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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
The 22nd Annual Meeting of the ICC Institute of World Business Law held in the morning and in the afternoon yielded a number of insightful, and sometimes provocative, observations from panellists and participants from the floor alike. Reproduced below, and in some cases translated from French, are a selection of the questions raised and the resultant discussion. For convenience, we have regrouped them by subject matter.
Please note that the tape and transcription of the "Question and Answers" were in some cases incomplete or garbled. Our apologies to any participant whose words may have been misunderstood by us.
QUESTIONS ON DUTY TO REPORT
ANDREW W. A. BERKELEY
If I may take up the very last point made by Alan Jenkins and ask a paving question for this afternoon, where we will be concentrating on the duties of arbitrators. Alan made a point about the new duty, which is coming into force in England, to disclose suspicions of money laundering and he gave his point in relation to lawyer and client. For the purposes of paving the way for this afternoon, could I ask Alan and Kristine to say how much, if at all, do you think that might apply to an arbitrator, apart from as a lawyer and client?
SERGE LAZAREFF
That is the very purpose of today's meeting and I understand that these are the conclusions we should draw this afternoon. In other words, what we are trying to do this morning is to define at large the various money laundering issues, fraud, etc. Our objective is to know precisely what the arbitrator should do. We can say a few words now. But clearly it is the conclusion we want to reach tonight.
I would only point out one understatement of Mr. Jenkins when he said that the lawyer's duty to report might not be in the best interest of his client. I find that a very wonderful understatement.
KRISTINE KARSTEN
There is perhaps another issue, which is that even if you wish to report, it is not necessarily obvious that you will be able to do so. I address myself to those of you who may have tried to report things to the French authorities, the "TRACKFIN". They are responsible for collecting the declarations of suspicious activities. If you call up and you are not one of the regulated professions, they would basically not even want to take down your declaration. You are then down to the possibility of calling the public prosecutor who may instigate a criminal investigation. But that raises reporting to another level of responsibility and increases the reticence on the part of the non-regulated professionals.
This just shows that we are basically a very civilised country and that the basic problem is really the conflict of the ethical duty of the professional who takes an oath when he engages in his trade. I would be personally very concerned with the ethical duty. It is all very well for a civil servant to decide this or that. But I, who have a client who trusts me and who comes to me for advice, what should I do?
COMMENT FROM THE FLOOR
With regard to lawyers and other professionals making disclosures, the direct impact in the UK of the ludicrously small number of disclosures that have been made by the legal and accounting professions, who have had a duty to make disclosures since 1994 and who have routinely ignored that responsibility, has resulted in part in new legislation being introduced in the UK, with which it is increasingly more difficult to comply and which has now raised a much higher set of standards for the entire sector. I think there is a two-edged sword here, where, on the one hand, there is of necessity a need for lawyers to be able to consider their professional responsibilities. On the other hand, the UK government has made it perfectly clear that if that responsibility is not complied with, they will continue to ratchet up the standards with which we all now have to comply.
ALAN JENKINS
The first point made was that of the duty of care of the bank. That is traditionally owed to the customer of the bank, not to the person that the money is paid on to. But the question is not merely whether or not the bank should follow through on its suspicions. It may well have done so. What you often find in the UK is that a financial institution will make a report to the appropriate body in the UK, that is the national criminal intelligence service, which is a police body. The police will then in effect tell the institution what to do. It may say: "Carry on with the transaction so that we can follow the chain of events, so that we can see who is involved." So, the bank may have done all that it needed to do and all that it should have done, but is acting on police authority, in doing what it did. On the other hand, the risk is that it may not have recognised the suspicions for what they were and simply have acted upon its customer's instructions without reporting it to the police.
There is another thing that you should know. In France, for example, it is a crime in itself to reveal to a third party that you have made a declaration. The purpose of this is that you do not want to tip off the fraudster, the money launderer or whatever that in fact there is an investigation going on.
BERNARDO M. CREMADES
We, the legal profession, have reacted to the second directive saying that, probably, in money laundering our profession is in danger. But now, there is another wave coming in the form of Sarbanes-Oxley. The question is not only for inside counsel, but also for the outside counsel. Once you are called to work on, let us say, a stock option scheme or any other plan a company has to prepare, are you obliged to make a report if you think that there is a crime after those corporate collapses have been taking place? What is going to happen? No manager will ever consult any legal professional, from the inside or outside, because the lawyer would be obliged to report, if this is what would be required. In the end, those decisions would be taken without legal advice, which is going to be worse than the situation in the US. What are the limits of this duty to report?
