Difficulties confronted by ICSID tribunals in deciding international investment corruption cases and possible solutions

• Author: Yin Hongwu
• Position: (???) Ph.D. in International Law, School of Law, Hunan Normal University, Changsha, China; Associate Professor, School of Law, Hunan Normal University, Changsha 410081, China. Contact: lawschool2014@163.com
• Pages: 481-505

FRONTIERS OF LAW IN CHINA

VOL. 15 DECEMBER 2020 NO. 4

DOI 10.3868/s050-009-020-0027-7

ARTICLE

DIFFICULTIES CONFRONTED BY ICSID TRIBUNALS IN DECIDING

INTERNATIONAL INVESTMENT CORRUPTION CASES AND POSSIBLE SOLUTIONS

YIN Hongwu *

Abstract The issue of corruption has attracted increasing attention in the study and

practice of international investment law during recent years. After taking prudent

consideration of the corruption defense invoked by the host states in some international

investment arbitration cases involved with corruption, International Center for

Settlement of Investment Disputes (ICSID) tribunals accordingly determined the final

awards. However, some parts of the arbitral jurisprudence aroused strong criticism,

especially with regard to the ICSID tribunals’ reasoning that arbitrators have no

jurisdiction over corruption-tainted international investments. The ICSID tribunals are

legitimately supposed to exercise their jurisdiction and are lawfully obliged to probe into

the nature of corrupt activities. The tribunals are strongly expected to adopt a balanced

approach in deciding the merits and fairly weighing the obligations, rights, and interests

of both disputing parties. It is preferable to strengthen the collaborative interaction

between ICSID proceedings and domestic anti-corruption enforcement mechanisms

when it comes to combating corrupt international investment activities. Existing

international treaties (or specific treaty provisions) on combating corruption in

international business transactions and calling for international cooperation, alongside

domestic anti-corruption enforcement legislation, have actually laid solid legal

foundations for the establishment of such an anti-corruption coordinative mechanism

between ICSID and domestic corruption regulatory authorities on the global level.

Keywords corruption defense, arbitral jurisdiction, balanced approach, international

anti-corruption coordinative mechanism, Interational Center for Settlement of Investment

Disputes (ICSID), investment

INTRODUCTION .................................................................................................................... 483

I. ICSID TRIBUNAL’S APPROACH IN MANAGING HOST STATE ’S CORRUPTION

* (银红武) Ph.D. in International Law, School of Law, Hunan Normal University, Changsha, China;

Associate Professor, School of Law, Hunan Normal University, Changsha 410081, China. Contact:

lawschool2014@163.com

This article was funded by the 2018 Hunan Provincial Innovative and Open Project “‘Abuse of Process’ in

International Investment Arbitration and Regulation” (18K022), and 2019 Hunan Provincial Social Science

Union Project “Innovation of the BITs between China and African Countries under the BRI” (XSP19YBZ178).

482 FRONTIERS OF LAW IN CHINA [Vol. 15: 481

DEFENSES................................................................................................................ 484

A. Corruption Defense Invoked by the Host State ................................................. 484

B. Two Basic Reasons for ICSID Tribunal’s Declination of Jurisdiction over

Corrupt International Investment Cases........................................................... 485

1. “Corrupt Investment” Violates Fundamental Principles of Law ..................485

2. “Corrupt Investment” Does Not Follow the “In Accordance” Provision in

International Investment Agreements...........................................................486

II. ICSID TRIBUNALS’ CURRENT DIFFICULTIES IN HANDLING HOST STATE

CORRUPTION DEFENSES......................................................................................... 486

A. ICSID Tribunals’ Declination of Jurisdiction over Corrupt Investment Raises

Suspicious of Infringing upon Procedural Justice............................................ 487

B. Uncertainties of Applying the “In Accordance” Provision in Investment

Arbitration Practice Exist................................................................................. 488

C. Tribunals’ Preliminary Declination of Jurisdiction Incurs a Substantial

Imbalance of Interests between the Disputing Parties...................................... 490

D. Tribunal’s Congenital Insufficient Power in Investigating Corruption ............. 491

III. POSSIBLE SOLUTIONS TO OVERCOMING THE CURRENT DIFFICULTIES FACED IN

ICSID INVESTMENT ARBITRATIONS ..................................................................... 492

A. ICSID Tribunals Shall Exercise Jurisdiction over Investment Disputes and

Explore the Nature of Corrupt Activities .......................................................... 493

1. Unilateral Corruption Activity or Bilateral Corruption Activity? ................ 493

2. Hard Corruption or Soft Corruption? ...........................................................493

3. Contract Being the Object of Corruption or Contract Being Procured by

Corruption? .................................................................................................. 494

4. Corruption Being a Minor Breach of Law or Significant Contravention of

Law?............................................................................................................. 494

B. The Balanced Approach to Be Preferably Adopted by ICSID Tribunals ...........495

1. Preconditions Set for Host States’ Successful Invocation of Corruption

Defense......................................................................................................... 495

2. Host States Assume Liabilities for Officials’ Contribution to Corruption.... 496

C. Proposed Internationally Coordinative Mechanism between ICSID and

Domestic Anti-Corruption Enforcement Authorities......................................... 497

1. The Basic Legal Framework for the Proposed Coordinative Mechanism

between ICSID and Domestic Anti-Corruption Authorities......................... 497

2. The Interactive Strategies Possibly Employed between ICSID Tribunals and

Domestic Anti-Corruption Authorities......................................................... 499

CONCLUSION........................................................................................................................ 504