bratschi arbitration blog: Corruption and Arbitration – How should arbitrators deal with suspected corruption cases in pending arbitration proceedings?
In the past few years, corruption has become a major theme in the world of arbitration. Various contributions have been published and several conferences have addressed the topic. However, many questions have still gone unanswered. Below, some of these questions shall be addressed.
What is corruption?
Corruption can take on many different forms, such as giving small gifts in anticipation of a future advantage, paying money or providing hilidays to people in charge. But how is corruption defined? Pursuant to Transparency International, corruption is the abuse of entrusted power for private gain. In 2017, Switzerland's State Secretariat for Economic Affairs (SECO) defined corruption as the act by which a person provides or offers an undeserved advantage to lead a person to carry out an act that goes against his or her duties or depends on his or her discretionary powers. Corruption can involve public officials or private individuals. The act of soliciting or accepting an undeserved advantage and, therefore, abusing a position of trust, also falls within the definition of corruption.
Under Swiss law, corruption is an offence pursuant to the Swiss Criminal Code, and is punishable not only for natural persons, but also companies.
Even though corruption is prohibited by law in most other jurisdictions nowadays as well, there are still considerable cultural and law system differences. As a consequence, some acts may be considered illegal in certain countries and yet legal in others. This can be quite an issue in international arbitration proceedings, which involve parties from countries with different approaches to corruption.
Which substantive law should apply?
A tribunal which makes relevant findings of corrupt behaviour must consider whether the established facts make out all the elements of the offence of corruption under the applicable law. In the first instance, the tribunal will most likely resort to the law governing the case, i.e. the law chosen by the parties or, in the absence of a choice, the law applicable by virtue of law. However, not all cases can be resolved by simply applying the governing law. Thus, mandatory laws or public policies at the place of performance or the arbitral seat may also be considered. If the governing law is contrary to international public policies, then that law should not be applied. If, for instance, there is evidence of corruption in a case, but the governing law does not prohibit such acts, that law can be contrary to public policy. In such a case, shouldn't it be the responsibility of the arbitrators to solve this issue and apply the appropriate law? We think yes.
Should arbitrators investigate allegations of corruption?
It has been said that arbitrators have a public responsibility to the administration of justice, which goes hand in hand with the autonomy granted to them by law. Thus, if one party expressly alleges a corrupt behaviour of the other party, a tribunal should be obliged to investigate and rule upon the existence and consequences of corruption in such a case. However, the more difficult question is whether tribunals are entitled or even obliged to investigate and inquire into the issue of corruption sua sponte, i.e. if neither party has raised the matter but evidence comes to light that leads the tribunal to strongly suspect that corruption occurred. Arbitral case law affirms the legitimacy of such sua sponte investigation of corruption in general. In some opinions, arbitrators are not only entitled to inquire into corruption, they are obliged. However, such an obligation should be limited to cases in which corruption is obvious or seems to be very likely based on so-called red flags of corruption. When arbitrators investigate corruption, they should inform the parties of the basis of their suspicion of corruption, and provide them with an opportunity to make submissions on the matter.
Do arbitrators have a duty or the right to report suspected corruption cases?
Whether arbitrators have a duty to report suspicions of corruption to national authorities is somewhat controversial. In any case, such a duty could only arise from national legislation to which the tribunal members are subject. For instance, anti-money laundering acts or anti-corruption acts may impose on arbitrators a duty to report his or her suspicions of a party's corrupt activities, and exempt them from liability for any breach of confidentiality obligations. In other words, the duty to report suspected corruption cases overrides any obligation of confidentiality. Under Swiss law, there is no general duty to report criminal offences. Exceptions apply to authorities and officials for offences of which they have become aware during their duties, or for certain professions, such as medical practitioners in the event of unusual deaths. However, even if there is no legal compulsion for an arbitrator to report suspected corruption cases, disclosure of his or her own accord to the relevant authorities might fall under the public interest or interests of justice and provide for exceptions to confidentiality.
At present, it is largely advocated and even expected that arbitral tribunals should assist in combating corruption by stepping up in cases where corruption is evident or more than a substantiated suspicion. To eliminate corruption, arbitrators can and should be proactive. The interests of the international arbitration community itself are better served by doing so rather than with an «eyes shut» approach. As Kamal Haasan once said: «When you don't take a stand against corruption you tacitly support it».