Firstly, I entirely agree with your concern about the attacks on the profession and the incursions into the professional secrecy obligations that we have. As to the limits on the duty to report suspicions of money laundering in the UK, essentially, there are none. The problem in the UK has been partly brought upon the legal profession by its own failure in the past to report suspicions of money laundering as we should have done. You may say that that in itself is undesirable, but the government and the parliament have decided that that is what we should have done. We have failed to do so and we have now landed ourselves, in common with other professions and businesses, with this very subjective standard. If we do not do what we are supposed to do now, they could send lawyers to jail. It has already happened under the old standard. It is a matter of very significant concern, but I do not have any solution. But I do think that the Americans are going too far in requiring lawyers to noisily blow the whistle in the US, in the circumstances that you have described.
COMMENT FROM THE FLOOR (translated from the French)
Indeed, the line between protecting the interests of your client and the reporting obligation is a very delicate issue. I agree with the preceding comments concerning the dangers for our democratic societies if lawyers can no longer act as an interface, if you reduce the possibility for more or less honest clients to express their concerns and request counsel from a professional. I think that we are going to lead people to create hidden networks, perhaps using lawyers. There will be individuals who will operate in the shadows of the ethical systems that, despite it all, characterize our bar associations in democratic countries. I think this is highly dangerous.
I wonder whether, perhaps, Switzerland may not have found a solution, for once, that is perhaps less troubling and that will cause fewer difficulties than that defined in the new European directive.
Fundamentally, in Switzerland, the idea is as follows: when you are a lawyer or a notary who is acting as a professional, the Penal Code obliges you to respect scrupulously professional secrecy. Naturally, ethical considerations require us - if we know that a client is going to use our advice for illicit purposes - to refrain from intervening, and most professionals will respect this principle. The question, to my mind, is not so much the profession as the activity being carried out. The Swiss lawyer or notary who carries out financial transactions, a little like portfolio managers or other professions, is not protected, is not constrained by professional secrecy. He is not acting, in this context, primarily as a lawyer or notary and, obviously, should be required to inform the equivalent of the French TRACFIN of his suspicions. I wonder whether this is not an avenue that should be more broadly explored.
KRISTINE KARSTEN (translated from the French)
It is probably a possible solution, in the abstract, but, unfortunately, I think that the steamroller of international legislation tends to go in the other direction. In France, today, and for that matter for the past several years, there is already an obligation imposed, in theory at least, on lawyers, but also on any other professional who acts in the context of transactions where there are cross-border movements of funds. There are two provisions in the law concerning the notification of suspicions. There is a long section imposing a specific duty to inform the authorities on a growing list of professionals, beginning with bankers and insurers and ending by jewelers and antiques dealers, including in the middle notaries and real estate agents.
Then there is a second section, much less well known, which says that any person who intervenes in a transaction implying cross-border movements of funds must file a declaration with the public prosecutor when he knows, and that is the key word, that the operation involves money laundering. This is the current state of the law in France.
But French law, which I know relatively well and which has always been consistent with European legislation, is going to be amended to take into account the most recent European directive, which contemplates a sort of judgement of Solomon separating the case of a lawyer acting as a defender of clients' rights from that of a lawyer acting as an advisor. In other words, if a money launderer asks me to defend him in a criminal action, I have an obligation to treat the matter as confidential. On the other hand, in the case evoked by Alan, where someone asks for advice, saying "Here's how the transaction will be structured. What do you think?" and if I am convinced that money laundering is involved, even if I have no proof of this, European law will oblige me to report my suspicions. Lawyers will have to develop split personalities.
ARTHUR HARVERD
If it would assist us here, I would just like to point out that, as far as English law is concerned on this matter, it is very simple. The English law, as it stands at the moment, says that any person who, through his job, office or profession, becomes suspicious that, in fact, a money laundering transaction has taken place, he or she must disclose that fact. It is no longer a question of "may " or "has the opportunity to, if he so wishes." Under our law, as it now stands, if the information comes to that person through his job office or profession, he must disclose it.
There is no contradiction between what you both say. You both agree there is sort of offence under the law. What I understand is implied in what you said is that the law authorises you to do so, therefore you do it. But what should you do if there is no law? Would you consider that you have a duty to report an offence? Supposing, you were in a position where you would not have this text in your law, what would you do under English law in general?
I am getting increasingly confused about the European Union position in view of what we have heard from these two excellent presentations this morning. The European Community law is, I think, quite clear, and has been since the AM&S case 20 years ago, namely legal professional privilege is part of the corpus juris of the European Union. What inroads can be made to that? The European Union itself grappled with this question in the preamble to the directive made only last year in 2001. Let me just say that, having dealt with the problem, it concludes like this: "Legal advice has been made subject to the obligation of professional secrecy unless the legal counsellor is taking part in money laundering activities, the legal advice is provided for money laundering purposes or the lawyer knows that the client is seeking legal advice for money laundering purposes." You can summarise that by saying that if the lawyer is himself part of the money laundering scheme, then he must report himself and his client. But if he is not part of it, not only has he got no duty to report, but also in many countries, or some countries in the European Union, he is forbidden by law from reporting. I think, in light of those regimes which, unfortunately, at the beginning of the last century suffered under fascist governments and which used terrible means to extract information from lawyers, it is a criminal offence for a lawyer to breach his professional obligation.
