Promises Unfulfilled: How Investment Arbitration Tribunals Mishandle Corruption Claims and Undermine International Development

Abstract

Investment tribunals have jurisdiction to arbitrate disputes between investors and host states under international treaties that provide substantive protections for private investments. But these tribunals typically will decline to exercise jurisdiction over a dispute if the host state asserts that corruption tainted the investment. When tribunals close their doors to aggrieved investors, tribunals increase the risks for investors and thus raise the cost of international investment. At the same time, the decision to decline jurisdiction creates a perverse incentive for host states to turn a blind eye to corruption. Together, these distorted incentives hinder developmental goals and undermine the fight against corruption. To correct these problems, this Note proposes a framework to guide arbitral tribunals when faced with a dispute tainted by corruption.

Specifically, this Note argues that when both parties participate in corruption, arbitral tribunals should invoke equitable estoppel to accept jurisdiction over the dispute. When considering the corruption claims, investment tribunals should use a contributory fault approach that evaluates each parties’ role in the corrupt act to determine the final award. This framework not only helps align the investment arbitration and anti-corruption regimes, but it also advances developmental objectives.

Keywords: International Arbitration; Investment Arbitration; Anti-Corruption; International Development; Bilateral Investment Treaties