Combating Corruption in International Commercial Arbitration

The specter of corruption lurks behind international commercial arbitration, which is frequently lauded as a quick and impartial substitute for state courts in resolving cross-border conflicts. Despite the system’s claims of flexibility and confidentiality, these very qualities can foster unethical behavior that compromises the system as a whole. Because it captures the realities of cross-border business transactions, corruption is a significant component of international commercial arbitration. Sometimes, when engaging in business transactions, parties engage in illicit activity. They might be driven to commit crimes, get contracts, or maximize earnings. International commercial arbitration is a method for resolving disputes between parties to an international contract outside of the legal system. But in recent years, corruption within this system has grown to be a serious worry. Up to 10% of all cases involving international commercial arbitration are thought to contain some element of bribery or other corrupt practices.

Forms of Corruption:

Corruption in international arbitration can exist in many ways:

  1. Bribery: Parties may try to influence the arbitrator through cash, gifts or favors, which can lead to unfair decisions. Giving or receiving benefits such as job offers or employment contracts can create undue influence is also a form of bribery that exists in the ICA. 
  2. Conflicts of interest:  Arbitrators who have a relationship with a party may influence the outcome, even if unintentionally. Furthermore, representing both parties in a dispute or having previously worked for one party can create conflicts.
  3. Collusion: Arbitrators and representatives of the parties might collude by manipulating evidence or procedures. Forgery and fabrication of evidence are also a major problem in the ICA.
  4. Administrative inefficiencies: Lack of transparency, and inadequate oversight create opportunities for abuse. Further weak or vague ethical guidelines create room for interpretation and potential misconduct. Corruption can also arise from limited access to information regarding arbitral proceedings and awards. Finally, it is challenging to identify and combat corruption due to insufficient oversight and enforcement systems.
  5. Bid-rigging, in which arbitral institutions may rig the selection process to favour arbitrators who are known to have biases, and money-laundering, in which arbitral awards or procedures are used to launder criminal cash, are examples of further forms of corruption in the ICA.

THE EFFECTS OF CORRUPTION IN ARBITRATION

Corruption in international commercial arbitration (ICA) can have disastrous consequences on a number of fronts, affecting not just the integrity and credibility of the system as a whole but also individual cases, like 

  • Shift in public opinion: When accusations of corruption appear, public confidence in arbitration as a neutral and fair method of resolving disputes falls sharply, which may deter its usage and impede global trade.
  • Dissolution of party confidence: When parties to an arbitration lose faith in the proceedings, it can result in drawn-out disagreements, higher expenses, and an unwillingness to participate in further arbitrations.
  • Uneven playing field: Corruption makes it possible for richer parties with more resources to sway decisions, which disadvantages smaller or weaker groups.
  • Chilling Effect: The fear of corruption may discourage people from pursuing valid claims, which would otherwise exacerbate the imbalance and prevent some people from accessing the legal system.
  • Decrease in investment: Uncertainty and a lack of trust in the system might deter foreign investment, which can have an effect on growth and total economic activity.
  • Inefficient Outcomes: Decisions tainted by corruption result in unequal resource distributions, impeding the smooth operation of markets and possibly endangering the general welfare of the economy.
  • Reputational damage: Corruption claims and scandals damage the standing of the arbitration profession as a whole, putting even sincere practitioners under suspicion.
  • Impact at the national level: When certain institutions or jurisdictions are involved in corruption, their reputations abroad suffer, which may have an effect on commerce and diplomatic ties.
  • Undermining the rule of law can have broader societal repercussions and diminishes the rule of law by challenging legal procedures and concepts.
  • Maintain systemic problems: Unchecked corruption can create a environment in which unethical behavior becomes accepted, making it more difficult to solve the issue in the long run

PUBLIC POLICY EXCEPTION 

The public policy exception in international commercial arbitration  gives the court the authority to reject the enforcement of an arbitral award if doing so would go against the fundamental public policy of the nation if such enforcement is sought after. This exception serves as a safety net, guaranteeing that awards don’t go against fundamental legal principles or societal values.  It also raises the possibility of conflict between respecting public policy and enforcing agreements freely made through arbitration.  Generally speaking, courts use this exception seldom in order to preserve the integrity and finality of arbitral rulings. Usually, they focus on flagrant transgressions, such as grave breaches of national security or violations of basic human rights.  The exception prevents enforcement of awards that undermine essential societal norms like anti-corruption or human rights and ensures awards align with the legal framework of the enforcing state.

In the case Westman Holdings Inc. v. Republic of Congo the award was set aside due to concerns over bribery, demonstrating the potential consequences when corruption undermines due process and public policy.