I would hope that if English law goes ahead on the lines of what Alan Jenkins is telling us, someone will take it straight off to the court in Luxembourg and get this all right.
I agree with you. But in the way the law is being transposed into the U K, there may be a distinction to be made where a lawyer is instructed to defend somebody who is being investigated or charged with money laundering. Of course, by the time you have reached that point, if the client is being charged, the trail of suspicion has led to a charge. That is the distinction.
I think the problem in the UK is you may have unwittingly entered onto a transaction as a lawyer in which a client is buying a house and you see a chain of suspicious circumstances. It may just be, for example, that the client has decided he is not going to buy the house personally but he will buy the house using a company. And then, you will look at the company and you have to look at the factors that Kristine has talked about. In the light of the fact that we will have very shortly an objective standard, an English lawyer has no choice but to report his suspicions, if he has them or should have had them. That is the absolutely frightening consideration in England, Wales and Scotland now. Even if you do not have a suspicion, you are guilty of an offence if you should have a suspicion. It is so Orwellian.
All this discussion of the obligation to declare your suspicions brings to my mind the mechanism that Italian legislators have put in place. Let me summarize it, since it may inspire others. Indeed, Italian legislators have made a distinction between money laundering and the crime of using money or assets of illegal origin. There is a 1991 law that defines a list of professionals that could (and the verb is expressed in the conditional tense) inform the Italian exchange control authorities (and not the penal authorities) that they suspect that money laundering is taking place. Arbitrators are not on this list.
I have the list in front of me: public employees, bank personnel, insurers, real estate intermediaries, fund managers, fiduciaries, stock market agents and other intermediaries that deal in financial transactions.
More generally, there is often, in our countries, an obligation for public employees to let the authorities know if they think a penal offense has occurred. It's part of the notion of public service, "l'incaricato di servicio publico". I find it very disquieting, and I don't know what the answer is, that there might be a tendency to assimilate an arbitrator to an ordinary judge, on the basis that he is a substitute for a state judge. The situation becomes very confused. Is there not a risk that a local judge might say "true, the arbitrator is not a public employee, but he renders a public service and thus is obligated to declare his suspicions". Not to the administrative authorities, but to the penal authorities. I have been unable to find any decisions on this point.
I'd like to raise a dissenting voice in response to the general tendency that today's debate is revealing. While money laundering may be a phenomenon that we should combat, money laundering flourishes in the places where confidentiality is the best respected. Bankers, who are perhaps less well equipped than lawyers or notaries to spot money laundering, are required to declare their suspicions. Obviously, the authorities have to decide whether to bring proceedings or not. But the professionals subject to these obligations can at least attempt to define what constitutes a "suspicion". If they can do that, we will have made some progress.
Thank you very much for raising these issues, which as I have mentioned raise moral concerns. What was said a minute ago is of particular importance to people of my generation, who lived their youth under a system where you had to denounce everything to the police. Therefore, it is repugnant to me as a lawyer, and also because I lived in France during the war, to be compelled to report things to the police. So, I always balance the necessity to fight against crime and this obligation.
QUESTIONS ON THE RISK OF PENAL LIABILITY
MARK PIETH (translated from the French)
I'd like to come back to the subject that was raised by the floor earlier. Indeed, you already have in France, today, the notion of liability for a legal entity. It's an objective standard: did the head of the company realize what was going on? If he did not, you have an issue as regards the intent to violate the law. Of course, someone who pays a bribe in Indonesia does so intentionally, it's only logical. But for the head of a French company, the issue is one of due diligence. This is a concept that already exists and is going to be adopted in other countries.
We lawyers spend a lot of time worrying about how to protect corporate officers and directors, knowing that they often have played no personal role in any wrongdoing. Usually, however, they are at least conscious that there is a risk that illegal activities will be conducted under their responsibility and in some cases they decide to close their eyes. There is a well-known case currently before the French courts, where a bank's officers, accused of facilitating money laundering, have offered as a defense the argument that they weren't aware of the problem and therefore could not have acted intentionally. Unfortunately, it would seem that they had asked their lawyer to look at the activities in question from a money laundering perspective and had already been advised that there was a risk that they could be characterized as money laundering. Did they then decide that it would cost too much to fix the problem? In any case, the prosecution seems to have implied intent from an informed assumption of risk.
