Part III Towards a Jurisprudence Constante in Investment Arbitration Decision-Making on Corruption, 10 State Responsibility for Corruption: The Attribution Asymmetry
Aloysius P Llamzon
- Corruption — Investor — UNCITRAL Arbitration Rules — International Centre for Settlement of Investment Disputes — Responsibility of states — Wrongful acts — Attribution
The Attribution Asymmetry
10.01 One vantage point from which the interplay between international anti-corruption law and investment arbitration must be viewed is the law on State responsibility, a subject that encompasses and supports all substantive areas of public international law. It is fundamental to the inquiry because the very idea of bilaterality—that both parties can be liable for a corrupt act because they participated freely in the exchange of cash for governmental action (and all for private gain)—hinges on the idea that a State can at least in principle be held internationally responsible for the corrupt acts of its public officials. Moreover, the question of international responsibility incorporates not only questions of attributability, but also important questions relating to the scope of substantive international anti-corruption law and the extent to which a State’s own acts may limit or negate its ability to employ corruption as a defence against investor claims (such as by waiver and acquiescence). As this chapter discusses, there are no straightforward answers to many of these questions.
10.02 The responsibility of a State for the acts of its public officials is a foundational premise not only of the international law on foreign investment, but of all international relations.1 In (p. 239) the burgeoning scholarship on corruption in investment arbitration, however, relatively little attention has been paid to the international law on State responsibility, particularly the degree to which host States can, if at all, be held responsible for the corrupt acts of their public officials. One of the less analysed aspects of World Duty Free v. Kenya was the holding that the corrupt acts of even a sitting Head of State cannot be attributed to the host State itself. That finding was essential in supporting the tribunal’s levying of adverse consequences for corruption solely to the investor; allowing Kenya to bear any responsibility would, in its view, effectively hold innocent Kenyan citizens responsible for the corruption of its political elite.
10.03 In international law, States are held to account for internationally wrongful acts through the law on State responsibility. A State is a juridical entity, after all, and its incorporeal being can only operate through the corporeal acts of the individuals and groups that represent it; these are by necessity deemed the acts of the State itself.2 In much the same way corporations benefit or are held liable for the acts of their officers under principles of agency found in all national systems of law, States are routinely made responsible for the breaches of international obligations committed by their representatives, and a State is not excused from responsibility for acts perpetrated by its public officials simply because those acts were illegal, unsanctioned, or otherwise outside their scope of authority. When a Head of State or cabinet minister orders measures that are tantamount to the unlawful expropriation of an investment, for example, or a State’s domestic courts render judgments that disrupt the financial viability of an investor’s investment, the State itself is routinely held liable by arbitral tribunals, and it is no argument that the public official acted in excess of his powers or contrary to national law, or that courts are independent and cannot be controlled by the government and thus could not have been acting on behalf of that State.3
(p. 240) 10.04 Despite the regular use of principles on State responsibility by international investment tribunals, one nearly ubiquitous form of pathological conduct engaged in by foreign investors and public officials of host States alike seems surprisingly resistant to its application: corruption. Foreign investors decry public sector corruption as a hindrance to doing business in developing countries;4 yet there has simply never been a case in international investment arbitration where public official corruption has been attributed to the host State. World Duty Free is emblematic of an increasingly asymmetric approach to the question of attribution: whereas the corrupt acts of an investor’s corporate officers and intermediaries always generate severe consequences against the investor itself, in the case of public officials of the host State, participation in corruption almost never seems to engage the responsibility of the State. This is true notwithstanding the fact that all internationally wrongful acts committed by public officials (a fortiori Heads of State) are attributable to the State and thus potentially engage its international responsibility.
