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On 30 May, the University of Basel’s Competence Centre - Arbitration and Crime and the Basel Institute on Governance (a not-for profit organisation) jointly published a toolkit to assist arbitrators dealing with issues or corruption and money laundering. The toolkit is the product of a 2-year consultation process involving regulators, arbitrators, lawyers, forensics, and academics.
It is commonplace to say that arbitrators confronted with allegations or suspicions of economic crime face difficult challenges as they must balance their duties to the parties with public policy rules and lack the investigative powers of the state. The purpose of the toolkit is to help arbitrators address these challenges in a comprehensive manner and find solutions in accordance with applicable laws. This article summarises its key aspects.
Identifying illicit conduct can be challenging when it is in both parties’ interests to conceal that conduct. However, the facts of the case may provide an indication of whether criminal behaviour is likely to have occurred. To assist arbitrators, the toolkit sets out a list of “red flags”.
A method commonly used to conceal the payment of bribes is to bid or contract for services via agents. Red flags relevant to this situation will include:
Other red flags of corruption listed in the toolkit include:
In respect of money laundering, the toolkit distinguishes between arbitrations conducted for the purpose of laundering money (i.e., sham arbitrations) and real disputes involving funds that are proceeds of crime. Red flags relevant to the first scenario will include:
In the latter scenario, indicators of money laundering will include:
In order to identify potentially illicit conduct, the toolkit also recommends using the definitions contained in the following international instruments:
If the facts raise suspicions of illicit conduct based on the above red flags, arbitrators must tread carefully not to make determinations likely to exceed their mandate or which may violate due process. As a first step, the toolkit recommends a sua sponte investigation into the facts, e.g. by way of request for information from the parties. When evidence is not provided, adverse inferences may be drawn, although the toolkit suggests doing so carefully, when the inference is consistent with the facts and logically related to the nature of the evidence withheld.
When allegations of a criminal nature are made in arbitration, the relevant laws may not solely be limited to the law chosen by the parties to govern their contract (which will determine the contractual consequences). The tribunal will also have to determine whether the conduct is actually illegal so as to provide a basis for invalidating a transaction. This may involve the criminal laws of the countries which have a connection with the facts of the case or the identity of the parties. The toolkit recommends a two-stage approach:
It is a hotly debated topic whether tribunals should apply criminal law standards or civil law standards of proof to allegations of corruption or money laundering.
Whilst the toolkit does not settle that debate, it also notes that three main options are available to arbitrators (subject to the relevant applicable law):
A finding of corruption or money laundering can have consequences on the tribunal’s jurisdiction, the admissibility of the claim and the merits of the case. The toolkit sets out general guidelines on how arbitrators should assess such consequences.
Investment arbitration
A finding that an investment was procured by corruption may lead to the conclusion that the tribunal lacks jurisdiction or that the claim is inadmissible, either on the basis of the legality requirements in the relevant treaty or the “unclean hands” doctrine.
However, the toolkit also recommends considering whether other concepts such as attribution, acquiescence and estoppel may counterbalance the effect of such finding.
Commercial arbitration
The toolkit reflects the consensus that, in commercial arbitration, the illegality if the main contract does not in itself affect the jurisdiction of the tribunal due to the principle of separability of the arbitration agreement.
As regards the consequences on the merits, the toolkit offers little guidance other than applying the relevant principles of the governing law.
Allegations or suspicions of economic crime raise difficult legal and procedural issues at almost every stage of the arbitral process. The toolkit does not purport to provide a one-size fits all solution to these issues but provides a general framework for dealing with them in a predicable fashion.
The toolkit sets out important guidelines to ensure arbitration is not used to facilitate or enforce corruption and money laundering. Equally, there is also an understanding reflected in the guidelines that allegations of corruption can be used abusively by parties to escape obligations freely entered into. It is welcome that appropriate safeguards have been built to tackle such behaviour.
6 August 2019
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