Combatting corruption in international investment law: challenges and prospects

Abstract

Corruption is increasingly playing a critical role in international investment arbitration disputes. Investors have lost rights under BITs against a State due to corruptly securing its investment. Corruption has been raised by the investor as a sword, and by the State as a shield against investor’s claims. This has raised concerns about whether international investment arbitrations and institutions should be seized with corruption matters and if so, in what form and substance. This thesis argues that the contemporary international investment regulatory regime is inadequate to combat corruption in foreign investment transactions. The main challenge with the bulk of the international investment agreements which contain anti- corruption clauses is that these provisions are couched as general principles and prohibitions, merely encouraging the host States to enact and enforce anti-corruption laws. These instruments are of less functional value to investment arbitrators when faced with allegations of corruption. It further argues that the prevailing host State’s legal mechanisms are inherently inadequate to effectively regulate and combat corruption relating to foreign direct investments, and therefore there is a need for an international intervention through international investment agreements. The situation is exacerbated by the divergent approaches taken by investment arbitrators when dealing with corruption in investment transactions. This thesis recommends the adoption of an elaborate anti-corruption clause in international investment agreements. The main contribution of this thesis is to suggest a framework for combatting corruption in investment transactions. It provides a model anti-corruption treaty clause which attempts to promote accountability of both the foreign investor and the State. This model anti-corruption clause includes guiding factors that arbitrators in the investor-State arbitration may take into account when arbitrating disputes involving corruption, so that they can meaningfully contribute towards combatting corruption.