The Problem of Corruption in International Mediation - Essay Example

?The Problem of Corruption in International Mediation and Arbitration Corruption in international mediation and arbitration requires a less restrictive definition than definitions that centre around public officials.1 This is because in international arbitration and mediation, corruption can involve private parties and officials who are not strictly speaking public officials.2 For this reason corruption is more accurately defined by Olaya as “the use of entrusted power for private gain at the expense of public interest.”3 Transparency International explains that corruption arises when individuals are entrusted with power and “are vulnerable to abuse for private gain” with detrimental consequences for “stakeholders and society more broadly”.4While corruption is most often associated with bribery, corruption can occur by other means such as fraud, procurement of a specific outcome, conflicts of interests, improper enrichment and other dishonest mechanisms.5 Most states acknowledge that it is possible for an arbitral award to be obtained by virtue of corruption. At international law, the limited grounds upon which an arbitral award can be reviewed include the “procurement of the award by corruption” or corruption on the part of an arbitrator or arbitrators.6 Since mediators do not make binding decisions and merely help the parties arrive at their own resolution, the problems of corruption among mediators and parties in international disputes are not as problematic as corruption in binding arbitration.7 In either case, arbitrators and mediators are at risk of corruption charges in instances where the parties are denied equal treatment.8 Safeguarding against corruption in international mediation and arbitration is particularly important because it provides an alternative dispute resolution for parties suspicious of corruption among local judiciaries.9 For the most part, any business sector which might be entrusted with power is typically subjected to a code of conduct which is designed to engender trust in those sectors and thereby reduce perceptions of corruption. Some such codes are the European Code of Conduct for Mediators and the Code of Ethics for Arbitrators in Commercial Disputes. These codes define what amounts to tolerable standards of conduct, the role of the mediator/arbitrator and their duties and responsibilities.10 Setting standards of conduct however, does not by itself ensure that international arbitration and mediation are free of corrupt practices. In this regard, international conventions have established laws that indirectly identify corrupt practices and provide for enforcement techniques for corruption. For instance by virtue of Articles 34 and 36 of the UNCITRAL Model Law 1985 an arbitral award is subject to challenge and may not be enforced if the award is inconsistent with public policy.11 Article V(2) of the New York Convention 1958 makes a vastly similar provision.12 An award which is procured by or given under the auspices of corruption is typically perceived as inconsistent with public policy.13 As early as 1963 the ICC set a standard of conduct for dealing with cases in which corruption was obvious. The case was ICC Case No. 1110 in which arbitrator Lagergren did not determine the merits of a case when he found that there had been corruption. The case related to a contract in which an English company had agreed with an Argentine entity acting as intermediary for the acquisition of a utilities’ contract in Argentina. The agreement called for the Argentine entity to receive a commission of 10 per cent of the contract’s value. When the English company did not make good on the agreement, Lagergren ruled that he did not have jurisdiction since: Parties who ally themselves in an enterprise of the present nature must realize that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.14 Developments since ICC Case No. 1110 indicate that arbitrators would rule on the merits of the case regardless of corruption allegations and would either rule that corruption had not been proved or that that contract was unenforceable on the grounds of corruption or contrary to public policy under international law.15 Either way, arbitrators will not give effect to a contract founded on corruption in international commercial disputes. The problems associated with corruption claims against arbitrators are more complex and will typically not be dealt with at international law. There are no international conventions dealing with corruption claims against arbitrators and therefore it must be assumed that national laws and courts will have to determine what standards and rule of law to apply to the adjudication of a claim.16 Although the Washington Convention 1965 which deals with investor/state arbitration provides that an award ca be vacated if it is established that “there was corruption on the part of a member of the tribunal,”17 corruption is determined by national laws rather than international laws. Therefore, whether an allegation of corruption against an arbitrator or a mediator is founded and permits the vacating of an arbitral award or a mediation settlement will be determined by reference to the applicable national anti-corruption laws. In the UK the Bribery Act 2010 will come into effect in April 2011.18 The Bribery Act 2010 creates a number of offences calculated to take into account situations where both private and public parties can be found guilty of corruption both at home and abroad.19 What this means for international arbitration is that illegal contracts in which private entities or individuals attempt to bribe public officials both at home and abroad will be convicted of offences contrary to the Bribery Act 2010. Officials who enter into corrupt contracts with private entities or individuals either at home or abroad will likewise be liable to conviction.20 In this regard, it is anticipated that anti-corruption laws such as the Bribery Act 2010 will either deter the incidents of corruption that involve arbitration panels or come before arbitral panels in the UK. Essentially, under UK anti-corruption laws it is an offence to either receive or request a bribe from or of any official or agent and includes both private and public agents and/or officials.21 The UK’s Arbitration Act 1996 leaves open the possibility of removing an arbitrator on the grounds of corruption. Section 24 provides that the court has the authority to remove an arbitrator if “circumstances exist that give rise to justifiable doubts as to his impartiality”.22 Section 68(g) of the Arbitration Act 1996 also contemplates that an arbitral award will not be enforced if it is based on corruption either on the part of the