How do you protect against this risk? A lot has been written on the subject, for example as regards delegations of authority. The idea here is, for example, that I, the President of the company, delegate authority to my Vice-President, who in turn delegates authority to the Sales Manager, who in turn delegates authority to his assistant, who maybe will delegate authority to the secretary who sends the memo authorizing payment of a bribe in Indonesia. Clearly, there are limits to the protection you can hope to obtain through delegations of authority.
ANTONIO CRIVELLARO (translated from the French)
I would like to make a suggestion. There was, in the past, a principle of international law called crimina juris gentium. You may remember it. What it covered was piracy, traditionally, then for a while the slave trade was considered to be a juris gentium crime, as were attacks by corsairs. In modern international law, air piracy is an interesting case: an international treaty was concluded very rapidly. Naturally, the international community wanted to eliminate these attacks, which are a tremendous obstacle to air communications. Even more modern is the case of drug trafficking and terrorism and, I would add, money laundering. I think that the modern legal community considers them to be juris gentium crimes.
MARK PIETH
I think it is a very important point, this concept of crimina juris gentium. There is a new concept that has superseded it, which is basically called macro criminality, with subsets of organised crime, corporate crime, state crime or what you might call para-state crime, which is terrorism and other forms of organised unrest.
It is very interesting that you very eloquently placed money laundering within this framework. But your reason was also very interesting, because it carries a high sentence. For me, it is interesting because I have been observing intimately the development of money laundering. I was involved with the Financial Action Task Force in 1989 for the first four years, where we were quite unsure what it was about. There, it was about drugs. As you say, those are serious crimes, drugs and money laundering.
In the meantime, money laundering is becoming an open umbrella concept affixed to any kind of predicate offence. You know the evolution: drugs, organised crime and then all serious crime. It is actually a very open concept that you can attach almost to anything, except perhaps to traffic offences.
Going on into corporate crime, you said fraud could be a macro crime. I would simply say that a lot of this could change. It is a matter of conceptualisation. What I would just like to draw your attention to is the question of bribery, certainly the question of large-scale bribery. You certainly have a point that there is a lot of small bribery which is not dangerous as such, but you also know that there is a lot of small theft and we still think that theft is a serious crime.
The problem is always that it is very difficult in legal concepts to make a distinction on the basis of the petty. That is where you have to distinguish between facilitation payments and others. My point is, really, you just have to wake up to the fact that as arbitrators you have legal obligations. You are also working within a legal context. My point is, according to Swiss law, if you are actually ordering the payment of something that would clearly be considered a bribe, as an arbitrator, you might be an accessory to bribery, because the crime is only finished when the bribe is paid under that construction. So, be careful.
SERGE LAZAREFF (translated from the French)
Coming back to the issue of money laundering, this is a problem where, as a matter of principle, bankers, companies and individuals are being called upon to participate in the effort to eliminate it. Corruption and like problems raise different issues. However much we may individually applaud, as a moral matter, the principle that corruption should be eliminated, you have to be realistic. You can sign treaties and participate in working groups. But what are the industrials going to do? They may die. If an arbitrator sees commissions of 10 or 15 %, he may say that smells of corruption and I want nothing to do with it. But what if the commission is only 5 %? What we need to do, today, is to give some guidance to arbitrators who are responsible for resolving a dispute, who must issue a judgment, but who are not policemen and who are conscious that their decision may be catastrophic for the companies that are before them.
On your point about small or big amounts of bribery, I do not want to play the zealot here. I am very happy if grand corruption is covered. The difficulty is always if the law also covers cases that you do not really want it to.
Going back to my example of theft a moment ago, I am not a zero-tolerance person. I have no problem with shoplifting, frankly. But I think we all have a law against theft because we believe that it might go against the heart of the matter somewhere else. The difficulty is basically the same here. We are not talking about the petty payments. For instance, there can be a real difficulty for a country itself if this practice is endemic. If I have to stop at every corner to pay $10 here or $10 there to get something, that is a real problem for the country and the trust of the country in its own adminis-tration. That is not something that we can remedy from here. So, if you look at the North/South problem, it is not the North who can solve the South's problems. That is for the IFIs and for the countries themselves to solve.
But we can abstain from paying those $10 million, $100 million or $1 billion bribes. I have three cases which actually involve $1 billion. That is something that goes quite beyond anything that one can defend, I think.
