other barriers, but also initiates cooperation in various economic activities, including investment.23 The objectives of JPEPA, as enumerated in Article 1, illustrate the agreement’s comprehensive nature. The investment chapter of JPEPA contains typical provisions found in a BIT. It provides that investors from Japan and the Philippines are to be accorded non-discriminatory treatment24 and most-favoured nation status.25 JPEPA also protects investors from both states against arbitrary expropriation26 and guarantees fair and equitable treatment.27
JPEPA has a provision on corruption. Article 8 states:
Each Party shall ensure that measures and efforts are undertaken to prevent and combat corruption regarding matters covered by this Agreement in accordance with its laws and regulations .
The obligation in Article 8 is less detailed than comparable provisions in UNCAC or the OECD Anti-Bribery Convention. The obligation to ‘prevent and combat corruption’ is vague and aspirational in nature.28 The provision does not specify what ‘measures and efforts’ should be undertaken.
Article 8 contains additional limitations. First, the obligation to combat corruption only concerns ‘matters covered by this Agreement’. This limitation may be acceptable given JPEPA’s broad scope. Second, the obligation to combat corruption only applies ‘in accordance with [a party’s] laws and regulations’. The extent of the phrase is unclear. For example, does the first part of Article 8 require a country proactively to legislate ‘measures and efforts … to prevent and combat corruption’ if the country has no laws and regulations dealing with corruption, or if its existing laws and regulations are insufficient to deal effectively with corruption? Alternatively, does the second part of Article 8 mean that a country is only obliged to deal with corruption ‘in accordance with its laws and regulations’ as they are at the time of JPEPA, no matter how inadequate such laws and regulations may be ‘to prevent and combat corruption regarding matters covered by this Agreement’? If the first construction of Article 8 is the correct one, by what standards are a country’s efforts to legislate against corruption to be evaluated? By what standard is one to gauge whether there has been a violation of the Article 8 obligation under the JPEPA? As seen above, there is no universally accepted international, much less Asian, standard of what anti-corruption legislation should look like.
Still, despite its vagueness, Article 8 is not irrelevant. It signals that Japan and the Philippines view the eradication of corruption as a legitimate and common policy goal. The provision posits that ‘measures and efforts’ to reduce corrupt practices are in both countries’ interests. The specific content of anti-corruption measures, however, remains at each party’s discretion.
Other EPAs concluded by Japan contain provisions similar to JPEPA Article 8. For example, Japan has entered into EPAs with Thailand (2007),29 Indonesia (2007),30 India (2011),31 and the UK (signed 2020, not yet in force). All contain anti-corruption clauses. The UK–Japan Comprehensive Economic Partnership Agreement (UKJCEPA) stands out as it refers to multilateral anti-corruption agreements. UKJCEPA Article 17.9 states:
The Parties affirm their resolve to eliminate bribery and corruption in international trade and investment. Recognising the need to build integrity within both the public and private sectors and that each sector has complementary responsibilities in this regard, the Parties affirm their adherence to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, done at Paris on 17 December 1997 [the OECD Anti-Bribery Convention] and the United Nations Convention against Corruption, adopted at New York on 31 October 2003.
Ostensibly, UKJCEPA Article 17.9 goes further than JPEPA Article 8 in referring to the OECD Anti-Bribery Convention and UNCAC. But the references are of little substantive effect since Japan and the UK are already parties to both instruments.32 UKJCEPA has not altered the two countries’ obligations regarding corruption. It does not create an additional obligation to criminalise corruption under domestic law. Nevertheless, as the International Trade Committee of the UK House of Commons observed, Article 17.9 is at least a ‘welcome statement of intent’.33
4.2.2.2 Comprehensive and Progressive Agreement for Trans-Pacific Partnership
Although Asia lacks a regional agreement that directly tackles corruption, two FTAs recently concluded among Asia–Pacific jurisdictions, the Regional Comprehensive Economic Partnership (RCEP) and the CPTPP, touch on corruption.
RCEP is an FTA among the ten members of the Association of Southeast Asian Nations (ASEAN) as well as Australia, China, Japan, New Zealand and South Korea.34 RCEP was signed in 2020 and has been ratified by 14 countries. India was involved in lengthy negotiations but did not accede, although this may eventuate.35 RCEP has been hailed as a major step towards liberalising trade in Asia. But it has been criticised for a lack of ambition.36 Even though RCEP has an investment chapter with the usual protections granted to foreign investors (FET, anti-expropriation, etc.), it lacks a comprehensive investor–state dispute settlement mechanism. RCEP merely commits to further negotiations on this point. Meanwhile, between pairs of signatory states, there are in force at least one ISDS-backed BIT or FTA.37
RCEP provides for anti-corruption in Article 17.9 which reads:
1.Each Party shall, in accordance with its laws and regulations, take appropriate measures to prevent and combat corruption with respect to any matter covered by this Agreement.2.No Party shall have recourse to dispute settlement under Chapter 19 (Dispute Settlement) for any matter arising under this Article.
Article 17.9 does not impose specific obligations on state parties to criminalise corruption. RCEP signatories simply voice their general support for anti-corruption policies. Nor does RCEP prescribe concrete anti-corruption measures that have to be implemented in the domestic laws of parties. Further, the anti-corruption provision is expressly excluded from the dispute settlement mechanism in RCEP’s Chapter 19.38 Thus, no legal remedies are available within the RCEP framework if a state decides not to act against corruption.
More promising as an effective counter to corruption is the CPTPP, an FTA among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. It was signed in 2018 without the US, although the latter played a strong role in negotiating the predecessor agreement (known as the Trans-Pacific Partnership Agreement (TPP)) with the same anti-corruption provision. The CPTPP has now been ratified by all signatories except Brunei.39 In addition, the UK concluded negotiations to join the CPTPP in March 2023.40
As its name suggests, the CPTPP is a wide-ranging agreement.41 It includes a chapter on investment which, besides the usual investor protection provisions, contains an investor–state dispute settlement mechanism.42 The CPTPP can be considered as the most ambitious anti-corruption agreement in Asia to date. Its Chapter 19 is exclusively devoted to ‘Transparency and Anti-Corruption’. The CPTPP requires each party to accede to UNCAC.43 More remarkably, the CPTPP defines the anti-corruption measures that each party must implement in its domestic law. Article 26.7.1 reads:
1.Each Party shall adopt or maintain legislative and other measures as may be necessary to establish as criminal offences under its law, in matters that affect international trade or investment, when committed intentionally, by any person subject to its jurisdiction:(a)the promise, offering or giving to a public official, directly or indirectly, of an undue advantage, for the official or another person or entity, in order that the official act or refrain from acting in relation to the performance of or the exercise of his or her official duties;(b)the solicitation or acceptance by a public official, directly or indirectly, of an undue advantage, for the official or another person or entity, in order that the official act or refrain from acting in relation to the performance of or the exercise of his or her official duties;(c)the promise, offering or giving to a foreign public official or an official of a public international organisation, directly or indirectly, of an undue advantage, for the official or another person or entity, in order that the official act or refrain from acting in relation to the performance of or the exercise of his or her official duties, in order to obtain or retain business or other undue advantage in relation to the conduct of international business; and(d)the aiding or abetting, or conspiracy in the commission of any of the offences described in subparagraphs (a) through (c).
