The Growing Salience of Corruption Evidence in Arbitration Matters

Dealing with international arbitration proceedings concerning historical transactions with undertones of corruption is an increasingly interesting challenge. More voices are noting the need for arbitrators to be aware of and actively deal with signs of corruption. The regulatory enforcement of anti-corruption statutes and the rise of compliance standards in the international business community have raised awareness of practices historically considered acceptable.  

But how best to find and present evidence of corruption in arbitration proceedings? Will there be a ‘smoking gun’ that makes the situation clear in every case? It is unlikely, but as we outline in this three-part series, there are clear steps that can be taken to identify and present indicators of corruption in a compelling expert report.

Stronger regulation and enforcement have brought corruption allegations into the arbitration sphere too

In the past 15 years, legislators and international organisations have taken positive strides in tackling corruption [1], and prosecutors around the world have been actively enforcing anti-bribery and corruption statutes. This is clear from both the growing number of cases and the value of fines. Notable statutes and their resolution mechanisms include the US Foreign Corrupt Practices Act (FCPA) (1977), the UK Bribery Act (2010), France’s Sapin II Law (2016) and Brazil’s Clean Company Act (2014).

One consequence of this is a growing incidence of allegations of corruption in transactions disputed in international arbitration, either to discard a claim in front of an arbitral tribunal or to seek to have an award annulled before national courts (particularly in investment arbitration).

One of the root factors making corruption increasingly relevant to arbitration is the changing behaviour of international businesses in response to the enhanced regulatory, legal and reputational risk arising from facts associated with corruption. Widespread adoption and implementation of effective ethics and compliance programmes and related contractual obligations also bring about the identification of instances of misconduct and therefore impact how parties conduct business. As a result, compliance issues often surface in arbitration in the form of outright allegations of corruption when business relationships deteriorate, and suspicions of misconduct or contractual audits reveal potentially improper behaviour.

Public policy

Another contributing factor is public policy. Morality aside, it is a risk to an arbitrator’s reputation to render an unenforceable award. If an arbitrator ignores corruption issues, there is a risk that their decision will later be challenged in state courts on the grounds that it is contrary to national or transnational public policy (for example, under the French Code of Civil Procedure, Articles 1520 and 1525).

In a notable judgment published in England in October 2023 – The Federal Republic of Nigeria v. Process & Industrial Developments Limited [2023] EWHC 2638 (Comm) – arbitration awards of US$11 billion (including interest) were set aside because the awards were held to be obtained by fraud and the way in which they were procured was contrary to public policy. The facts of the underlying substantive transactions were marked by many red flags, as described in the judgment. The judgment noted that “the Arbitration was a shell that got nowhere near the truth”, and later that “the facts and circumstances of this case may provoke debate and reflection among the arbitration community”.

International commercial (dis)agreements

Further, disputes often arise in the context of high-value contracts or concession agreements in which one of the parties is a sovereign state or a state-owned enterprise. Disputes are also frequent in the context of representation of international business interests and sales in overseas jurisdictions through distributors, local representatives and sales agents, for example. When considering corruption risk, judges and arbitrators ought to be aware that these types of commercial agreements can feature enhanced corruption risk.

Standards of proof

Corruption is a term without a universally accepted definition but broadly refers to a wide variety of dishonest practices, including bribery, money laundering, embezzlement, misappropriation or other diversion of property, and false accounting and auditing. To add to the challenges of proving corruption, tribunals have adopted various standards of proof for corruption allegations – ‘robust’, ‘clear and convincing’ or ‘beyond reasonable doubt’ to name a few, but most arbitral tribunals and national courts in annulment proceedings have relied on transactional red flags (i.e., circumstantial indicators of corruption) to guide their decision-making. Often these indicia should be considered together, as a pattern of behaviour, and not only as individual occurrences.

Early identification of indicia of corruption can change the course of a case. This is why it is important for counsel to establish how corruption indicia stack up sooner rather than later and plan how they can be used to influence the tribunal’s approach. Having a solid understanding of the context of the transactions or arrangements at the heart of the dispute, and the risks, and any indicia, of corruption and how they relate to the dispute will impact legal strategy, including methodology, schedule and resourcing.

A few things should be top of mind for a party planning to take up allegations of corruption:

• What are the corruption risks most typically associated with the matter at hand?
• What kind of evidence is the best to substantiate the allegation?
• How will the evidence be obtained and reviewed?
• How will it be ultimately synthetised and presented for maximum impact?

In the next instalment, we discuss typologies of corruption, including examples of arrangements suggesting corruption, together with a description of how the analysis of data and forensic review highlights red flags that could be presented as evidence. In part 3, we discuss the best practices to obtain evidence in a defensible, time and cost-effective manner.  

[1] For example, the Organisation for Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) and the United Nations Convention against Corruption (2003).