QUESTIONS ON EVIDENCE
QUESTION FROM THE FLOOR
My question concerns another aspect of Mr. Jenkin's presentation, which is the tension that arises, in particular, in the case of arbitration, more so than the case in civil court proceedings, between a desire to obtain evidence for your client that is usable in an arbitration versus the desire to obtain evidence that is usable in a criminal proceeding. Particularly in arbitration, I have recently been seeing more and more cases where clients show up with evidence for which the chain of control of that evidence is not exactly clean, but which arbitrators just do not want to ask about as long as the evidence looks compelling. In an arbitration where there is a desire to move quickly towards a financial goal for your client, you have the desire to take this evidence and use it. In light of the particular obligations that are imposed on lawyers or on clients, how do you balance that obligation against the need to carefully gather evidence, perhaps with the use of experts, forensic experts, so that there is a chain of control established over the evidence, so that if you eventually see the need for a criminal action, the evidence can be turned over to authorities in a usable way?
My simple answer to that, and perhaps it is too simple, but that may be a function of the legal system in which I operate, is that I concern myself simply with what is required to prove my case before the arbitrators and I leave the police and the criminal prosecution service to look after themselves. That might be a little bit too simple, but it is, I think, a useful route map for a lawyer representing a client in civil proceedings, whether before a court or in an arbitration. His interest is in advancing his client' s claim or defence in that arbitration, provided that what he does meets with the standards that the arbitrator would expect of a party appearing before him. He should not concern himself about whether the chain of control that you have described would be satisfactory to a criminal court.
That is, however, in a state of flux in the UK. It used to be the position that the courts were totally uninterested in how you came by the evidence and that goes back three or four hundred years. But as I mentioned in my presentation, we have just had a case in the commercial court in London in which the defendant argued that banking records had been obtained in breach of Swiss banking laws and the English Data Protection Act. The initial application was simply to obtain the report of the private investigators, which would normally have been protected by privilege of professional secrecy. The law reporters then pass in silence over what the judge actually did with the documents that he held should not be privileged. So, it is still uncertain how far this line is going to go. But for myself, and I think for every other English lawyer, we would not get involved in the dichotomy that you have described.
One further point might be made about evidence of money laundering. Under French law, for a start, there is today no need to prove that the underlying crime or offense was committed. The law says you must declare your suspicions when a transaction may have resulted from organized criminal activity. Full stop. Thus, for example, if you take the case of tax fraud, there is no need to prove that it actually occurred before attacking participants for money laundering.
This issue is surrounded by uncertainties. I can understand, intellectually, that there should be no need to show that the underlying crime was committed when imposing an obligation to communicate your suspicions. But for a criminal prosecution for money laundering to succeed, surely you must show that the underlying crime occurred. Otherwise, you're expanding the notion of criminal responsibility in a manner that seems to me to be unreasonable. How can you base liability for money laundering on an objective standard without taking into account the notion of intent? The very expression, money laundering, implies that you are aware of what you are doing. It's like poisoning, which everyone agrees has to be intentional, or murder. I find it very imprudent for an assembly of jurists to take as a given that money laundering can be based on objective standards. There may be violations of ethical standards or professional errors or other sanctions without intent. But, particularly in light of the extension of the offenses underlying money laundering beyond drug trafficking and organized crime so that it can today be the outgrowth of any crime, it is particularly important to be vigilant concerning the circumstances under which an individual can be pursued for money laundering.
I wonder whether we are not in danger of confusing issues concerning the degree of suspicion or wariness or doubt with issues arising under public law or penal law. Indeed, as we have seen, some countries make distinctions based on what you do: are you a lawyer protected by professional secrecy or are you a financial intermediary? We know that the distinction may be illusory, at least within the European Union. We also know that the degree of suspicion required before being obliged to report may vary from one country to the next in Europe. But these are matters of public law, whereas arbitration is a matter of private law. How can you say that an arbitrator sitting in one country has reporting obligations, or other obligations, that he would not have if he were sitting in another? And as regards the arbitral award, it is rare that you have proof that corruption or money laundering occurred. Instead, you can apply the traditional approach under private law, that is, that there will be a series of elements that will suffice to convince the arbitrator. The fact that, in England, a very slight suspicion means that you must report rapidly hopefully doesn't mean that this is the rule that will be applied when resolving private disputes. It is an obligation to the authorities only.
I have a question concerning money laundering, because I have gathered from the discussion that there is a distinction being drawn between money laundering, on the one hand, and corruption, on the other, and that the panelists think that money laundering is extremely serious and should be punished in all cases, while corruption has to be looked at on a case-by-case basis and evaluated, notably, in light of the amounts at issue.
The reality, in the business world, is, it seems to me, a little different, in that the link between the litigious contract and the illegal act is more distant in the case of money laundering than it is in the case of corruption, where the contract itself is the vehicle for the corruption. In the case of money laundering, the contract serves to recycle the money that, originally, was the product of criminal activities. The link to the contract can be very distant.