Thus, Article 26.7.1 imposes an obligation to criminalise the active and passive bribery of national public officials and the active bribery of foreign officials. But Article 26.7.1 may only be of limited practical benefit because it essentially replicates existing UNCAC obligations.44 It does not impose additional obligations on CPTPP signatories, all of which have ratified UNCAC.
CPTPP Article 26.9.1 concerns the enforcement of anti-corruption measures:
In accordance with the fundamental principles of its legal system, no Party shall fail to effectively enforce its laws or other measures adopted or maintained to comply with Article 26.7.1 (Measures to Combat Corruption) through a sustained or recurring course of action or inaction, after the date of entry into force of this Agreement for that Party, as an encouragement for trade and investment.
This obligation is new.45 The parties to CPTPP are required to enforce their domestic anti-corruption legislation by prosecuting individuals and businesses involved in corruption.46 Unfortunately, the obligation to enforce anti-corruption laws in Article 26.9.1 is expressly excluded from the dispute settlement mechanism in CPTPP.47
In any event, the CPTPP constitutes a major step toward reducing corruption in the Asia–Pacific. One commentator has argued that its anti-corruption chapter contains the ‘most detailed anti-corruption provisions in all FTAs and other trade agreements’.48 The importance of CPTPP in Asia should grow if China’s request to join is accepted.49
4.2.2.3 Summary on Treaty Provisions
There are multiple international agreements requiring state parties to criminalise corruption. Some agreements (UNCAC and the OECD Anti-Bribery Convention) deal exclusively with corruption. But anti-corruption provisions can also be found in FTAs and RTAs. The instruments vary in scope, content and clarity.50 Some only have generic obligations to take measures against corruption without defining the coverage of such measures. Others are more detailed. The latter instruments deploy a similar rule-making approach. They do not give a general definition of corruption. They merely identify certain conduct (such as passive or active bribery involving public officials) as corrupt. The instruments then impose an obligation on states to criminalise the conduct so identified. Following ratification, it is left to individual member states to incorporate the crimes into their domestic law.
4.3 Domestic Implementation
International agreements against corruption only bind state parties. Individuals and companies can only be prosecuted after states have implemented anti-corruption laws domestically. The international agreements canvassed in Sect. 4.2 are consequently not directly applicable to individuals or companies. This section considers how international obligations to fight corruption have been translated into the domestic laws of Asian jurisdictions. The analysis will focus on the treatment of facilitation payments as a form of corruption.
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States have performed their obligations for domestic implementation to varying degrees. Differences in domestic implementation may be because of a lack of will among a country’s legislators. But it can also be because the obligation to legislate is vague and there is insufficient guidance on domestic implementation. The treatment of facilitation payments in domestic law is an example of the variation in domestic implementation.51 Facilitation payments are amounts paid to a public official to expedite bureaucratic procedures (i.e., to cut through red tape).52 The person making the facilitation payment is in principle entitled to the desired outcome, but not necessarily to the speed or priority with which the person’s application is to be processed as a result of the facilitation payment. Such payments are typically small amounts in everyday situations. Examples are payments to facilitate the issue of work permits, expedite the grant of import or export licences, or reduce waiting time for a permit.53 For this reason, facilitation payments are sometimes colloquially referred to as ‘coffee money’, ‘grease money’ or ‘oiling the wheels’, given the purpose of such payments.54 Neither the OECD Anti-Bribery Convention nor UNCAC expressly deal with facilitation payments.55 Hence, it is necessary to construe how the instruments intend facilitation payments to be treated in domestic legislation.
The OECD Anti-Bribery Convention proscribes payments ‘to obtain or retain business or other improper advantage in the conduct of international business’.56 The expression ‘other improper advantage’ is not defined.57 It is accordingly unclear whether the expedited treatment of an application by a public official as a result of a facilitation payment is to be considered an ‘improper advantage’. The commentary to the OECD Anti-Bribery Convention states:
Small ‘facilitation’ payments do not constitute payments made ‘to obtain or retain business or other improper advantage’ within the meaning of paragraph 1 and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programmes of good governance. However, criminalisation by other countries does not seem a practical or effective complementary action.58
Given the commentary, it appears that the OECD Anti-Bribery Convention does not require signatories to outlaw facilitation payments.59 This does not mean that the OECD condones facilitation payments. To the contrary,60 in a recommendation of 2009, the OECD referred to the ‘corrosive effect of small facilitation payments’.61 The OECD has recommended that member countries regularly review their policies on small facilitation payments. But it has stopped short of calling for the criminalisation of such payments.62 Some member states exclude defined facilitation payments to foreign public officials from the scope of criminalised behaviour (e.g., Australia; see below).
Under UNCAC, the position of facilitation payments is less clear-cut. There is controversy over whether UNCAC requires states to prohibit facilitation payments. Two opposing positions are held by states and scholars. The first considers facilitation payments to be illegal.63 The argument is that UNCAC does not contain an express exception for facilitation payments.64 This is taken to mean that expedited treatment due to a facilitation payment constitutes an ‘undue advantage in relation to international business’ within UNCAC Article 16.1. Payments to obtain privileged treatments should therefore be considered as a form of bribery. Note in this connection that UNCAC has no official guide similar to the Commentary on the OECD-Anti Bribery Convention which exempts facilitation payments from UNCAC’s scope.65
The second position considers facilitation payments to be legal.66 This is because UNCAC does not expressly prohibit facilitation payments. Proponents of this view rely on UNCAC’s negotiation history. The wording ‘in order to obtain or retain business or other undue advantage in relation to the conduct of international business’ in Article 16.1 was based on a US proposal. The travaux préparatoires indicate that the proposed text was highly controversial, with some states demanding its complete removal, and other states demanding ‘reasonable limitations’ to the offence.67 The wording in UNCAC is similar to a provision in the US Foreign Corrupt Practices Act (FCPA) dating back to 1977, which is understood as exempting facilitation payments.68 Thus, UNCAC (the argument runs) should be interpreted consistently with the FCPA as permitting facilitation payments. Against this backdrop, it remains unresolved whether UNCAC requires states to outlaw facilitation payments.
