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Copyright © International Chamber of Commerce (ICC). All rights reserved.
( Source of the document: ICC Digital Library )
by Nicola Bonucci*Director for Legal Affairs, OECD
This paper examines how the Organisation for Economic Cooperation and Developments ("OECD’s") bribery and corruption compliance regime, which works to reduce risk and improve accountability of global investors and states, could provide a useful blueprint for global risk management of climate change compliance in the wake of the Paris Agreement. In the lead up to COP21, the State Parties to the UNFCCC submitted Intended Nationally Determined Contributions ("INDCs"). The Paris Agreement provides that upon ratification of those INDCs (or "new INDCs"), greenhouse gas target obligations start to apply to State Parties. In order to achieve those targets, State Parties need to monitor and govern individual and corporate behaviour within their borders. This introduces a new compliance and risk management issue for states, individuals and corporates, involving many of the challenges previously confronted by the OECD.
The OECD established the OECD Anti-Bribery Convention (the “OECD Convention”) in 1997. The OECD Convention imposes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. Its main aim was criminalizing the fact of offering, promising and giving a bribe to a public official. It is the first and only international anti-corruption instrument focused on the “supply side” of the bribery transaction, or active bribery. Such terminology is in fact quite misleading; whether the action is active or passive is irrelevant as it does not change the fact that bribery has occurred and in some cases the receiver of the bribe is in fact quite active.
Prior to the OECD Convention, offering, promising, and giving a bribe to a public official was not a universal criminal offence. For example, if a French company bribed a public official in Marseille, it could have potentially been investigated and prosecuted. However, if a French company bribed a public official in Malines, Belgium, which is much closer to Paris than Marseille, not only would the company not be investigated and prosecuted, but if it could demonstrate to the Ministry of Finance that the payment of the bribe was necessary in order to get the business, the bribe would be considered a legitimate business expense, and therefore be tax deductible. This was the practice until as recently as 1997. The OECD Convention has had a dramatic impact on state, individual and corporate behaviour as a consequence.
The OECD Convention entered into force on 9 December 1999. As of today, there are 41 signatories to the convention comprising: 34 OECD countries; 15 G20 countries and seven Non-OECD countries including Argentina, Brazil, Bulgaria, Colombia, Latvia, Russia and South Africa. The OECD Convention combats bribery of foreign public officials in international business, and the same actors are often involved in a similar context in investor-state arbitration. The OECD Convention contains a monitoring mechanism which is followed up by the Working Group on Bribery in International Business Transactions ("WGB") comprising all parties to the Convention.
The key provisions of the OECD Convention are:
The principle of the criminalization of the act of offering, promising and giving a bribe to a public official has now been universally recognized as it is enshrined in Article 16 of the United Nations Convention Against Corruption (the “UN Convention”). However, one of the specific features of the system set up in the context of the OECD is the strong monitoring mechanisms mentioned above.
This was a response to the general feeling that Parties will not trust each other and each State Party is convinced that its own enterprises will be compliant, but all others would continue to “cheat”. As a consequence, the OECD has set up one of the most stringent monitoring mechanisms that exists in respect of international obligations in order to ensure that the State Parties comply with their international commitments. This monitoring mechanism, which is still ongoing, works in phases.
In Phase One, the OECD looks at how the international obligation has been transposed to the national arena. In Phase Two the effectiveness of the legislation is examined, because the legislation may appear effective on paper, but may not, in practice, work meaningfully. In Phase Three, the most difficult, the OECD evaluates whether non-compliance with the legislation was effectively investigated and prosecuted. This evoked very strong reactions from some State Parties. But eventually, the effect of the OECD releasing its reports was to add healthy pressure on all State Parties to continue moving in the right direction. Phase Four started in late 2016 and builds on the previous phases with a more tailored made approach.
At a macro level, this translates into a set of rules that is integral to international trade and investment. As international arbitration, in particular investor state arbitration, is the predominant framework mechanism for resolving international investment disputes, the bribery and corruption rules presumably would feature prominently in both investment treaties and arbitral awards arising out of those treaties. However, an interesting June 2014 survey revealed that of 3,000 international investment treaties and more than 1,000 treaty-based investment arbitration awards, very few made reference to issues relating to corruption or bribery. The results were not particularly encouraging.
Of the 13 multilateral treaties considered by the survey, only two make any reference to corruption and bribery compliance obligations. Of the total number of bilateral and multilateral treaties, very few contained language establishing any commitments in relation to corruption and bribery. It should be clarified that many of the BITs examined preceded the creation and entry into force of the OECD and UN Bribery Conventions. Anti-corruption issues started first to be incorporated in from 2000 (the year following entry into force of the Convention).
Of the investment arbitration awards that were surveyed, 81 referred to the word corruption and 29 referred to bribery. From this survey, two points emerged. First, typically in a case where one party alleges corruption, it needs to convince the arbitral tribunal that the bribery and corruption allegation is able to satisfy a high evidentiary threshold. The critical question and the real difficulty for the arbitrator is the level of evidence required to prove bribery or corruption? Is it a preponderance of evidence or a “smoking gun”? Second, the tribunal must then determine the consequences of that bribery and corruption if established.
One important case in this context is World Duty Free Company Limited v Kenya, Award, (ICSID Case No ARB/00/7), dated 25 September 2006. The case involved a US$500 million claim against Kenya for alleged expropriation of a contract to operate duty free concessions in two airports. It emerged during the proceedings that the concession contract was procured through the payment of a cash bribe to the former President of Kenya. Kenya applied to have the claim dismissed on the grounds that the underlying contract was illegal and unenforceable as a matter of law and public policy. The Tribunal found that a contract procured by a bribe was void as a matter of law because it was in breach of transnational public order. It further found as a matter of public policy that the machinery of international justice was not available to a claimant that had participated in such an illegality.