The question is, what will come to the attention of the arbitrator? Is it reasonable to think, and this is an issue relating to proof and the arbitrator's power to obtain proof of criminal activities, such as drug trafficking, prostitution or other criminal endeavors, that the arbitrator can truly prove that these activities took place? Can the arbitrator truly go beyond mere suspicions? And if the arbitrator is limited to suspicions, should he declare his suspicions to the authorities and, if so, what are the implications for the proceedings being conducted before him? What should he do? I fail to see how an arbitrator, in practice, can prove that criminal activities that by definition have not been submitted to his review existed.
I think we all agree here that the thorniest issue is the problem of evidence. Whenever an arbitrator suspects that the transaction brought to his attention entails some sort of illegality, he has to exercise all the powers he has, which notoriously are far from being unlimited, to try to get enough evidence to determine that there is or there is not a situation of illegality. The process must stop at a certain point in time in terms of acquiring evidence. One mistake that has to be avoided is to mention in the award that the arbitrator suspected some illegality and that he was unable to find convincing evidence to support a conviction.
For example, a few years ago, a court of appeal in Trieste was requested to enforce an award, but refused the enforcement because the court found in the wording of the award the idea that the arbitrator had suspected some corruption, but was unable in the end to determine whether there was actually corruption. The court refused on the strength of Article 5-2 B, namely, in the name of Italian public order, the very idea of giving enforcement to an award which debated the subject whether or not there was corruption.
I think it would be very difficult for an arbitrator to find positively that there has been money laundering or some other wrongdoing because in order to determine that wrongdoing has been done, you need the enormous powers and resources of the state. It is extremely difficult to prove that there has been wrongdoing. There have been many cases before the courts where seemingly clear-cut position of guilt is apparent at the outset, but at the end of the trial, those who were charged have been found not guilty. And I wonder what the position would be if an arbitrator determined positively that there had been wrongdoing and six months down the line the individual was acquitted in the court. It does not seem to me that in the vast majority of arbitrations, the depth of evidence goes anywhere near what is required for a criminal court.
The only other observation I have made is that having worked with the police and other prosecuting authorities over many years on evidence of this nature, if someone gets reported to a prosecuting authority or police, nothing happens the next day. Life goes on as normal. In making a report or notification, it is not really such a serious matter that it will totally affect the individual that is being reported. The world does not collapse.
PROFESSOR SACERDOTTI
I just wanted to say that I believe the requirements of evidence in civil lawsuits are not the same at all as in a criminal lawsuit. I thus believe that it would be possible to determine with sufficient likelihood that there is, for example, money laundering in an arbitration even if it were not possible to prove criminal guilt.
QUESTIONS ON THE ROLE OF ARBITRATORS
We need to consider the role of arbitrators. When considering their duties, we might reflect on the duties of civil court judges in conventional state-run judicial systems. What are their obligations? Are they equipped or trained to identify suspicious activities? The primary difference between civil court judges and arbitrators is that an arbitrator is often a businessman familiar with complex transactions and perhaps better able to analyze them than ordinary civil judges, who are not necessarily, or even often, businessmen. Does an arbitrator have a greater responsibility because he is possibly more sophisticated in business matters?
Fundamentally, what distinguishes an arbitrator from an ordinary judge? Today, we are asking arbitrators to be particularly vigilant. As soon as they become suspicious, they must make inquiries and, perhaps, file a report. Otherwise, they assume the risk that there was actually a fraud or other crime that they covered when rendering their award.
But how about the Taiwan frigates? You remember, the arbitrators deemed the contract valid and upheld it. There was an award and the contract was upheld. The matter went before the Swiss Federal Tribunal and the award was not set aside. But tomorrow, the arbitrators could be prosecuted. And the day after tomorrow, they could be condemned. The prosecutor may say, "My friends, you should have known. The commission was very large. You must have known. You go to prison." I mean here to be provocative.
Another problem we should address is that of the powers that arbitrators have. We have not looked at this. We have said that when there are questions, you should inquire, then make further inquiries. But what is the legal basis for this? Our reaction is natural, but once you have put your finger in the wringer, where do you stop? When you have a suspicion, when you make inquiries, what do you do if you don't get to the bottom of it? There is a point at which you need to stop. All I am saying is that we have opened, a little, Pandora's box.
In Switzerland, for a long time, the legislation was relatively lax. Today, it is among the most stringent and effective in the world. But in the past, as an arbitrator, there were cases where you could legitimately suspect that you were in the presence of money laundering. There were two different situations that you might confront. The first was that where the parties were truly in dispute. In such a case, the position of the arbitrator was not fundamentally different from that of any other judge, that is to say, he had to make reasonable inquiries. The situation was much like that where corruption or another criminal offense was suspected.