The same holds true for the CPTPP. The wording in the CPTPP is identical to that in UNCAC. The CPTPP is therefore equally inconclusive. In addition, the CPTPP’s negotiation process bears some similarity to what happened with UNCAC. The US argued for the inclusion of an anti-corruption chapter in the TPP.69 This was before the US withdrew from TPP during President Trump’s Administration. The remaining countries retained the proposed anti-corruption provisions in CPTPP which was signed in 2018 without the US. Consequently, the anti-corruption provisions in the CPTPP were arguably inspired by the FCPA and US practice and so do not require the criminalisation of facilitation payments.
Since international law does not give clear guidance on facilitation payments, it can hardly be surprising that domestic laws differ to an extent in their approach.70 A study by Clifford Chance found that, of the 13 Asia–Pacific jurisdictions surveyed, 11 prohibit facilitation payments.71 Thus, facilitation payments are prohibited in Mainland China, Hong Kong, Taiwan, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea and Vietnam. But Thailand and Australia allow facilitation payments in some respects.
In Australia, the Criminal Code Act provisions implementing the OECD Anti-Bribery Convention exclude certain facilitation payments. A person is not liable for the offence of bribing a foreign official if four conditions are met:72
(a)the value of the benefit was of a minor nature; and(b)the person’s conduct was engaged in for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature; and(c)as soon as practicable after the conduct occurred, the person made a record of the conduct; and(d)any of the following subparagraphs applies:(i)the person has retained that record at all relevant times;(ii)that record has been lost or destroyed because of the actions of another person over whom the first-mentioned person had no control, or because of a non-human act or event over which the first-mentioned person had no control, and the first-mentioned person could not reasonably be expected to have guarded against the bringing about of that loss or that destruction;(iii)a prosecution for the offence is instituted more than 7 years after the conduct occurred.
The Australian legislation has been criticised as being too vague. It does not specify what is ‘minor’ in respect of a government action or the value of a bribe.73 The ambiguity leads to legal uncertainty for Australian businesses operating abroad74 and the OECD has noted that there is ‘general confusion about the facilitation payment defence’ in Australia.75
In Thailand, the law on facilitation payments is more complex. According to Chance, Thai law differentiates between the making of a facilitation payment (active corruption) and the receipt of such payment (passive corruption).76 In some instances, making a facilitation payment may be legal under Thai law. Thus, under Thai law, a person paying a bribe may only be criminally liable if the payment causes a public official to perform his or her duties wrongfully.77 In other words, the maker of a facilitation payment will not be criminally liable if the public official carries out his or her duty normally (albeit more expeditiously) due to the payment. By contrast, receiving the payment is illegal under Thai law regardless of whether the payment leads to a wrongful performance by a public official.78 Thai law is consequently uncertain about facilitation payments, the uncertainty stemming from a distinction between a public official performing a requested action normally (i.e., in accordance with one’s statutory duty) or not. The requirement of wrongful performance can constitute an unnecessary, time-consuming and expensive hurdle to proving a crime in an individual case. This renders law enforcement more difficult and unpredictable.
4.4 Corruption in International Investment Arbitration
A consequence of anti-corruption domestic laws is that states can (and do) rely on them to avoid an arbitral tribunal’s jurisdiction or raise defences in investor–state disputes. The problem is that a state may raise corruption as a defence even when its own public officials have engaged in the alleged corruption and have not been prosecuted for such corruption by the state. There may be no time limit to a state invoking corruption to avoid an investment. This means that a state can avoid an investment agreement years after the same was obtained through a bribe, even though the investor has since invested a considerable amount of money in the state and benefitted the state. The individuals involved in the initial bribery for the investor and the state may have retired long ago or completely disappeared from the scene with any ill-gotten gains. Meanwhile, those currently managing the investor and those presently acting for the relevant government might have no inkling of the murky origins of an investment agreement. Another problem is that a host state can be perversely incentivised to ensure an official solicits a bribe, to enable the state to mount a defence of corruption against subsequent investor claims.
In those circumstances, one may wonder whether it is just and fair for international law to treat initial corruption as a basis for the state to claim that (1) protections in a bilateral or multilateral agreement do not cover an investment at all or (2) an arbitral tribunal has no jurisdiction to consider the parties’ dispute. The outcome would be that a corrupt state can take over an investor’s business with impunity. To put matters in perspective, this section will discuss two scenarios as exemplified by two well-known cases: World Duty Free v. Kenya and Metal-Tech v. Uzbekistan. Section 4.5 will suggest what might be done to tackle the potential unfairness highlighted.
4.4.1 World Duty Free v. Kenya
World Duty Free v. Kenya79 is a paradigm case on the effects of corruption in international investment law, albeit with consent to arbitration having been given under a one-off contract rather than a BIT or FTA. An investment contract was concluded in April 1989 between Kenya and World Duty Free.80 The contract was obtained through corruption. World Duty Free paid bribes to the then Kenyan President, Daniel arap Moi. In return, World Duty Free was granted the concession for constructing and operating duty-free stores at two Kenyan airports.81 World Duty Free later alleged that Kenya had illegally expropriated its property when Kenya ordered a government take-over in 1998.82 Word Duty Free commenced ICSID arbitration proceedings against Kenya, seeking damages and restitution. The arbitration was based on an arbitration clause in the investment agreement between World Duty Free and Kenya.83
The award considered the consequences of corruption under international public policy,84 Kenyan law and English law.85 Kenya submitted that World Duty Free’s claim should be dismissed because the investment agreement was tainted by corruption and ‘does not have force of law’.86 The tribunal agreed. It dismissed World Duty Free’s claims because they were based on an agreement obtained through corruption.87
The tribunal began its analysis by considering the stance of international public policy on corruption. This entailed the tribunal investigating whether there was an ‘international consensus as to universal standards and accepted norms of conduct that must be applied in all for a’ when dealing with corruption.88 Referring to conventions against corruption such as those described in Sect. 4.3 of this chapter,89 the tribunal concluded:
157.In light of domestic laws and international conventions relating to corruption, and in light of the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy. Thus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal.
What does such a conclusion mean in practical terms?
