Experts weigh in on how international arbitration handles corruption issues

In recent years, corruption allegations are becoming more common in international arbitration cases. NYU Law’s Center for Transnational Litigation, Arbitration, and Commercial Law hosted a webinar, “The Corruption Virus in Arbitration,” in November to examine the complex set of issues raised when arbitrators must grapple with corruption claims.

Professor Franco Ferrari, the center’s director, convened the webinar, which was moderated by Dirk De Meulemeester, partner at DMDB Law in Brussels. The expert participants included Beller Family Professor of Business Law Kevin Davis; Jennifer Lim, counsel in Sidley Austin’s Singapore office; and Jeremy Sharpe ’98, an international arbitrator and public international law practitioner.

Selected remarks from the discussion:

Dirk De Meulemeester: “Corruption indeed, in general, is a virus, no doubt, but in relation to arbitration and arbitration proceedings, it’s more like a fireball hitting the case. And that is…whether you are alleging the corruption or the fraud or the extortion in the case, or you have to defend yourself as counsel as a party, or when you have to take a decision as a tribunal.” (video 04:14

Jennifer Lim: “The difficulty with allegations such as corruption is that there’s usually no direct evidence of corruption. So, in such a situation, what evidence is sufficient to meet the standard of proof? Especially in situations where tribunals also often have limited power to compel a party to produce evidence. In such situations, tribunals often rely on red flags…. Corruption may be proven through circumstantial evidence, even where a higher standard of proof applies…. Now what they mean when they say red flags is that these are circumstances that may indicate a third party’s propensity to make illegal payments. They don’t in and of themselves constitute violations of anti-bribery laws, but they are warning signs that indicate to the tribunal that these allegations need to be taken seriously and investigated.” (video 09:53

Kevin Davis: “I know that from the perspective of the prosecutors, say the Department of Justice prosecutors in the United States who enforce the [Foreign Corrupt Practices Act], they have no sympathy whatsoever for that claim, the claims of extortion, at least economic duress. For extortion to succeed, it has to involve threats to life or limb, basically. And they say that what you’re supposed to do if someone extorts you is to just walk away, just say no. So, that’s one approach. I actually think that a more intermediate approach might be appropriate, where you recognize that the person who paid the bribe has potentially had limited options. You take that into account in imposing the sanction. So, you do sanction them, but it’s a more moderate sanction.” (video 41:35

Jeremy Sharpe ’98: “I wonder…if this isn’t really a deeper question about the nature of international arbitration and changes occurring…. For the traditional approach, where you’re in service of the parties and it’s a confidential approach, it would never cross the arbitrator’s mind to become not just watchdogs but hound dogs to sniff out corruption, to refer corruption to national prosecuting authorities.… But if in fact we’re shifting away to a mandate where the arbitrators might have a broader responsibility, where the attitudes toward corruption have shifted internationally, where arbitrators are considered part and parcel of a solution to this broader problem of the virus of corruption, then perhaps there will become an expectation that arbitrators will refer corruption to national authorities.” (video 48:25

Watch the full discussion on video:

Posted January 28, 2021