LANDMARK CASE LAW : ICC Case No. 1110 

This case Established the “public policy exception” in international arbitration, where tribunals can refuse jurisdiction due to serious ethical violations and highlighted the responsibility of arbitrators to uphold ethical standards and denounce corruption. Further the case also demonstrated the consequences of engaging in corrupt practices in international business dealings. The underlying contract involved an agreement to pay commissions for the construction of a hotel in Egypt. The Claimant sought a 10% commission on the contract value, claiming it was agreed upon with the Respondent. The Respondent argued that the commissions were intended to bribe Egyptian officials, making the contract and entire dispute inherently corrupt. Judge Gunnar Lagergren, the sole arbitrator, declined jurisdiction in the case. He reasoned that the underlying agreement involving bribe payments violated fundamental moral principles and international public policy and that arbitral tribunals cannot assist parties who participate in such corrupt activities. Further he added that parties who act unethically cannot seek justice through the same system they aim to undermine. Judge Lagergren was criticized for not recognising the separability doctrine.

SEPARABILITY DOCTRINE

Separability is an essential principle in international commercial arbitration that protects the fairness of the parties and the integrity of the dispute resolution processes. In short, separability says that an arbitration agreement—which is frequently incorporated into a longer contract—remains separate and enforceable in the event that the overall contract is declared void or rendered unenforceable. This divergence has important ramifications for the arbitral procedure as well as the parties involved.

In a situation wherein a commercial agreement containing an arbitration clause is contested on the grounds of purported breach, invalidity, or other problems.  Without the principle of separability, contesting the validity of the primary contract might render the arbitration clause void in its entirety, depriving the parties of a chosen dispute resolution method.  In that case parties who agreed to settle disputes through arbitration could be forced into court proceedings, potentially undermining their chosen forum and preferred procedures.

The acceptance of separability in international arbitration is becoming more common, and courts and arbitral institutions around the globe are supporting this trend. However, the particular application of separability principles differs based on the national laws, the arbitration rules used, and the particulars of each case.

INVESTIGATING CORRUPTION

Investigating corruption in international commercial arbitration (ICA) is a difficult undertaking that necessitates giving ethical standards, legal frameworks, and real-world difficulties a considerable thought. Sua sponte investigations are those that the arbitral tribunal launches on its own initiative, without the parties’ request, in order to look into possible problems that can affect the fairness and integrity of the proceedings. While exposing possible misconduct is intended to ensure fair and reasonable outcomes, this power raises questions regarding abuse of power, due process, and confidentiality. In most cases, parties are free to select the rules, processes, and even the substantive law that govern the resolution of their disputes because they have party autonomy. However, this freedom is not absolute and can be challenged in specific circumstances, even through sua sponte investigation. 

Sua sponte investigations give the tribunal the authority to act without the parties’ express consent, which appears to run counter to the idea of party autonomy. This gives rise to worries about possible abuses of the tribunal’s authority and potential violations of party autonomy. Therefore, it is essential to safeguard the party’s autonomy and make sure that any investigations follow the law and are fair. In order to get that transparency, the inquiry process must be conducted with due process and respect for the rules selected by the parties. Additionally, the inquiry shouldn’t be too burdensome or invasive; rather, it should be restricted to what is required to address the particular problems. Hence finding the right balance between upholding ethical standards and preserving party autonomy is crucial in such investigations.

SUGGESTIVE  MEASURES : 

  • Strengthening ethical codes and enforcement: Misconduct can be discouraged by more effective enforcement procedures and clearer, harsher codes.
  • Enhancing transparency and oversight: Accountability can be raised by providing information to the public and establishing impartial monitoring organizations.
  • International collaboration and cooperation: In order to combat cross-border corruption, it is essential to share best practices and information between jurisdictions.
  • Effective oversight entails the creation of impartial agencies with the ability to look into complaints of corruption and handle them appropriately.
  • Increasing awareness: Teaching stakeholders about the types and risks of corruption.

CONCLUSION : 

Corruption can be subtle and frequently includes intricate webs of people and organizations. Sustaining the integrity of international commercial arbitration and addressing this challenge requires vigilance and a multifaceted strategy. International commercial arbitration is threatened by the specter of corruption, which casts a shadow over the fundamental values of efficiency, justice, and fairness.  The consequences are far-reaching which includes hampering economic growth, and undermining the legitimacy of this crucial mechanism for international dispute resolution. To combat corruption collective effort is required by  governments, arbitration institutions, legal professionals, solicitors and parties themselves.

Written by: Swetha SS

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