Is Corruption an Emerging Cause of Action in Investor-State Arbitration?

The Trans-Pacific Partnership Agreement (TPP) has attracted unprecedented public interest in investor-state arbitration—also known as investment treaty arbitration, investor-state dispute settlement, or ISDS. Sovereign nations and foreign investors may choose this process as an alternative to ordinary litigation in domestic courts, by submitting their claims before a panel of expert judges applying international law. Though some critics seem to suggest that ISDS imposes a static list of economic rules, arbitration actually applies a complex system of legal principles which balance investor security against the sovereign autonomy of host states. Over time, investor-state arbitration has proven to be an emerging space for enforcing international norms—including transparency and anticorruption. Indeed, the TPP demonstrates this growing influence of anticorruption norms in ISDS. Not only is the TPP the first multilateral trade agreement to explicitly require anticorruption commitments from its members, its ISDS chapter will also commit members to the anticorruption rules emerging in investor-state arbitration.

Since long before the earliest discussions of the TPP, arbitral panels have sometimes used anticorruption norms to interpret treaties and contracts that made no mention of anticorruption or transparency. Indeed, although no previous trade or investment treaty has obligated host states or investors to observe anticorruption standards, ISDS panels have increasingly considered corruption relevant, and even dispositive, in determining liability. This process has enabled the development of what is effectively a common law of anticorruption principles. (Although there is no doctrine of stare decisis in investor-state arbitration, arbitral decisions provide persuasive authority in future disputes, and particular decisions may gain influence and recognition comparable to precedent. An arbitral panel has discretion to consider other public international law authorities, including previous investor-state disputes, international commercial arbitration between two private companies, public international courts, and ad hoc bodies such as the Iran-US Claims Tribunal. All of these systems have helped contribute to the emerging anticorruption norms in ISDS.)

Arbitral panels considering corruption have most often treated it as a “shield”—that is, as a defense against liability. But while recent panels and commentators have questioned the merits of a “corruption defense,” recent cases hint at the emergence of a freestanding cause of action for corruption—as a sword rather than a shield. This potential shift suggests that, in addition to the the TPP’s express transparency and anticorruption terms, the ISDS chapter may offer hidden tools for anticorruption enforcement.

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A Trade-Anticorruption Breakthrough?: The Trans-Pacific Partnership’s Transparency and Anticorruption Chapter

The full text of the Trans-Pacific Partnership (TPP), released earlier this month, is already generating plenty of discussion. One of the proposed agreement’s most striking features is the full chapter on transparency and anticorruption, Chapter 26. The U.S. Trade Representative (USTR) had earlier stated that its objectives in negotiating the TPP included addressing transparency, accountability, and corruption; at the time I thought this was simply a negotiating ploy or marketing strategy, but it looks like I was wrong. As USTR’s summary of the “good governance” steps of Chapter 26 correctly notes, the TPP “includes the strongest anti-corruption and transparency standards of any trade agreement.” Indeed, Chapter 26–which appears to modeled in part on draft language that Transparency International had proposed for inclusion in a different trade deal, the Transatlantic Trade and Investment Partnership–could mark an important and unprecedented step towards using trade agreements to promoting and harmonize international anticorruption efforts.

Here are a few points that are or could be particularly important features of Chapter 26:

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