UN Convention Against Corruption and Investor-State Disputes: Two Parallel Universes?

On 17 December 2019 BIICL and the UN Office on Drugs and Crime conducted an event at the eighth session of the Conference of the States Parties to the 2003 United Nations Convention against Corruption (UNCAC) in Abu Dhabi.

This bi-annual conference gathers representatives of over 180 States parties to the Convention to discuss various aspects of the implementation of the Convention, asset recovery, international cooperation, prevention and technical assistance. Although the UNCAC is the most widely accepted and detailed instrument on corruption, the interaction between corruption and investor-State arbitration has not been addressed in the past.

‘The United Nations Convention against Corruption and International Investment Law’ event brought together representatives of States, international organisation, private sector and civil society to see how the Convention can play a more prominent role in international investment agreements and investor-State disputes.  The event panel included representatives of  ICSID (presentation below), Kazakhstan, Indonesia, and major law firms. Vladimir Kozin from the UN Office on Drugs and Crime co-chaired this event with me.

The lack of consistency in corruption-related awards

The growing number of States become involved in the system of investor-State dispute settlement, which enables foreign investors to assert direct claims against governments in international arbitration. Tribunals consisting of arbitrators appointed for each case decide whether the host state breached its obligations.

Awards of such tribunals are final and mandatory and may reach hundreds of millions or even tens of billions of dollars. Such awards touch upon sensitive areas such as protection of the environment, regulation of major financial institutions or expropriation for a public purpose.

Allegations of corruption in such disputes can lead to tribunals decisions that they have no jurisdiction or that the investor claim is inadmissible. However, tribunals may also decide that the failure to prevent corruption resulted in a breach of the fair and equitable treatment principle of investors or breached other obligations of the host State.

As explained in my recent article on economic crimes in international investment law, tribunals can take very different approaches to who should be blamed for corruption and to the issues of attribution and state responsibility. Many investor-State arbitrators come from private practice and do not have much experience with criminal law or other public law issues, such as those related to anti-corruption.

The current situation could be compared to the co-exitance of two parallel universes: the international investment law universe and the anti-corruption universe with different sets of rules, practitioners and priorities. These two universes, however, show signs of merging as evidenced by some recent international investment agreements.

Although the vast majority of international investment agreements do not contain any references to corruption, some recent treaties include explicit references to the UNCAC, such as the 2010 Austria–Kazakhstan BIT, the 2015 Burkina Faso–Canada BIT or the 2013 Guatemala–Trinidad and Tobago BIT.

Towards greater consistency in approaches to corruption

As more tribunals tackle the issue of corruption in investor-State disputes, it is important to facilitate more consistency and predictability in their approaches. The UNCAC is the only universal and binding instrument on fighting corruption can provide useful guidance in this context.  It includes definitions and basic approaches to responsibilities of States and the private sector, including on issues such as bribery of foreign public officials, trading in influence and other relevant concepts.

To achieve greater consistency in international investment law and help anti-corruption efforts of states, more international investment agreements need to include express references to the UNCAC and its approaches, including those developed in follow up activities related to the Convention.

It is also worthwhile examining the existing practice of international investment tribunals on issues of corruption and to examine whether these approaches comply with the UNCAC. Finally, organisations such as the UN Office on Drugs and Corruption could work on developing specific recommendations on how States, international arbitrators and judges should use the UNCAC.

At the conclusion of this joint UNODC/BIICL event, a representative of the Republic of Kazakhstan proposed that the Secretariat of the UN Office on Drugs and Corruption establish a special working group on examining the effect of the UNCAC in investor-State disputes. This proposal, if accepted, could potentially result in conducting an in-depth study on ensuring greater compliance of international agreements and investor-state awards with the UNCAC.

The podcast of the panel presentations is available here:

Yarik Kryvoi

British Institute of International and Comparative Law