contracting parties or was obtained by virtue of corruption. Section 68(g) essentially provides that a court may refuse enforcement where it is satisfied that the award was “obtained by fraud or the award or the way in which it was procured” was “contrary to public policy.”23 As with the Bribery Act 2010 in the UK, the Foreign Corrupt Practices Act 1977 as amended in the US is also broad enough to bind international arbitrators and/or mediators. The US Department of Justice states that the purpose of the 1977 Act is to make it: Unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.24 The 1977 Act however goes beyond mere payment of a bribe and makes it unlawful to merely offer an inducement of any value to an official with the intention of influencing his or her performance of his/her duty.25 Together with making corruption unlawful, Federal Statute in the US also provides than any arbitral award may be set aside on the ground that it was obtained or rendered by virtue of corruption.26 Canada’s anti-corruption law encapsulated under the Corruption of Foreign Public Officials Act 1998 is more restrictive than the approaches taken by the US and the UK. Under Section 3 of the 1998 Act it is only an offence to attempt to bribe a foreign public official27 which inherently weakens the case against arbitrators and/or mediators. However, there is currently a Bill before Canada’s legislators that would bring the anti-corruption laws into congruity with the laws of the US and the UK. The Bill will define corruption offences so as to be broad enough to cover bribery of private entities who act in an official capacity or are agents assuming a position of power and trust.28 Canada’s specific safeguards against anti-corruption in the context of international arbitration is applied by its Commercial Arbitration Code 1985 which specifically incorporates the UNCITRAL Model Law 1985.29 This means that any arbitral award issued contrary to international public policy will not be enforced in Canada, pursuant to Articles 34 and 36 of UNCITRAL Model Law 1985. As previously noted, awards issued contrary to international public policy typically include awards and contracts founded on corruption. France, like Canada, the UK and the US is a member to the Organisation for Economic Cooperation and Development Anti-Bribery Convention. As a member, France has amended its penal code which is now embodied in Law No. 2007-1958. The new law also amends the Criminal Procedure Code. The new law seeks to extend the definition of public officials so as to make it broad enough to make any official accountable.30 The main sources of France’s arbitration laws are contained in its Civil Code.31 However France is a party to the New York Convention32 with the result that pursuant to Article 5(2) an arbitral award will not be enforced in France if it is contrary to international public policy and as such founded on corruption. Likewise, France is a party to the Washington Convention33 and as such an award founded on corruption will not be enforced in investor/state arbitration processes. In the final analysis, it can be said that in recent times the definition of corruption has been broadened by national legislators. This broadening of the definition of corruption has made it possible to take into account the kinds of circumstances in which corruption claims can be made in international trade and commerce. Since corruption claims can arise out of an actual contract or in the course of a dispute resolution process, national laws are increasingly defining corruption to include private parties as well as public officials. Arbitrators are typically private individuals, but they do perform a public duty similar to that of judges. Therefore it makes sense that national legislators have increasingly redefined corruption so as to include claims against arbitrators. Bibliography Textbooks Born, G. International Commercial Arbitration: Commentary and Materials. (Kluwer Law International 2001). Buhring-Uhle, C.; Kirchhoff, L. and Scherer, G. Arbitration and Mediation in International Business. (Kluwer Law International 2006). Delvolve, J.; Pointon, G. and Rouche,J. French Arbitration Law and Practice. (Kluwer Law International 2009). Fouchard, P.; Gaillard, E.; Savage, J. and Goldman, B. Fouchard, Gaillard, Goldman on International Commercial Arbitration. (Kluwer Law International 1999). Mullerat, R. International Corporate Social Responsibility. (Kluwer Law International 2009). Sayed, A. Corruption in International Trade and Commercial Arbitration. (Kluwer Law International 2004). Transparency International. Global Corruption Report 2007: Corruption in Judicial Systems. (Cambridge University Press 2007). Transparency International. Global Corruption Report 2009: Corruption and the Private Sector. (Cambridge University Press 2009). Articles/Journals Bange, V. ‘An Introduction to the Bribery Act.’(December 2010) Construction Law, 20-22. Olaya, J. ‘Good Governance and International Investment Law: The Challenges of Lack of Transparency and Corruption’. (2010) Society of International Economic Law, Online Proceedings Working Paper No. 2010/43, 1-51. Stipanowich, T. ‘Arbitration: The “New Litigation”.’ (2010) 1 University of Illinois Law Review, 1-60. Peters, D. ‘Can We Talk? Overcoming Barriers to Mediating Private Transborder Commercial Disputes in the Americas.’ (2008) 41(5) Vanderbilt Journal of International Law, 1251-1305. UK Trade and Investment. ‘UK Bribery and Corruption Law.’ (June 2008) Central Office of Information, 1-2. Wesel, C. ‘Canada is Pushed for Stronger Enforcement of Anti-Corruption Laws.’ (2009) International Business Ethics and Anti-Corruption, Gowlings LaFleur Henderson LLP, 1-2. Table of Cases ICC Case No. 1110 per Lagergren cited in P. Fouchard; E. Gaillard; J. Savage and B. Goldman, Fouchard, Gaillard, Goldman on International Commercial Arbitration, (Kluwer Law International 1999) 353. Lembda Trading Co Ltd v African Middle East Petroleum Co Ltd [1998] 1 All ER 513. Table of Statutes Arbitration Act 1996 (UK). Commercial Arbitration Code 1985, (Canada). Corruption of Foreign Public Officials Act 1998 (Canada). Federal Arbitration Act 1925 (US). Foreign Corrupt Practices Act 1977(US). New York Convention 1958 (International Convention). UNCITRAL Model Law 1985 (International Convention). Washington Convention 1965 (International Convention). Internet Resources OECD, ‘OECD Anti-Bribery Convention: National Implementing Legislation,’ (n.d.) http://www.oecd.org/document/30/0,3343,en_2649_34859_2027102_1_1_1_1,00.html#france (Retrieved 21 February 2011). US Department of Justice. ‘Foreign Corrupt Practices Act: An Overview.’ (n.d) http://www.justice.gov/criminal/fraud/fcpa/ (Retrieved 21 February 2011). Read More