1. CORRUPTION AND ARBITRATION

With a good sense for timing, the ICC Institute of World Business Law has chosen the topic "Arbitration - Money Laundering, Corruption and Fraud" for its Annual Meeting 2002. In particular, the issue of corruption has been a difficult one for arbitrators to deal with in the past, in a world of endemic bribery and double standards. Traditionally, arbitrators have placed great emphasis on the principle of the autonomy of parties and have in general honoured contracts, even where substantial indicators have pointed towards bribery. This may be understandable under the circumstances: extortionate conditions exist in many developing and emerging economies, and there is widespread tolerance of foreign bribery by countries of the North.

For approximately the last decade, however, international policy has been changing dramatically. A plethora of initiatives has been taken to outlaw bribery. This raises the question of where that leaves arbitrators who are, for instance, expected by the parties to legitimate inflated commissions to intermediaries or to condone only lightly camouflaged bribery arrangements. To the international community and countries which have adopted new anti-corruption policies, the answer matters a great deal, since many of the most significant business contracts

- and some of the most delicate deals (such as defence or large-scale constructioncontracts) - are subject to arbitration agreements. [Page41:]

This text gives an overview of the changing international standards and their domestic implementation from the perspective of international policy, in order to raise the question of how arbitrators are affected by such changes.

2. A DECADE OF INITIATIVES

Whereas earlier initiatives against bribery failed dramatically1, the opening of Eastern Europe and the quickening pace of globalisation have apparently created the momentum needed to do away with those undemocratic leaders who were previously pampered for geopolitical reasons, but are now suddenly perceived as irrational impediments to trade by many exporters and investors. This shift of attitude opened the way for both international financial institutions (IFI) and inter-governmental organisations, helped along by non-governmental organisations and representatives of the private sector, to develop anticorruption policies.

Shortly after 1990, first the World Bank and then the regional development banks adopted general anti-corruption policies, as well as specific rules, particularly in the area of IFI-funded procurement. To many people, these policy initiatives came as a surprise, since IFIs had a long-standing reputation of turning a blind eye to corrupt practices. It must be pointed out, however, that the World Bank developed one of the strictest and most feared anticorruption tools by threatening to exclude companies caught bribing using contracts funded by the World Bank2. Recent cases in Southern Africa have underscored that not just small and medium sized enterprises, but also multinational enterprises, are vulnerable and that their legal and reputational risk has been increased significantly by the new policies.

Also, during the last decade of the 20th century, a multitude of action plans, declarations, recommendations and conventions against corruption have been adopted. Depending on the specific mandate of the international organisations, their scope and their methodology, these initiatives have diverging rationales. So far, very little thought has gone into the idea of developing an "integrated architecture" of international standards against corruption. A series of regional initiatives, especially in Europe and the Americas, has generated far-reaching policies, covering domestic and foreign, active and passive, public and private corruption as well as related behaviour such as trafficking in[Page42:]

influence. This comprehensive approach, primarily developed in the criminal law conventions of the OAS3 and of the Council of Europe4, above all attempts to harmonise standards regionally in order to facilitate mutual legal assistance and extradition.

The goal of the various EU conventions against corruption5, on the other hand, is far more restricted, aiming to safeguard the financial interests of the Union against all sorts of tax evasion and subsidy manipulation.

More recently, the UN has initiated a new attempt to develop a worldwide convention. Even though the drafts cover a multitude of issues, the Convention will hardly go beyond a worldwide minimum standard and it remains unclear whether a credible follow-up mechanism can be devised. Its actual contribution, beyond that of extending the coverage of regional conventions, will be the development of procedures for the repatriation of embezzled and defrauded funds from financial centres to the victim states.

The OECD Revised Recommendation of 1997, as well as the Convention of 19976, touches upon the responsibility of both natural and legal persons, and contemplates a wide variety of sanctions, including the confiscation of bribes and the profits from bribery. Furthermore, it criminalizes accounting offences and bribery-related money laundering.

3. OUTLAWING CORRUPTION IN INTERNATIONAL COMMERCE

The common denominator of all these efforts is to raise the stakes for both corruptors and recipients by outlawing their practices. Therefore, much depends on the ability of international policy fora to transform the legal landscape in a relatively short time and to make the threat credible by ensuring the application of national anti-corruption laws.

Within international organisations, this goal is primarily approached by "peer evaluation" of national performance. Monitoring is the key word for the OECD7, the Council of Europe8 and, more recently, also, the OAS. The most advanced form of monitoring currently available is probably the "OECD Phase II" -monitoring9, based on a lengthy, written, preparatory procedure (self-evaluation through questionnaires), an on-site visit, with interviews conducted by two countries[Page43:]

nominated as "lead examiners" in conjunction with secretariat experts and, finally, a hearing in the OECD Working Group on Bribery, where the ultimate formulation of the report is decided.

Recent struggles to secure the necessary funding for this meaningful, but expensive, process have clearly demonstrated that the need for strict monitoring is not easily understood by all the Member Governments. It is largely due to pressure by the private sector and non-governmental pressure groups (especially the NGO Transparency International) that the budget necessary for Phase II evaluations could be secured at all.

