Is it possible for violations of the Foreign Corrupt Practices Act (FCPA) and other domestic anti-corruption regimes to influence the outcomes of international investment arbitrations? In my last post, I showed how allegations of corruption could be relevant in investment treaty arbitration, both as a “sword” wielded by investors, and as a “shield” used by sovereign states. In this post, I consider how evidence from domestic anti-corruption proceedings could be used in arbitration, and what effects its use might have on the international system.
No arbitral tribunal has directly considered evidence from an FCPA investigation, but they have come very close. Consider the case of Siemens A.G. and Argentina. In 2007, Siemens won a large arbitral award from Argentina. However, about a year later, Siemens became the subject of a massive FCPA investigation, and U.S court filings revealed that the Siemens-Argentina deal on which the arbitration had centered had been obtained through bribery. In response, Argentina filed for an annulment of the arbitral award, and Siemens eventually agreed to cease attempts at recovering. Had settlement not occurred, the arbitral tribunal would have been forced to assess the legal weight of evidence from the FCPA proceeding.
For parties in arbitration seeking to prove corruption, piggy-backing off of domestic anti-corruption investigations could be very attractive. Proving corruption is notoriously difficult. Direct evidence of corruption is hard to come by, and states may have external incentives against revealing the full extent to which their internal workings are tainted by corruption. In World Duty Free v. Kenya — the canonical case on the effect of corruption in international arbitration — the corruption issue was essentially forced on the tribunal because the claimant admitted that it had engaged in bribery. This kind of situation seems unlikely to repeat itself, and tribunals’ own investigative powers are very limited, so evidence gleaned by domestic investigative authorities could be extremely valuable to claimants and states parties alike.
If FCPA violations do become relevant to the work of arbitral tribunals, this could have some interesting and potentially troubling implications.
First, although domestic anti-bribery statutes are becoming more common, most of the large-scale investigations are still undertaken by the U.S. As previous scholars have noted, FCPA enforcement decisions are not free of political influence and may in fact reflect U.S. foreign policy priorities. As a result, reliance on FCPA-based evidence (or evidence from any domestic anti-corruption proceeding, for that matter) could skew corruption allegations in investment treaty arbitration in a direction influenced by the policy priorities of the states that conduct their own corruption investigations. Thus, in the future, corruption allegations in arbitration could pose a challenge to ICSID’s legitimacy as a relatively unbiased forum for resolving investor-state disputes.
Second, and perhaps more interesting, the potential for secondary liability in international arbitration could affect the character of FCPA investigations and negotiations. Most of the deferred prosecution and non-prosecution agreements that resolve FCPA cases are products of extended negotiations between the DOJ/SEC and offending companies. The specter of secondary liability through arbitration could make certain companies less likely to admit to wrongdoing, or to sign agreements detailing their wrongdoing. Thus, if domestic anti-corruption violations do become relevant to ICSID arbitrations, the long-term effect could be more contentious and volatile FCPA settlement processes.