The parties’ agreement stipulated that ‘any arbitral tribunal constituted pursuant to this Agreement shall apply English law’. By another article, the agreement stated that it ‘shall be governed by and construed in accordance with the law of Kenya’. The parties’ agreement was consequently ambiguous on whether the tribunal should apply English or Kenyan law in determining the effects of corruption on a contract. The tribunal resolved this difficulty by observing that there was no difference between Kenyan and English law insofar as the effects of corruption were concerned. Accepting the evidence of Kenya’s legal expert (Lord Mustill), the tribunal held that an agreement obtained through bribery was voidable under English and Kenyan law.90 It rejected World Duty Free’s criticism of this ‘all or nothing’ approach. In the tribunal’s view, there was no room for the tribunal to endorse a nuanced approach balancing corruption against the host state’s own misconduct.91 The tribunal cited a ‘long line of unbroken English authorities stretching back more than two hundred years’ in support of its stance.92
Several observations might be made.
First, although the tribunal rightly found that bribery was generally proscribed by international public policy, the international conventions do not (as seen in Sect. 4.3) speak with one voice. There are differences and obscurities among international conventions and bilateral agreements as to what forms of bribery should be criminalised and what types of bribery may be tolerated.
Second, although the tribunal concluded that claims based on contracts obtained through bribery ‘cannot be upheld’ as a matter of international consensus, the tribunal applied domestic law (English and Kenyan law) to determine what the effect of bribery should be. It will be seen in Sect. 4.5 that English law has moved from the ‘all or nothing’ approach in vogue at the time to a ‘range of factors’ approach. Under the latter approach, a contract tainted by illegality will not necessarily be treated as voidable or unenforceable in whole or part. Thus, if World Duty Free were to be decided today, the outcome may be different.
Third, the tribunal’s observation that an ‘all or nothing approach’ was justified because the law would thereby be protecting the public or ‘the mass of taxpayers and other citizens making up one of the poorest countries in the world’ is unpersuasive. Where a corrupt government remains in charge of a state, how precisely will allowing a state to expropriate a foreign investment, to the benefit of those in power, protect the citizens of that state? Why should a state’s corrupt government officials be entitled to enrich themselves further at the expense of the investor? In the absence of evidence that a state has implemented measures to ensure that similar corruption will not take place in the future, an ‘all or nothing approach’ will only beget greater corruption.
Fourth, the claimant suggested that Kenya had waived any right to treat the investment agreement as void for corruption. It was argued that the President’s wrongdoing should be attributed to Kenya and that Kenya had failed to act promptly to avoid the deal once it became aware of the corruption. The tribunal made short shrift of the argument:
184.The Claimant’s submissions on waiver and affirmation depend on the allegation that Kenya knew of the bribe long before December 2002. As already indicated above, there was no mention of the payment in the Agreement (or its amendment); nor in any contemporary document exchanged between the Claimant and Kenya over the subsequent eleven years before this proceeding was commenced in June 2000. More significantly, the Claimant itself made no mention of the payment in the early part of this proceeding or throughout the other legal proceedings in the Isle and Man and Kenya. The Tribunal finds that the payment was first made known by the Claimant to Kenya in December 2002, thirty months after the Claimant’s Request for Arbitration. It had not previously been known to Kenya. There can be no affirmation or waiver by Kenya without knowledge; and as Lord Mustill stated in his opinion, ‘[a] party cannot waive a right which he does not know to exist’.185.Moreover, there can be no affirmation or waiver in this case based on the knowledge of the Kenyan President attributable to Kenya. The President was here acting corruptly, to the detriment of Kenya and in violation of Kenyan law (including the 1956 Act). There is no warrant at English or Kenyan law for attributing knowledge to the state (as the otherwise innocent principal) of a state officer engaged as its agent in bribery .... In the Tribunal’s view, this submission is ill-founded under Kenyan law: the President held elected office under the Kenyan Constitution, subject to the rule of law (including the 1956 Act).
The tribunal’s analysis suggests that the corruption of an official, no matter how high up in authority, can never form a basis for attribution to a state in light of the rule of law.93 But it is submitted that this is unrealistic. If the President’s knowledge cannot be attributed to the state, there would have to be a change in regime before an investor can rely on waiver or affirmation. In the meantime, the corrupt state’s cronies would be helping themselves to the investor’s business. Such a situation can hardly be conducive to the rule of law.
4.4.2 Metal-Tech v. Uzbekistan
The second scenario on corruption is exemplified by Metal-Tech v. Uzbekistan94 decided in 2013. The case differs from World Duty Free v. Kenya in that the claim was based on a BIT between Israel and Uzbekistan, with the applicable substantive law being primarily international rather than national.95
Metal-Tech, an Israeli company, entered into a joint venture agreement with two Uzbek state-owned enterprises for the building and operation of a molybdenum production plant.96 After the conclusion of the joint venture agreement in 2000, Metal-Tech entered into consulting agreements for the payment of USD4.4 million to individuals with close ties to the Uzbek government.97 In 2006 the joint venture (Uzmetal) was subjected to criminal proceedings by the Uzbek authorities on the ground that Uzmetal’s officers had abused their authority.98 Uzbekistan’s government also adopted a resolution abrogating Uzmetal’s right to export raw material.99 Subsequently, the two state-owned entities initiated bankruptcy proceedings against Uzmetal resulting in the liquidation of the joint venture as well as the transfer of its assets to the two state-owned companies.100 In 2010 Metal-Tech submitted a request for arbitration to ICSID claiming violations of the Israel–Uzbekistan BIT (including expropriation) and seeking financial compensation from Uzbekistan.101 The tribunal found that the consulting agreements were shams intended to clothe bribes to persons connected to the Uzbek government with a veneer of legitimacy. The bribes were paid with a view to obtaining government approval for Metal-Tech’s investment.102 On this basis, the tribunal concluded that it lacked jurisdiction because Metal-Tech’s investment was tainted with corruption.
More precisely, Article 8.1 of the Israel–Uzbekistan BIT states:
Each Contracting Party hereby consents to submit to the International Centre for the Settlement of Investment Disputes ... for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington on 18 March 1965 any legal dispute arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.103
It followed from this that the arbitral tribunal’s jurisdiction hinged on whether there was an ‘investment’ within the terms of the BIT. Article 1.1 of the BIT defined covered investments as follows:
The term ‘investments’ shall comprise any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made, including, but not limited to: ....104
Thus, just as with many other BITs, Article 1.1 of the Israel–Uzbekistan BIT incorporated an express legality requirement.105 The tribunal found that Metal-Tech’s investment did not meet this legality requirement since it was tainted with corruption and contrary to Uzbekistan law as a result.106 Metal-Tech’s holding in Uzmetal did not therefore constitute an investment within Articles 1.1 and 8.1 of the Israel–Uzbekistan BIT.107 The investment falling outside the BIT, the tribunal lacked jurisdiction to deal with Metal-Tech’s complaints, including that of expropriation.108
Several observations might be made. First, the tribunal cited World Duty Free with approval and relied heavily on it as support for the principle that corruption was contrary to international public policy.109
Second, the tribunal distinguished between resorting to bribery to obtain an investment agreement with a state and engaging in bribery in the performance of an investment agreement. Only the former situation would result in an investment not being in accordance with domestic law.