10.05 The issue of international responsibility on the part of host States for the corrupt acts of their public officials (or lack thereof) is a legal inquiry that raises important issues of policy and fairness that bear some mention at the outset. On the one hand, little sympathy will be found in the international legal order for any investor proven to have paid a bribe at the inception or over the life of an investment. It is easy to make the moral case for denying investors protection for investment agreements made possible by corruption: when public officials auction the nation’s patrimony to foreign interests for private gain, it seems iniquitous to require the State itself to bear liability for such acts. Indeed, international anti-corruption treaties such as the 1997 OECD Anti-Bribery Convention5 have been dedicated to eradicating this ‘supply’ side of corruption in foreign investment, virtually ignoring the public officials of States who serve as counterparty to all these corrupt acts.6 However, it should not be forgotten that this ‘demand’ side of the corruption equation—that of public officials of the host State receiving, soliciting, or sometimes even extorting bribes from foreign investors for private gain instead of public good—is no less venal, especially to the citizen of that State who suffers through the governance afflictions corruption engenders. To give just one example, government corruption was cited as the primary reason behind the ‘Arab spring’ uprisings that toppled entrenched dictatorships in Tunisia, Egypt, and Libya in 2011. The idea that public officials in developing countries are passive recipients of bribes and less rapacious than the suppliers of capital often falls far from reality.
10.06 Even as most investment arbitrations where corruption is at issue will involve a reality where most (if not all) of the principal protagonists are tainted by corruption, the current trend of the law is moving steadily towards apportioning the sanctions for corruption to investors (p. 241) alone, by allowing host States to plead corruption against the foreign investor as a complete defence against any and all investor claims. Instead, the investor is made to bear the burden of corruption entirely, in both substantive and procedural ways: substantively, by considering the underlying investment agreement void or unenforceable and not apportioning any form of consequence (whether contractual or quasi-delictual) to host States for the participation of its public officials in the corrupt act;7 and procedurally, by either denying jurisdiction to an arbitral tribunal through the ‘legality’ clause found in many investment treaties,8 or considering the claim unenforceable. Such a sanctioning regime carries the implicit conclusion that host States are not internationally responsible for corruption in which its public officials were complicit.
10.07 The potential moral hazard of having such a procedural ‘trump’ that would effectively clear the host State not only of corruption but of all putative violations of the investment treaty has not escaped the attention of arbitrators9 and commentators10 (albeit very rarely from the perspective of State responsibility). An often unrealistically high level of virtue and vigilance against the misdeeds of agents and intermediaries is demanded of investors but is not similarly required from host States, who are effectively rewarded for the corruption of their public officials (often no longer in power and thus easier to implicate as part of the (p. 242) ‘corrupt’ ancien regime) without any correlative demand that those officials be prosecuted or otherwise held to account. Such onesidedness would thus tend to weaken the promotion of good governance and investor protection, both of which are foundational policies of investment treaties.11 The law on State responsibility could help counter this potential for moral hazard. Its application to the problematic of transnational corruption in investment arbitration decision-making would compel arbitrators to ask under what terms corruption can or should be attributable to a host State, and whether principles of consent, waiver, estoppel, and acquiescence should be employed to develop fairer ground rules on attribution and State responsibility. Doing so would help restore balance in the apportionment of the economic and moral costs of corruption.
10.08 This chapter revisits the international law of State responsibility in the area of corruption in foreign investment. It begins by examining how the International Law Commission’s Articles on State Responsibility (the ‘ILC Articles’), a set of principles originally conceived to govern inter-State relationships (including foreign investment issues raised under the aegis of diplomatic protection) finds application in the area of investment arbitration. This chapter then studies the few cases that have examined the issue of State responsibility for corruption within the investment arbitration context, centring on World Duty Free v. Kenya and its progeny. The application within the framework of the ILC Articles of international anti-corruption principles and the case trends follows. The chapter concludes by reflecting on the implications of the attribution asymmetry for bribery and other corrupt acts. By asking under what terms corruption can or should be attributable to a host State, and by developing the use of principles of acquiescence when appropriate, fairer ground rules on attribution and responsibility designed to restore balance in the apportionment of the economic and moral costs of corruption are explored.