An earlier award, International Thunderbird Gaming Corp v United Mexican States (UNCITRAL, 2005), discussed the evidentiary standard required to prove corruption as follows:
It is generally very difficult to prove bribery as there is usually little if any paper trail. However, arbitral tribunals and courts, in particular of more recent and under the influence of the authoritative international conventions (mainly, but not exclusively the OECD anti-bribery convention) have been read to use presumptions rather than full-fledged and hard to obtain full evidence.
World Duty Free subsequently set out what arbitrators should do once it is proven that the investment in question was tainted by corruption:
In light of domestic laws and international conventions relating to corruption, and in light of the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy. Thus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal.”
Not all commentators agree with the result in World Duty Free but the underlying debate arising out of the case is instructive. It remained the only reported investor-state award to deny jurisdiction on the basis of underlying bribery and corruption for almost 10 years until the October 2013 decision in Metal-Tech Ltd (Claimant) v Republic of Uzbekistan (Respondent) (ICSID Case [Page46:] No. ARB/10/3). The Tribunal in Metal-Tech expressly referred to the OECD and UN Conventions on Bribery and to World Duty Free stating that:1
… a number of international agreements were adopted mainly seeking to criminalize corruption, but also dealing with administrative and civil law aspects relating to the fight against corruption. These include the 1996 Inter-American Convention against Corruption; the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; the 1999 Council of Europe Civil Law Convention on Corruption; the 1999 Criminal Law Convention on Corruption and the 1999 Civil Law Convention on Corruption, both adopted under the aegis of the Council of Europe; the 2003 African Union Convention on Preventing and Combating Corruption; and the 2004 UN Convention against Corruption.
292. In this context, a mention must also be made of the award in World Duty Freev Kenya which held that corruption is “contrary to international public policy of most, if not all, States or, to use another formula, to transnational public policy” and consequently declared the claims inadmissible.”
The scattered response by investment treaty drafters and, more significantly, arbitral tribunals to issues of bribery and corruption may be indicative of the likely treatment of climate change compliance in the international investment treaty and arbitration context. In the event that a climate change compliance issue were raised, the question of causation is a complex and difficult one. Assuming that an investment treaty tribunal were able to determine breach and causation resulting in an impact, it is an open question to what an arbitrator should determine to be the consequence of the underlying conduct.
Modern investment and trade treaties are becoming increasingly presciptive on the anti-corruption front. A recent major development has been the Trans-Pacific Partnership (TPP), a multilateral treaty which contains a complete chapter on anti-corruption. Chapter 26: Transparency & Anti- Corruption provides that “The Parties affirm their resolve to eliminate bribery and corruption in international trade and investment.” The TPP also contains reference to “Sustainable Development Goals” relating to corruption. Goal 16: Peace, Justice and Strong Institutions provides that State Parties “Substantially reduce corruption and bribery in all their forms”. Similarly, the TPP contains a complete chapter on environmental issues, which noticeably includes a carve-out from arbitration. These chapters of obligations may become the standard for treaty drafting in the near future, and as explained below, the two fields intersect.
The climate change global architecture itself includes in relation to mitigation:
This evolving global architecture, particularly given the Paris Agreement, may accelerate the uptake of global compliance and enforcement. Against the history of the evolution of bribery and corruption obligations and enforcement, this new regime may have a quicker evolution; indeed quicker evolution is required.
However, any new compliance or regulatory regime gives rise to new opportunities for investment and trade and, unfortunately, new opportunities for corruption. The various mitigation and adaptation initiatives may be susceptible to such concerns, as set out in the below table.
Nonetheless, there are steps that can be taken to combat corruption in the context of climate change investment, including:
Climate change is now firmly on the global compliance agenda and for states, individuals and corporations, that places it is on the risk management agenda. However, the specificity of any global compliance obligations remains uncertain. To give an indication of the difficulty involved in establishing the detail of any binding global commitments, the pre-COP21 G20 ministerial leaders’ summit communique on climate change contained surprisingly little substantive agreement, despite a three day effort to reach consensus taking place only after the country INDCs had been delivered. This area of compliance is not without challenges; it will be difficult to achieve a global architecture for enforcement of climate change commitments. However, absent any global architecture, states, individuals and corporates will lack any certainty or clarity provided by a regime such as that implemented by the OECD and its Conventions.
Nevertheless, a number of interesting opportunities and challenges are emerging. The result of COP21, culminating in the Paris Agreement, lay the ground for individual country target commitments. The challenge remains as to the level of monitoring imposed on countries in respect of their INDC commitments and the consequences of not meeting those targets. Various legal initiatives are underway, including claims in national courts and the IBA model legislation.
In the wake of COP21 and the Paris Agreement, new international public policy may soon translate into broader international fields like investment. One could postulate that the treatment of non-compliance with transnational climate change public policies in an international investment arbitration may have similar consequences to non-compliance with transnational corruption public policies. It is argued that there is an incredible arena of interrelation and interaction. A lot will depend on how climate change will be addressed transversally — a lesson learned from the combat against corruption. One of the mistakes in the past was that even when the international community had the UNFCCC Kyoto Protocol, a silo approach prevailed. There needs to be an integrated approach in the fight against climate change and in the fight against corruption because all this will be interrelated. After all, much of this, whether it is the fight against corruption or climate change, is for the protection of the common global good.
© Nicolla Bonucci (OECD) The opinions expressed and arguments employed herein are solely those of the author(s) and do not necessarily reflect the official views of the OECD or of its member countries.
Metal-Tech Ltd (Claimant) v Republic of Uzbekistan (Respondent) (ICSID Case No. ARB/10/3) at paras. 291 and 292.