Third, the tribunal was obviously uncomfortable with the outcome of its decision. Due to corruption in the obtaining of the investment, the investor lost all safeguards under the Israel–Uzbekistan BIT. In contrast, the host state could avoid arbitral scrutiny entirely and take over the investor’s business, even though persons connected with the host government were themselves tainted by the corruption. This was despite there being scant material before the tribunal showing that the host state had dealt with the problem of corruption, by prosecuting responsible individuals and putting in place procedures to ensure that a similar incident would never happen again. The tribunal’s unease is reflected in the way that it dealt with costs. It ordered that the parties should bear their own costs even though the state had prevailed. It stated:
422.More important, the Tribunal’s determination is linked to the ground for denial of jurisdiction. The Tribunal found that the rights of the investor against the host State, including the right of access to arbitration, could not be protected because the investment was tainted by illegal activities, specifically corruption. The law is clear – and rightly so – that in such a situation the investor is deprived of protection and, consequently, the host State avoids any potential liability. That does not mean, however, that the State has not participated in creating the situation that leads to the dismissal of the claims. Because of this participation, which is implicit in the very nature of corruption, it appears fair that the Parties share in the costs.
The tribunal justified the overall outcome as ‘the promotion of the rule of law’. It stated:
389..... While reaching the conclusion that the claims are barred as a result of corruption, the Tribunal is sensitive to the ongoing debate that findings on corruption often come down heavily on claimants, while possibly exonerating defendants that may have themselves been involved in the corrupt acts. It is true that the outcome in cases of corruption often appears unsatisfactory because, at first sight at least, it seems to give an unfair advantage to the defendant party. The idea, however, is not to punish one party at the cost of the other, but rather to ensure the promotion of the rule of law, which entails that a court or tribunal cannot grant assistance to a party that has engaged in a corrupt act.110
Again, the rationale is unconvincing. How does allowing the wrongdoers to continue behaving as previously reinforce the rule of law?
What World Duty Free and Metal-Tech illustrate is that international law on corruption can have an unintended and seeming unfair side-effect in the field of international investment arbitration. International agreements require states to criminalise corruption under their domestic law, which states then do. But in some states, those in control are themselves corrupt and do nothing to enforce their domestic anti-corruption laws against themselves. Instead, they make it plain to foreign investors that the price of doing business in their country is a bribe. Some foreign investors take the plunge and engage in bribery to secure business. They may reason that, if they do not do so, someone else will. Having obtained an investment deal with a state, a foreign investor legitimately invests in the country and builds up a successful business. The state’s corrupt government then decides to take over the investment, alleging that the same is not entitled to protection under a multilateral or bilateral investment agreement due to its origins in a bribe. Because of the bribe, the investment is not entitled to the protections granted by international investment agreements. A variant scenario arises when investment treaties explicitly provide that an investment is only covered if made ‘in accordance with the host state’s laws’. An investment having originated with a bribe will not meet such a requirement.
What emerges is that international obligations on corruption and domestic laws based thereon allow corrupt host states to defend themselves quite effectively against an arbitral tribunal’s scrutiny, especially if treaties contain express legality provisions. The host state avoids oversight by an arbitration tribunal, while the foreign investor is denied recourse to an arbitral tribunal. This outcome seems unjust, especially where the representatives of the host state have benefitted from a bribe. Invoking the protection of the local citizenry or the law as justifications for a tribunal declining jurisdiction are far from compelling as suitable responses to the unfairness identified.
4.5 Towards a Nuanced Approach
The view that any investor who is involved in corruption automatically loses any protection under international investment agreements has attracted heavy criticism.111 It is submitted that the orthodox ‘all or nothing’ approach should be revisited. It is time for a more nuanced approach to dealing with agreements tainted with corruption in international investment arbitration. The approach proposed here is based on the UK Supreme Court’s decision in Patel v. Mirza112 on what should be the civil law consequences of an illegal agreement.
Patel gave Mirza GBP620,000 for the purpose of subscribing to Bank X’s shares in an initial public offering.113 The understanding was that, in subscribing to the shares, Mirza would be relying on insider information. As matters transpired, the insider information did not materialise and Mirza did not use Patel’s money to subscribe to Bank X’s shares. Nor did Mirza repay the GBP620,000 to Patel. Consequently, Patel sued Mirza for restitution of the money. In his defence, Mirza argued that he did not have to repay the money due to the illegality underlying the agreement with Patel, the purchase of shares based on insider dealing being a criminal offence. The Supreme Court had to decide whether illegality barred the claim for repayment. The Supreme Court held, by a majority of 6 to 3, that Patel was entitled to the return of the GBP620,000.
The starting point of the Supreme Court’s analysis was the law on illegality as it then stood. Like the tribunal in World Duty Free, the Supreme Court referred to Lord Mansfield in Holman v. Johnson:114 ‘No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act’. However, simply rendering a contract unenforceable if it is found to be tainted with illegality can lead to capricious results. For example, it would lead to Mirza having a windfall gain of GBP620,000 even though he was complicit in the insider dealing. The majority therefore espoused a multi-faceted balancing approach to illegality:
The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system … In assessing whether the public interest would be harmed in that way, it is necessary a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, b) to consider any other relevant public policy on which the denial of the claim may have an impact and c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts. Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather by than the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate.115
According to the majority, a range of factors should be considered in deciding whether it would be proportionate to refuse relief to which a claimant may otherwise be entitled. Relevant factors include ‘the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability’.116 Based on this approach, the majority concluded that Patel should be allowed to enforce his claim.117 He should not be barred from claiming his money only because the money he sought to recover was paid for an unlawful purpose. The enforcement of Patel’s claim would not undermine the integrity of the judicial system.