10.09 As attested by the deluge of scholarship over the last decade, international investment law is a particularly dynamic area of contemporary international law. Much of this vibrancy can doubtless be traced to the arrival of the so-called ‘BIT generation’12 from the late-1990s and early 2000s, where the now-over 3,000 bilateral investment treaties and multilateral investment conventions such as NAFTA have led to truly exponential growth in investment arbitrations under the auspices of institutions such as the International Center for the Settlement of Investment Disputes and (particularly for UNCITRAL Arbitration Rules-based cases) the Permanent Court of Arbitration. Attendant on this rise has been the accretion of a body of case law, much of it focused on public international law as applied to foreign investment issues; these decisions have in turn brought about intense attention from governments, businesses, practitioners, academia, and NGOs alike, as the various stakeholders come to grips with the unique features of the emerging global regime for foreign investment and ponder the legitimacy of the dispute resolution system that has facilitated its ascendance.13
(p. 243) 10.10 The treatment of foreign-owned property in host States has always been a traditional focus of ‘classic’ public international law. While developments in the law often used to occur through standing international courts (such as the International Court of Justice)14 and by inter-State arbitral tribunals and claims commissions (such as the Iran-United States Claims Tribunal), the rapid growth of ICSID and UNCITRAL Rules-based investment arbitration has brought about profound change to this aspect of public international law, including in the area of State responsibility for foreign investment. These developments are not confined to the specific substantive principles of international investment law, of course. As they ascertain the duties owed by host States to foreign investors investing within their territory, investment tribunals effectively delimit the allowable extent of a host State’s regulatory space and thus affect the regulatory environment within that State. Areas as diverse as human rights, environmental law, and indeed corruption are consequently affected. And with this expansion into other substantive areas of international law necessarily comes development in the law on State responsibility. This is so because the law on international responsibility is essentially a set of ‘secondary rules’, that is, ‘general conditions under international law for the State to be considered responsible for wrongful acts or omissions, and the legal consequences which flow therefrom’.15
10.11 The law on State responsibility is thus a regime that animates and supports the substantive principles that form the corpus of public international law—in the nomenclature of the law on State responsibility, these substantive areas are the ‘primary rules’ that give rise to responsibility. State responsibility does not codify the substantive principles that define a rule and the content of the obligation; rather, it determines whether the State has violated that obligation and the consequences of that violation.16 In other words, the principles of State responsibility constitute a ‘secondary obligation, having its source in the non-observance of a primary obligation under international law’.17
1. Application to non-State entities such as investors
10.12 Recognizing the need for a definitive statement on the responsibility of States for violations of international law, a significant scholarly and diplomatic effort was invested in the latter (p. 244) half of the twentieth century to articulate and codify the law on State responsibility through the United Nations’ International Law Commission (‘ILC’ or the ‘Commission’), culminating in the adoption in 2001 of the Articles on Responsibility of States for Internationally Wrongful Acts (‘Articles on State Responsibility’, or ‘ILC Articles’). The ILC Articles look to the law on State responsibility in the aggregate, setting out principles that are to apply to all manner of internationally wrongful acts without laying down specific rules in substantive areas of international law. The ILC Articles were drafted in treaty form but never adopted or even opened to signature; but that has not stopped their success,18 as international courts and tribunals have applied the Articles virtually in full, treating them as a functional equivalent of the customary international law on State responsibility in disputes concerning the law of the sea, human rights, and the environment.
10.13 As the ILC Articles are cast with relations between States as their basic paradigm,19 the initial impression one gets from reading the text is that the law on State responsibility is meant to apply only to inter-State relations and has little bearing on non-State actors such as corporations, which traditionally were considered ‘objects’ and not ‘subjects’ of international legal rights and obligations. The ILC Articles were not designed solely to regulate conduct between two or more States, however; as the title suggests, the ILC Articles lay out the rules governing the responsibility of States for internationally wrongful acts, without qualifying whether the holder of the claim or right that triggers responsibility is a State or non-State entity. The ILC clarified in its Commentary that while bilateral and multilateral obligations such as those arising from treaties are clearly within the conception of the Articles, a State’s international obligations to non-State actors, or to the international community erga omnes, fall within the Articles as well.20 This is in keeping with the changing nature of international law itself, where individuals and corporations have increasingly become ‘subjects’ instead of mere ‘objects’ of international law, and can thus invoke the responsibility of States directly under certain circumstances, including in the areas of human rights and investment.21 Indeed, affixing the scope of responsibility of States for injuries to aliens and their property was a key purpose behind the ILC’s development of the law on State responsibility.22