The other case, however, is much more difficult for an arbitrator. It is that where the arbitrator suspects money laundering, but also suspects that the parties are actually in agreement and are using the arbitration as an expedient for obtaining a judgment of convenience in their simulated dispute. In this case, the arbitrator can request all the documents and proof he wants, but he can't be sure that he has received everything, or even that what he has received is not falsified. This is a problem for the arbitrator. On the more positive side, if the arbitrator is convinced that there is actually no dispute, its easier for him, because there is no reason for the arbitration to go forward. Why not let the parties settle their dispute privately, between themselves, in such a case? The solution is a contractual one, in such a case, not a judicial one. I see no reason for an arbitrator to hesitate to adopt this approach.
If I take the example of an arbitration in which the parties file a request for arbitration, then file an answer, then fix the rules of arbitration, only to inform the arbitral tribunal, one month later, that they have negotiated a settlement that they would like the ICC to validate. There may be no submissions of proof on file, or very few. What is the arbitrator to do in a private dispute like this? Close his eyes and say, "Here's your award. It's yours. I'm not interested in what happened?" I don't think we can do that. We're not there to "rubber stamp" illicit transactions. What I do in cases like that is ask the parties to produce proof that the transaction was legitimate. If the parties refuse, I am entitled under the ICC Rules to refuse to validate the settlement through an award. No one obliges me to issue such an award. If the parties provide the proof, then I can issue the award. This is my approach.
PROFESSOR CRIVELLARO
If you look at ICC jurisprudence, as I have, it is clear that no case is the same as another. Naturally, the facts are very different from a case to the other. And facts influence arbitrators, tremendously and rightly so.
By way of example, look at the case that appears as no. 10 on my list. It is very interesting. The arbitrators asked the agent: "We take note that in your contract, it is expressly specified that you were acting on behalf of a 'group'. Could we ask you if you are in the position to specify how many members this group has and who are the other parties in this group?" No answer. Second question: "Why are you not in the position to answer?" Again, no answer. The arbitrators inferred that the failure to answer questions on the composition of the group meant something and so the decision went in a certain direction.
A second example is a case that was very well described by Bernardo Cremades in his written contribution. In that case, the first case he mentioned in his written paper, the respondent had refused to pay, but did not allege corruption. None of the parties even mentioned that word. It was an arbitrator who raised the suspicion. The majority said that the suspicion of an arbitrator, without having heard the parties on the matter, without having discussed the question, cannot be sufficient.
There is final case I would like to mention. A respondent refused payment on the basis that, in the question where the contract was to be performed, regulations had been enacted some days prior to the tender, prohibiting recourse to intermediaries. That prohibition did not exist when the agency agreement was signed. So, the respondent had cancelled the agreement with the agent. He thought that, given the regulations, he did not have to pay. The arbitrator held against him.
My last comment concerns the applicable law. I would take the liberty of repeating something that has been said this afternoon. Parties make an election of the law in their contract. I would point out, however, that the arbitrators are not always bound to follow the election made by the parties. That may be the law applicable to contractual obligations. But Article 7-1 of the Rules, if I am not mistaken, says that, in any case, the mandatory provisions of a law that is closely connected with the contract cannot be avoided. In many of these instances, the law of the importing country plays an important role and should be applied. And if it is to be applied, it helps the arbitrators much more than would questions of the administration of proof, which is sometimes, I agree, an impossible exercise. The answer is sometimes given by applying the law applicable in the importing country
I go back to the distinction, with which I concur, between an arbitrator's obligations to report suspicions to the authorities and his duty to judge the matter before him. But there is a connection. If the arbitrator thinks he is obliged to declare his suspicions to the authorities, must he inform the authorities? Does he retain his ability to act as an impartial judge if he has reached this conclusion in the midst of the proceedings? I think this calls for some thought.
Look at the Lagergren decision. It was a decision on the merits, not a decision that the arbitral tribunal lacked competence to judge the matter. It's not the same as the decision made by the Pakistani High Court or the decisions reached under the former UK law. Competency is about dividing authority. There is always a court that is competent and, if it's not the arbitrator, then it's the state court. Lagergren says this quite clearly in the arbitral award: no tribunal, be it a state tribunal or an arbitral tribunal, can judge the matter. There is no grounds for suit. Arbitrators that fear they may be used to condone money laundering would do well to look at Lagergren.
BERNARDO CREMADES
We all suffer from an allergy to the duty to disclose. But as a lawyer or as an arbitrator, this duty is going to be imposed by the European Union legislation.
I think we should go back to the discussion as to what an arbitrator should do when a case of corruption, money laundering, or fraud comes before a tribunal. We cannot generalise. A contract of commission may be valid, but a contract of commission or agency may also entail massive corruption and it is up to the tribunal to go into that claim to hear the allegations of both parties. I do not think that this is a mistake. We as arbitrators, have no duty to sanction crime. That is not our position. Our position is very clear: we should react as an arbitrator and we should react by telling the parties, "Your allegations are either well founded or ill founded."