The minority favoured retaining the orthodox rule. It instead espoused the application of a reliance test. According to that test, a claimant may not rely on one’s illegal act to find a cause of action. But if the claimant can rely on matters other than the illegal act in support of its cause of action, the claimant may be entitled to a remedy. Thus, it was open to Patel to rely on a cause of action for restitution. Lord Sumption observed:
249.In one sense, the contract between these parties may be said to have been frustrated by the failure of the inside information to materialise, or to have resulted in a total failure of consideration because as a result the shares were never purchased. But that cannot be an adequate explanation of the reason why someone in Mr Patel’s position may be entitled to restitution .... That concept permits the recovery of money paid even before (indeed, especially before) the time for performance has arrived, and therefore in many cases before the contract was frustrated or the question of failure of consideration could arise. The ground of restitution in these circumstances can only be that the contract was illegal and that the basis for the payment had failed.250.Of course, in order to demonstrate that the basis for the payment had failed, Mr Patel must say what that basis was, which would necessarily disclose its illegality. In my opinion, the reason why the law should nevertheless allow restitution in such a case is that it does not offend the principle applicable to illegal contracts. That principle, as I have suggested above, is that the courts will not give effect to an illegal transaction or to a right derived from it. But restitution does not do that. It merely recognises the ineffectiveness of the transaction and gives effect to the ordinary legal consequences of that state of affairs. The effect is to put the parties in the position in which they would have been if they had never entered into the illegal transaction, which in the eyes of the law is the position which they should always have been in.
Patel v. Mirza has been followed in Hong Kong. In March 2023118 the Hong Kong Court of Appeal preferred the ‘range of factors’ approach over the ‘reliance’ test. Singapore’s Court of Appeal, in contrast, has so far rejected the ‘range of factors’.119 Civil law jurisdictions, however, may not be so amenable to a balancing approach. Take Japan as an example. Article 708 of the Civil Code of Japan unequivocally states:
A person that has paid money or delivered thing for an obligation for an illegal cause may not demand the return of the money paid or thing delivered; provided, however, that this does not apply if the illegal cause existed solely in relation to the beneficiary.
The proviso to Article 708 will generally not apply to bribery, since in such cases there would be an illegal cause originating from the person bribing and the person bribed.
This brings one to the crucial question. Can the more nuanced approach favoured by the majority in Patel v. Mirza be transposed to international investment arbitration?
In relation to the World Duty Free scenario, it is submitted that the answer should be ‘yes’. Rather than an ‘all or nothing’ approach to jurisdiction, an arbitral tribunal should instead balance all relevant factors to assess whether an investor should be entitled to a remedy in whole, in part, or not at all. The decisive question for the arbitral tribunal would be whether allowing a remedy, despite the investment having been initially obtained through bribery, would be just, fair and in the public interest. The range of factors which an arbitral tribunal might consider would include:
(1)The investment brought in by the investor;(2)The economic impact on the investor of denying a remedy;(3)The extent to which the investor has legitimately carried out and developed its investment after obtaining the same;(4)The seriousness of the corruption involved;(5)The positions of the public officials involved in the bribery and the extent to which (if at all) their conduct may be attributed to the state;(6)The extent to which such public officials initiated and benefitted from the corruption;(7)The present circumstances of such public officials and, especially, whether the state has made serious attempts to prosecute them;(8)The measures implemented by the state to ensure that similar incidents do not recur in the future;(9)The time that has elapsed since the corruption;(10)Whether the state acted against the investor and the relevant public officials within a reasonable time of learning of their involvement in the corruption.
Adopting such an approach as a matter of international public policy may be criticised as giving rise to uncertainty. This would be in the sense that, corruption having been found, it will not necessarily follow that an investor will be barred from a remedy. But it is submitted that this situation will be little different from what happens in disputes concerning fair and equitable treatment where a tribunal applies a proportionality approach.
The Metal-Tech scenario is less conducive to a ‘range of factors’ approach. That is because an investment will either be a covered one or not under an investment agreement. Depending on the precise wording of an investment agreement, if an investment is not covered, the tribunal will have no jurisdiction. This would be regardless of the merits of the investor’s case evaluated from the viewpoint of a range of factors. In this scenario, it is submitted that arbitral tribunals should rely on a more robust analysis of the facts in assessing whether:
(1)The state has acted timeously to avoid an investment agreement or should be deemed to have waived the right to avoid; and(2)The extent to which the knowledge of the bribed official should be attributed to the state.
The underlying notion is the prevention principle, namely, that a party should not be permitted to rely on its own wrong to benefit itself. The higher the bribed person’s position in or connection to a state, the more likely it should be that a tribunal concludes that the state knew or ought to have known of the corruption at an early stage. In that case, the greater the likelihood of the tribunal finding that the state failed to act in a timely fashion to prevent the known corruption, so that the state must be deemed to have waived the right to avoid the investment transaction. On that basis, the tribunal would have jurisdiction and can then apply a ‘range of factors’ approach to fashion a proportionate remedy.
Within investment treaty law, the nuanced approach espoused here has recently been signalled in Vladislav Kim and others v. Uzbekistan.120 In the case, corruption was alleged but was ultimately found not to have been established. Uzbekistan, however, also relied on allegations that, contrary to Article 12 of the Kazakhstan–Uzbekistan BIT, the investment had not been ‘made in compliance with [Uzbekistan’s] legislation’. It was suggested that from the beginning the investors had contravened provisions of Uzbekistan securities law, including through false disclosures and fraudulent concealments. The tribunal held that, in evaluating whether an alleged illegality has the consequence of ousting jurisdiction, a tribunal should be ‘guided by the principle of proportionality’.121 It had to ‘balance the object of promoting economic relations by providing a stable investment framework with the harsh consequence of denying the application of the BIT in total when the investment is not made in compliance with legislation’.122 The rationale for this was that ‘[t]he denial of the protections of the BIT is a harsh consequence that is a proportional response only when its application is triggered by noncompliance with a law that results in a compromise of a correspondingly significant interest of the Host State’.123 The balancing in Vladislav Kim is analogous to the ‘range of factors’ approach in the sense that whether the illegality of an investment has resulted in ‘a compromise of a correspondingly significant interest of the Host State’ is clearly one factor that a tribunal can take into account. But it need not be the only factor that a tribunal considers when weighing a proportionate response to illegality, including bribery and corruption, in the making of an investment.
4.6 Conclusion
The fight against corruption remains a priority for policymakers, government authorities and lawyers globally in Asia. International law has been instrumental in encouraging states to ramp up their anti-corruption efforts. In Asia, unlike in most other continents, no comprehensive multilateral agreement on corruption exists, although the recently concluded (and increasingly important) CPTPP contains ambitious anti-corruption provisions.
International agreements on corruption require states to criminalise certain practices as corrupt. The crimes as defined in international agreements are not directly applicable to businesses and individuals. Instead, the corruption crimes identified in the international agreements need to be translated into the domestic law of each state. States vary in their domestic implementation of corruption crimes. This can be illustrated by comparing the treatment of facilitation payments across jurisdictions in Asia.