(p. 245) 10.14 The law on State responsibility thus finds application in investment arbitration, where one party is inevitably a corporate entity or individual (whether as direct investor or as a shareholder of the investing company)23 given the right to sue the host State directly for alleged breaches of investment protections found in BITs and other international instruments.24 The days when an aggrieved investor needed to seek the diplomatic protection of its home State in order to have the standing necessary to obtain redress before an international court or tribunal against the host State seem to have ended, possibly for good.25
2. Investment as a ‘sub-system’ of State responsibility
10.15 This is not to say, however, that the entirety of the law on State responsibility can be transferred reflexively onto the investor-State plane. As mentioned earlier, the law on State responsibility was not originally conceived to address the ‘mixed’ nature of the parties to an investment arbitration, and classical international law concerning State responsibility developed largely through international awards and decisions relating to the physical maltreatment of foreigners by a State or by the physical taking of property of a foreigner by that State, rather than wrongs done through commercial means.26
10.16 Investment arbitration has thus been described as a ‘sub-system’—or put another way, a ‘specialized’ system—of State responsibility where the secondary obligations generated by the implementation of State responsibility in investor-State disputes can sometimes take on a special juridical character vis-à-vis secondary obligations applied generally on the inter-State(p. 246) plane, the relationship the ILC Articles was primarily conceived to cover.27 There are obvious differences in the entities involved and basis for obtaining jurisdiction in the investment arbitration regime vis-à-vis inter-State dispute settlement; but more importantly, unlike inter-State disputes where the sovereignty prerogatives of one State and perceived incursions into the sovereignty of another State are often engaged, interference with sovereignty does not (or should not) form the essence of disputes settled in investment arbitration.28 Recent developments in inter-State arbitration involving the interpretation and application of investment treaties29 present further nuance to this observation, however, and further blur the categorization of investment arbitration as a ‘sub-system’ of the law on State responsibility.
10.17 In each substantive area of international law, the specific mechanisms in place for engaging international responsibility can sometimes change the applicability of the secondary rules provided under the ILC Articles.30 The ICSID Convention’s procedural mechanism for invoking State responsibility provides the lex specialis that makes Parts 2 and 3 of the ILC Articles mostly inapplicable, which carries important consequences.31 Any use of the Articles on State Responsibility within the context of investment arbitration must therefore take proper account of the possibility that the rules provided under the treaty are superseded by the lex specialis of the legal regime to which the proceedings are subject.
3. State responsibility vs. individual responsibility
10.18 Finally, it bears emphasizing that the question of State responsibility is separate from the matter of individual responsibility for the putative ‘international crime’ of corruption (sometimes denominated as fraudulent enrichment or brought within the broader concept of ‘indigenous spoliation’).32 As laudable as the debate on extending international criminal (p. 247) jurisdiction to ‘economic crimes’ might be—particularly because this putative international crime gives due emphasis to the harm wrought by the corrupt public official—the jurisdiction of investment arbitration clearly only extends to the civil aspects of corruption. This is a point worth recalling within the context of investment arbitration, as the presence of some potential form of civil sanction for corruption on the part of a host State under investment law should never be considered a substitute for the criminal prosecution of private individuals and public officials for corrupt acts under the national law of the host State. Indeed, as will be discussed in the succeeding sections, international investment arbitration can, through principles of State responsibility, even assist in the speedy criminal prosecution of corrupt public officials by imposing real consequences for the failure of a State to take corruption seriously, including the imposition of a bar on the ability to invoke corruption as a defence against investor claims unless serious steps are taken to prosecute such officials.
10.19 The survey in Part II reveals that less than a handful of cases have reflected upon the issue of State responsibility for corruption in any significant way. The leading case among these is World Duty Free v. Kenya. A small number of cases surveyed in Chapter 6 have also delved into issues relating to State responsibility for corruption to some degree: these are SPP v. Egypt, Fraport v. Philippines, and EDF (Service) v. Romania.
