Bring arbitrators and criminal-law experts in a room together these days and watch a debate about applicable laws unfold.
Arbitrators naturally tend to focus on the contract, the dispute at hand and the laws governing both. Criminal lawyers, like me, think it’s important for arbitrators to consider other laws, especially criminal laws, to ensure the enforceability of arbitral awards and to ensure that no one is held criminally liable for one reason or the other, including the arbitrators themselves. I experienced this paradigm-shifting debate firsthand working on a project initiated by Professor Mark Pieth of the Basel Institute on Governance.
Pieth, who rightly recognized the differing position between arbitrators and financial crime litigators two years ago, invited representatives from academia, arbitration, and financial crime litigation to help him put together a toolkit for arbitrators that will guide them through the increased scrutiny that surrounds companies entering into contracts with arbitration clauses. His academic assistant and author of “Proving Bribery, Fraud and Money Laundering in International Arbitration” Kathrin Betz helped Pieth synthesize our discussions and viewpoints to develop “Corruption and Money Laundering in International Arbitration – A Toolkit for Arbitrators,” published May 30.
As a contributor to this toolkit, my attention is particularly focused on the two following issues facing arbitrators today:
- Which criminal laws should arbitrators look at beyond the applicable contract law?
- What should arbitrators do with corruption if uncovered?
Applying Criminal Law Principles to Arbitration
I urge arbitrators with whom I have assisted on matters to consider what other laws, beyond the applicable contract laws, may apply to the dispute, especially if corruption, bribery, money laundering or other financial crimes could play a role. If these other laws, and the principles that guide them, are addressed in the beginning of the process, there’s a better chance that an award will survive judicial scrutiny and be enforceable.
As we contributors pointed out for Pieth’s and Betz’s toolkit, arbitrators should start with well-established definitions of corruption, as found in the 2003 United Nations Convention Against Corruption (UNCAC) (PDF: 430 KB) and the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, to name a few.
Beyond these international treaties, which can suffice for nullifying a contract as violating international public policy, arbitrators should also identify and consider provisions of potentially applicable domestic criminal laws, most notably the principles of territoriality and nationality.
With regard to territoriality, domestic laws may apply because the corrupt act occurred in whole or in part in a particular jurisdiction. We also encounter nationality if a national of that jurisdiction committed a financial crime elsewhere in the world. These are questions I advise arbitrators to ask and answer.
As an example, facilitation payments aren’t illegal in the United States, but French law doesn’t allow them. So, if US law is applicable to a contract, a facilitation payment will not have adverse consequences. But if an arbitral award is rendered on such premise, it might not be enforceable in France.
Handling Corruption Once Identified
As many of us – including arbitrators – know, in the “old days,” corruption was hardly dealt with in the arbitration process. If arbitrators suspected or uncovered signs of corruption, they didn’t know how to handle it and tended to focus exclusively on the contract and the dispute at hand. Because of that, many companies involved in shady deals could choose arbitration and take advantage of its confidential nature.
But as the awareness and practice of corruption and other financial crimes have increased – especially after different “leaks” scandals, such as Panama Papers, Lux Leaks and Swiss leaks – savvy individuals have begun to question how arbitration clauses can be used to protect unsavory companies and their power players. As a result, the courts in France and in other pro-arbitration jurisdictions are now scrutinizing arbitration. Some arbitrators resist and dispute this trend but should realize that even a victory with an arbitral award could later turn to defeat if the award is rendered unenforceable by a State’s court. When that happens, arbitrators’ liability increases.
Let’s say an airport is built with the contractor investing $2 billion in the project. If the government claims the contractor committed bribery at any point in the process, then the contract could be nullified, offering the contractor no protection. Some may consider this too harsh. Others may approve this consequence. In any case, this was a fiercely debated issue on which there is no final say. The toolkit, though, offers arbitrators options.
Partners in Crime
The trend of arbitrators partnering with criminal law experts continues to rise, while the practice of arbitrators evolves in our increasingly interconnected global economy. Criminal lawyers offer great resources for arbitrators to ensure arbitral awards don’t fall victim to judicial scrutiny, becoming unenforceable. Dialogue like the one started by Professor Pieth two years ago stands to strengthen the practice of arbitrators and contribute immensely to the growing awareness of transnational financial crime.
Litigator Stephane Bonifassi specialises in multi-jurisdictional business crime and fraud, corruption, asset recovery, forfeiture and confiscation, as well as enforcement of judgments and internal investigations. He co-founded The International Academy of Financial Crime Litigators, a collaboration of litigation professionals working with the Basel Institute on Governance to expand worldwide access to solutions in economic crime cases.
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