The international law on corruption has an unintended side-effect in the field of international investment arbitration. Host states can defend themselves against an arbitral tribunal’s jurisdiction by alleging breaches of anti-corruption laws by foreign investors at the outset of their investment. To limit the abuse of this possibility, it is submitted that a more nuanced approach to the treatment of corruption in international investment law is warranted.
Notes
1.
Asian jurisdictions differ considerably with respect to levels of real or perceived corruption. The Corruption Perception Index 2022 by Transparency International illustrates the disparity: while Bangladesh ranked 145 out of 180 countries, Singapore ranked 5 out of 180 (i.e., Singapore is the country with the fifth lowest level of perceived corruption globally).
3.
Argentina, Brazil, Bulgaria, Colombia, Russia and South Africa.
6.
See Article 4.2 of the OECD Anti-Bribery Convention: ‘Each Party which has jurisdiction to prosecute its nationals for offences committed abroad shall take such measures as may be necessary to establish its jurisdiction to do so in respect of the bribery of a foreign public official, according to the same principles.’.
12.
UNCAC Article 4.1.
13.
UNCAC Article 4.2.
14.
UNCAC imposes no binding obligation to criminalise passive bribery of foreign public officials.
16.
IACAC Article VI.
17.
Cf. Criminal Law Convention on Corruption, Articles 2 to 5.
18.
These provisions of the Civil Law Convention on Corruption should be noted: Article 1 requires state parties to implement domestic legislation ‘for effective remedies for persons who have suffered damage as a result of acts of corruption, to enable them to defend their rights and interests, including the possibility of obtaining compensation for damage’. Article 2 defines ‘corruption’ as ‘requesting, offering, giving or accepting, directly or indirectly, a bribe or any other undue advantage or prospect thereof, which distorts the proper performance of any duty or behaviour required of the recipient of the bribe, the undue advantage or the prospect thereof’. It is therefore unclear whether the convention catches facilitation payments. By Article 5 parties are obliged to legislate ‘for appropriate procedures for persons who have suffered damage as a result of an act of corruption by its public officials in the exercise of their functions to claim for compensation from the State or, in the case of a non-state Party, from that Party’s appropriate authorities’. But Article 6 provides that a state’s domestic law should also enable compensation ‘to be reduced or disallowed having regard to all the circumstances, if the plaintiff has by his or her own fault contributed to the damage or to its aggravation’. Article 7 obliges states to limit proceedings for the recovery of damages ‘to be subject to a limitation period of not less than three years from the day the person who has suffered damage became aware or should reasonably have been aware, that damage has occurred or that an act of corruption has taken place, and of the identity of the responsible person’. Further, ‘such proceedings shall not be commenced after the end of a limitation period of not less than ten years from the date of the act of corruption’. Under Article 8, a state party is required to ‘provide in its internal law for any contract or clause of a contract providing for corruption to be null and void’.
19.
Cf. AUC Article 4 ff.
20.
Afghanistan, Australia, Azerbaijan, Bangladesh, Bhutan, Cambodia, the People's Republic of China, Cook Islands, Fiji Islands, Georgia, Hong Kong (China), India, Indonesia, Japan, Kazakhstan, Korea, Kyrgyz Republic, Macao (China), Malaysia, Mongolia, Nepal, New Zealand, Pakistan, Palau, Papa New Guinea, the Philippines, Samoa, Singapore, the Solomon Islands, Sri Lanka, Thailand, Timor-Leste, Vanuatu, and Vietnam (OECD n.d.).
22.
Japan prefers to designate trade agreements as ‘economic partnership agreements’ (EPAs) rather than ‘free trade agreements’. See further generally on Japan’s FTAs and BITs, including provisions relevant to corruption, Chap. 11 in this volume.
24.
JPEPA Article 89.
25.
JPEPA Article 90.
26.
JPEPA Article 95.
27.
JPEPA Article 91.
29.
Article 7 of the Japan–Thailand EPA (2007): ‘Each Party shall ensure that measures and efforts are undertaken to prevent and combat corruption of its public officials regarding matters covered by this Agreement in accordance with its laws and regulations.’.
30.
Article 8 of the Japan–Indonesia EPA (2007): ‘Each Party shall, in accordance with its laws and regulations, take appropriate measures to prevent and combat corruption and bribery regarding matters covered by this Agreement.’.
31.
Article 7 of the Japan–India EPA (2011): ‘Each Party shall, in accordance with its laws and regulations, take appropriate measures to prevent and combat corruption of its public officials regarding matters covered by this Agreement.’.
32.
For the current signature status of UNCAC, see https://www.unodc.org/unodc/en/corruption/ratification-status.html. For the current status of the OECD Anti-Bribery Convention, see https://www.oecd.org/daf/anti-bribery/WGBRatificationStatus.pdf. Both accessed 1 May 2023.
35.
The following countries have ratified RCEP (as of May 2023): Singapore, China, Japan, Brunei, Cambodia, Laos, Thailand, Vietnam, Australia, New Zealand, South Korea, Malaysia, Indonesia, and the Philippines. See https://www.dfat.gov.au/trade/agreements/in-force/rcep; accessed 1 May 2023.
36.
See Bradsher and Swanson 2020: ‘[RCEP] has little impact on legal work, accounting or other services that cross borders, and does not venture far into the often-divisive issue of ensuring greater intellectual property protections. The RCEP also skirts broad issues like protecting independent labor unions and the environment and limiting government subsidies to state-owned enterprises’.
38.
Cf. RCEP Article 17.9.
39.
See generally on the ratification of CPTPP, https://www.dfat.gov.au/trade/agreements/in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership, accessed 1 May 2023.
40.
41.
CPTPP contains chapters on financial services, telecommunications, electronic commerce, government procurement, competition policy, state-owned enterprises, intellectual property, labour and the environment.
42.
Cf. CPTPP Article 9.18 ff. Some members have opted out bilaterally by side letters, notably New Zealand with a few states. See https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership-text-and-resources/#bookmark0, accessed 1 May 2023.
43.
Cf. CPTPP Article 26.6.4.
46.
But CPTPP Article 26.9.2 grants some discretion in enforcement. It reads: ‘In accordance with the fundamental principles of its legal system, each Party retains the right for its law enforcement, prosecutorial and judicial authorities to exercise their discretion with respect to the enforcement of its anti-corruption laws. Each Party retains the right to take bona fide decisions with regard to the allocation of its resources.’ See Note 8 to CPTPP Article 26.9.2: ‘For greater certainty, the Parties recognise that individual cases or specific discretionary decisions related to the enforcement of anti-corruption laws are subject to each Party’s own domestic laws and legal procedures.’.