Of course, it would be too simplistic to expect that a worldwide change of attitude could be brought about simply by encouraging law enforcement agencies to start investigations on the behaviour of exporters and investors abroad. The approaches of the OECD and of regional conventions, to the extent they focus on commercial bribery, primarily seek to foster change within companies and their trading practices.

Some very difficult questions need to be addressed by the private sector. Whereas the issue of where to draw the line between bribery and gifts, entertainment, etc. may appear to be a comparatively easy task, defining policies for political and social payments may cause more difficulty. Furthermore, it is vital that companies develop concepts to prevent bribery through third parties, especially foreign subsidiaries, agents or joint venture partners. They will have to define, for such intermediaries, the selection criteria, the terms of contract, the manner of reviewing such contracts, the ways of remunerating agent services, etc. In brief, experts and investors are faced with the difficult task of defining internal compliance concepts and transmitting the message to all branches and all employees of the company, worldwide.

4. INDUSTRY STANDARDS: GOING BEYOND THE SINGLE HOUSE

It has become increasingly evident that even large companies risk the loss of entire markets if they attempt to "go it alone." They may easily be outflanked by less scrupulous competitors. Therefore, the idea of developing so-called "industry standards" is becoming increasingly popular. Whereas ICC and NGOs have been working on neutral blueprints and abstract standards10, some sectors have been experimenting with setting more concrete standards. The model first emerged[Page44:]

in the financial services industry on a different, if related, topic: the prevention of the abuse of private banking for money laundering purposes, leading to the formulation of the Wolfsberg Principles11. Ongoing efforts in other areas, especially civil engineering, power systems, defence and energy, are drawing from these experiences. The methodology used is, in theory, relatively

simple: outside facilitators encourage executives of key players in a given sector to exchange information on their anti-corruption compliance and to identify the particularly problematic issues in their specific field of activity. They encourage the companies to develop a mutual understanding on best practices, especially in relation to the issues of third parties and fringe issues like political and social payments. Once the companies have agreed on such best practices, the pressure amongst members of the "club" to conform is usually such that more formal monitoring of compliance is not necessary. In areas with smaller units, for instance the engineering professions, alternative avenues have been explored, especially the option of having compliance certified by outside experts11.

Industry standards are a necessary complement to international public standards, laws and regulations. Together they offer a real chance of large-scale change in the foreseeable future.

5. HOW DOES CHANGE AFFECT ARBITRATORS?

It may be concluded that even though corruption is still widespread in many regions of the world, an internationally agreed ordre public banning bribery is emerging.

Arbitrators confronted with indicia of bribery are faced with a series of difficult decisions: they are forced to evaluate their own jurisdiction. One way of dealing with corruption would be to refuse jurisdiction to arbitrate and to refer the issue back to the public courts. Other questions will arise, of course, if they do accept jurisdiction, relating to the standards of evidence on bribery. If the arbitration panel does pronounce itself, it will have to deal with the question of whether international public standards will have pre-eminence over any law of the parties' choice. If such pre-eminence is recognised, the precise legal consequences remain to be determined. Nullity of the meta-contract, the bribe contract, may allow the nullification of the underlying contract, but this result is hardly likely to be accorded automatic effect, since the victim may well prefer to save the contract13[Page45:].

Apart from such considerations, arbitrators have to examine with great care if they - for example, by adjudicating a highly suspicious commission - could become accessories to the corrupt dealings. This eventuality, in particular, needs to be examined closely where the territorially applicable public law bans corrupt gratuities (payments as consideration for acting or omitting to act in the exercise of the official's duty) 14. In such a case, a judge or an arbitrator intentionally ordering a party to honour a bribe contract may risk criminal prosecution. [Page46:]

1
Cf. UN 1975-79 (Ecosoc).

2
See para. 1.15 of the World Bank's procurement guidelines.

3
Inter-American Convention Against Corruption of 29/3/1996.4 Criminal Law Convention on Corruption (ETS No. 173, 27/1/199); Civil Law Convention on Corruption (ETS No. 174, 4/11/1999).

5
Convention on the Protection of the European Community's Financial Interests (C 316, 27/11/1995, 9.49 ff.); Protocol I (C 313, 23/10/1996); Protocol II (C 212, 19/7/1997); Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States of the European Union (C197 25/6/1997).

6
Revised Recommendation of the Council on Bribery in International Business Transactions, 23/5/1994; Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 21/11/1997.

7
Recommendation VIII; Convention Art. 12.

8
With its GRECO instrument.

9
Aiolfi/Pieth, "How To Make a Convention Work: The OECD Recommendation and Convention on Bribery as an Example of a New Horizon in International Law," in: Fijnaut/Huberts, Corruption, Integrity and Law Enforcement,The Hague 2002, p. 249 ff.

10
See Transparency International and Social Accountability International, Business Principles for Countering Bribery, December 2002.

11
Pieth/Aiolfi, "The Private Sector Become Active: The Wolfsberg Process," in A Practi-tioner's Guide to International Money Laundering, Law and Regulation, London 2003.

12
Take the example of FIDIC.

13
For a detailed discussion of these issues, see. Abdulay Sayed, Corruption in International Trade and Commercial Arbitration, Geneva 2001.

14
Cf. for instance Art. 322septies, Swiss Criminal Code.