Then we come to the key question. We asked the arbitrators to be more proactive. That is clear. But how far should they be proactive? Due process is the limit and that is where the experienced arbitrator has to limit himself.
It has been indicated, with regard to suspicions under English law and also with regard to money laundering and the ICC directive, there is in fact a relationship with the authority of the arbitrator. If the arbitrator has the power to decide on money laundering issues, like any other matters, then it is of little consequence reporting it to the authorities. If the authorities have exclusive powers, then that may be a different question. But it would be contrary to the resolution of the International Law Association Commercial Arbitration Committee of Helsinki where we decided a few years ago that in a situation of fraud and criminal activity coming to the attention of an arbitral tribunal, the tribunal cannot suspend the proceedings, but must continue with the proceedings. This is one area.
Another, I believe, is that dealing with money laundering and similar issues is not an excess of power under the New York Convention or otherwise. We are entitled to deal with them when we feel that the issue is there. In many cases, adverse inference has been taken, unfortunately without prior notice to the parties, which is in principle a violation of due process.
But there are a number of ways of dealing with this issue, not necessarily by always deciding the main issue. In one case, concerning an international system control, president Briner dismissed a case for lack of jurisdiction on a different basis, not necessarily on the issue of the bribery of the former regime.
There are many issues of authenticity of documents, but a standard of proof, unfortunately, must at times be considered in the circumstances. You cannot always allow the fraudster to benefit by requiring a higher standard of proof from the victim. It depends on the relationship between the two parties, like the intermediary or a third party or a successor or shareholder or the new regime or the new directors in the company who have come and discovered what the former management has done. In that situation, you have to be more relaxed.
I noticed outside here something concerning circumstantial evidence in connection with the proof of bribery and corruption. In some circumstances that is an important aspect that we need to take into consideration. I remember I had a case in the ICC where the issue came up through the tribunal. It was not a matter of bribery, fortunately. It was a matter of whether or not the parties or one of them was violating tax or insurance laws or violating some other public policy laws where the parties, instead of allowing us to proceed with a consent award, wanted to withdraw the case and withdraw the case, not by the decision of the tribunal, but administratively through the ICC. I had some problems and so did my Chairman. Nonetheless, we considered that the ICC, if it agrees, has a practice on this. It can go ahead and let them withdraw the case.
There are various situations, I believe, of considerable significance and I would like to say that I have enjoyed your contributions.
My own conclusion would be that we have witnessed today not a confrontation, but two different positions. The first one is the classic or liberal approach, which I must say is rather my own approach, even though we have observed today a very strong evolution. What is the classical approach? It is rather simple to me. It is that the jurisdiction of the arbitrator is clearly defined by the terms of reference or by the compromis.
If we might come back for a minute to the ICC Rules, and look at Article 18, you have the terms of reference. If you want to modify the terms of reference, you have to use Article 19. And then your role is defined.
I am rather surprised that I have never heard, not even once today, a reference to the concept of pacta sunt servanda. When you have two people who enter into an agency contract, they both know fully well what they are doing. Who is the victim? Is the situation that different from one where an arbitrator is faced with two parties, one of them being represented either by a poor lawyer or by someone not knowing how to argue? In such a case, we never dare say "that is the way you should argue". The maximum we are prepared to do, as Andrew Berkeley says, is to draw adverse inference if the party does not carry the burden of proof.
It seems to me that we are not far from a consensus, but it is a very subjective topic. I strongly believe that the arbitrator has more authority than he thinks he has. I believe that the arbitrator, as time goes by, is becoming closer and closer to the role and the authority of a state judge. But not yet. The arbitrator has a duty to fulfil his mission and render an award. That is what the rules say: "Once the arbitrator has accepted these duties, he must fulfil his mission."
There has been much discussion about Lagergren. I have a very simple question. What was he paid for? The parties have paid him to give an award. But what does he say? "No, no. I wash my hands." To me, this is a difficult position for an arbitrator. However, if you take the award by consent, then the Rules give you the authority to refuse an award by consent. That is in Article 26.
So what is my conclusion? First, yes, the arbitrator must be more pro-active. Certainly. He must look at evidence. But I do not think that he can go as far as some of you have stated or hinted today. Today, he owes his primary duty to the parties. He has been nominated or appointed by the parties for a certain purpose. He is not an agent of the state. Yes, he is a judge, but he is still a particular sort of judge. I suppose that in 10-20 years from now, he would have the same authority as a judge. But I think today, that is premature. I do not think the arbitrator should be put in this awkward position of being trusted by the parties and then either refusing an award or reporting the parties for something which, in his own opinion, is wrong. I think he would be going beyond his mission. This is my conviction.
We could go on for hours. But I think we should have a colloquium on one of these topics one of these days. Thank you all.