47.
Cf. CPTPP Article 26.12: ‘No Party shall have recourse to dispute settlement under this Article or Chapter 28 (Dispute Settlement) for any matter arising under Article 26.9 (Application and Enforcement of Anti-Corruption Laws).’ See further Villarino 2020, pp. 62 ff.
54.
56.
See Article 1.1.
57.
See OECD 1997, para. 5: ‘“Other improper advantage” refers to something to which the company concerned was not clearly entitled, for example, an operating permit for a factory which fails to meet the statutory requirements.’.
62.
Ibid.
64.
The position arguing for the illegality of facilitation payments under the UNCAC is described in Follett 2015, p. 124. However, it should be noted Follett does not share this position; see below.
67.
72.
The precise wording of Schedule 1 Section 70.4.1 of the Australian Criminal Code Act 1995.
75.
OECD Working Group on Bribery, p. 10.
77.
The following is according to Chance 2023, p. 11: ‘the benefit to the official, member of State Legislative Assembly, member of Provincial Assembly or member of Municipal Assembly so as to induce such person to do or not to do any act, or to delay the doing of any act contrary to one’s own duty, shall be imprisoned not out of five years or fined not out of ten thousand Baht, or both’ (emphasis added).
78.
Section 149 of the Thai Criminal Code states (unofficial translation): ‘Whoever, being an official, member of the State legislative Assembly, member of the Changwat Assembly or member of the Municipal Assembly, wrongfully demands, accepts or agrees to accept for himself or the other person a property or any other benefit for exercising or not exercising any of his functions, whether such exercise or non-exercise of his functions is wrongful or not, shall be punished with imprisonment of five to twenty years or imprisonment for life, and fined of two thousand to forty thousand Baht, or death’ (emphasis added).
79.
World Duty Free Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006. The tribunal was composed of H.E. Judge Gilbert Guillaume (President), Hon. Andrew Rogers QC and V.V. Veeder QC.
80.
Word Duty Free v. Kenya, para. 62.
81.
Word Duty Free v. Kenya, para. 136.
82.
Word Duty Free v. Kenya, paras. 70 ff.
83.
Cf. World Duty Free v. Kenya, para. 6.
84.
World Duty Free v. Kenya, paras. 138–157.
85.
Word Duty Free v. Kenya, paras. 158–187.
86.
Word Duty Free v. Kenya, para. 137.
87.
World Duty Free v. Kenya, para. 157.
88.
World Duty Free v. Kenya, para. 139.
89.
World Duty Free v. Kenya, paras. 143–146.
90.
World Duty Free v. Kenya, para. 183: ‘In the Tribunal’s view, the avoidance of the Agreement by Kenya was made unequivocally and timeously; and accordingly Lord Mustill’s statement of general principle is here satisfied on the facts: Where a contract is voidable, the injured party must take positive action to set it aside … It is no legal bar to avoidance of the contract that the innocent party may previously have committed a breach of that contract. Subject to the Claimant’s several submissions based on waiver or affirmation, the Tribunal decides that Kenya validly avoided the Agreement under both English and Kenyan law.’.
91.
World Duty Free v. Kenya, paras. 180–181:
180.
It remains nonetheless a highly disturbing feature in this case that the corrupt recipient of the Claimant’s bribe was more than an officer of state but its most senior officer, the Kenyan President; and that it is Kenya which is here advancing as a complete defence to the Claimant’s claims the illegalities of its own former President. Moreover, on the evidence before this Tribunal, the bribe was apparently solicited by the Kenyan President and not wholly initiated by the Claimant. Although the Kenyan President has now left office and is no longer immune from suit under the Kenyan Constitution, it appears that no attempt has been made by Kenya to prosecute him for corruption or to recover the bribe in civil proceedings. It is not therefore surprising that Mr. Ali feels strongly the unfairness of the legal case now advanced by Kenya.
181.
The answer, as regards public policy, is that the law protects not the litigating parties but the public; or in this case, the mass of taxpayers and other citizens making up one of the poorest countries in the world.
92.
World Duty Free v. Kenya, para. 177.
94.
Metal-Tech Ltd v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013. The tribunal was composed of Gabrielle Kaufmann-Kohler (President), John Townsend and Claus von Wobeser.
95.
Agreement Between the Government of the State of Israel and the Government of the Republic of Uzbekistan for the Promotion and Reciprocal Protection of Investments of 4 July 1994.
96.
Metal-Tech v. Uzbekistan, para. 19.
97.
Metal-Tech v. Uzbekistan, paras. 28–30.
98.
Metal-Tech v. Uzbekistan, para. 37.
99.
Metal-Tech v. Uzbekistan, para. 38.
100.
Metal-Tech v. Uzbekistan, paras. 43–51.
101.
Metal-Tech v. Uzbekistan, para. 55.
102.
Metal-Tech v. Uzbekistan, paras. 197–227, 311–327.
103.
Emphasis added.
104.
Emphasis added.
106.
Metal-Tech v. Uzbekistan, para. 372. The Uzbekistan Criminal Code criminalises the receipt of a bribe by a public official (Article 210), the giving of bribe to a public official (Article 211) and acting as an intermediary to bribery (Article 212).
107.
Metal-Tech v. Uzbekistan, paras. 372–373.
108.
Metal-Tech v. Uzbekistan, paras. 372–373.
109.
Metal-Tech v. Uzbekistan, paras. 242–243, 291–292.
110.
Metal-Tech v. Uzbekistan, para. 389.
112.
Patel v. Mirza [2016] UKSC 42.
113.
Patel v. Mirza, para. 11.
114.
Holman v. Johnson (1775) 1 Cowp 341, 343, cited in Patel v. Mirza, para. 1.
115.
Patel v. Mirza, para. 120.
116.
Patel v. Mirza, para. 107.
117.
Patel v. Mirza, para. 121.
118.
Monat Investment Ltd v. All Person(s) in Occupation of Part of The Remaining Portion of Lot No. 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island & Anor [2023] HKCA 479.
119.
See Ochroid Trading Limited and another v. Chua Siok Lui and another [2018] SGCA 5, paras. 113–125.
120.
Vladislav Kim and others v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017. The Tribunal was composed of David Caron (President), L. Yves Fortier KC and Toby Landau KC. See further Weeramantry and Packer 2023, pp. 442–445.
121.
Vladislav Kim v. Uzbekistan, para. 396.
122.
Vladislav Kim v. Uzbekistan, para. 396.
123.
Vladislav Kim v. Uzbekistan, para. 396.
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