10.20 These cases are representative of broader trends in the use of international anti-corruption norms in international investment law. Continuing the discussion at the end of Chapter 7, some trends relevant to the question of State responsibility for corruption are unmistakable. Perhaps the principal among these is the fact that when corruption is placed in issue in investment arbitration, it is not done primarily in order to hold corrupt public officials to account in the manner raised in EDF v. Romania. Instead, as in the cases of World Duty Free, SPP, and Fraport, corruption is much more commonly invoked as a defence by host States against the investment protection assertions of foreign claimants.33
10.21 In light of the clear trend towards corruption being employed as a defence against investor claims, EDF v. Romania’s contribution to anti-corruption norms in international investment arbitration is significant. While some will decry the high evidentiary standard utilized as unrealistic and of unintended benefit to future parties seeking to obscure their corrupt acts, in terms of State responsibility at least, the case makes an important clarification. The investor argued that bribe solicitations by the Prime Minister of Romania, when rebuffed, (p. 248) resulted in retaliatory acts by Romanian State-owned enterprises that were attributable to the State itself.34 In the tribunal’s analysis, it stated in clear terms that the corrupt solicitation of a bribe (which is more properly characterized as extortion)35 by ‘a State agency’36 would be a ‘violation of the fair and equitable treatment obligation owed to the claimant pursuant to the BIT as well as a violation of international public policy’.37 The tribunal also agreed with the claimant’s submission that when the host State’s discretion was exercised on the basis of corruption, a ‘fundamental breach of transparency and legitimate expectations’ occurs.38
10.22 The cumulative effect of these holdings is a measure of clarity on State responsibility for unconsummated corruption, where the public official was engaged in bribe solicitation/extortion. Unfortunately, the same clarity is not present when a corrupt solicitation has been freely paid and the question of the investor’s participation and culpability for corruption must then be considered.
10.23 World Duty Free was certainly not the first arbitration where the host State invoked corruption as a defence against investor claims;39 but the case does demonstrate the issue’s potential to be a very potent defence—a finding that corruption did indeed occur at the inception of the investment would potentially result in either (i) the invalidation of the underlying investment agreement and the unenforceability of claims arising from that agreement (as in World Duty Free), or (ii) a finding that the tribunal has no jurisdiction over the dispute in its entirety (the investment not being protected by many investment treaties for not being an ‘investment’ made in accordance with the host State’s laws).40 The case law thus recognizes corruption as a complete defence when invoked by the host State, even against illegal host (p. 249) State conduct arising from facts entirely unrelated to corruption. However, as demonstrated in EDF v. Romania, when corruption is invoked by investors, the issue is made part of broader fair and equitable treatment claims, and has no preclusive effect.41 For those who maintain that investment arbitration is an unfair system that is skewed in favour of foreign investors, the idea that corruption has been actively and frequently used by host States against investors, that this defence can potentially negate any and all claims made by investors if successful, and that there would be no such preclusive effect if corruption was invoked by the investor, may come as a surprise.
10.24 It is important not to overstate the impact of corruption as an issue in investment arbitration, however, as World Duty Free is an almost singular instance where corruption has been relied upon explicitly by an investment tribunal in an outcome-determinative manner. More frequently, corruption will be raised much like in cases such as Fraport v. Philippines, where the issue is either alleged or insinuated but never truly decided upon (although many believe that corruption remains an unarticulated but highly relevant issue that often colours an arbitrator’s appreciation of the equities of a case or ‘fairness’ of result).42 Nonetheless, neither (p. 250) the rarity of tribunals making positive findings of corruption nor the bilateral nature of corruption has prevented the issue from being raised with increasing regularity as a defence by host States.
10.25 On the matter of State responsibility, the cases discussed in this section demonstrate that less than a handful of the hundreds of investment arbitration cases43 that are publicly known have dealt with the question of State responsibility for corruption in any perceptible way. These isolated cases did so tangentially and are by themselves inconclusive. The majority in the SPP v. Egypt award provided an early statement that principles of State responsibility apply in investment arbitration to engage the liability of host States for the ultra vires acts of their public officials; but there was at best only an implied conclusion that corruption would not be similarly attributable to the host State if public officials are recipients of a bribe. However, this is very much an inferential conclusion, as the proposition that a State is not internationally responsible for the corruption of its highest officials was not explicitly stated in that (or any other) case. Conversely, EDF v. Romania demonstrated that State responsibility would apply squarely if the investor is the party that engages the international responsibility of a host State for bribery solicitations, i.e. extortion44 by public officials. Fraport v. Philippines adds the element of estoppel to the picture by stating that even if an investor may have violated important national laws when making its investment, the host State may (at least in principle) not be able to invoke that illegality had it been aware of that illegality and proceeded in tacit approval or at least acquiescence of that illegality.
10.26 The tentativeness of these cases highlights the near-singularity of World Duty Free in the case law. The case is, of course, a watershed not primarily for its treatment of State responsibility but for its acknowledgment of corruption as a substantive area of law that can potentially disallow redress for investor claims in their entirety.45 The tribunal did so both substantively, by declaring (p. 251) the contract voidable (and so avoided) and unenforceable;46 and procedurally, by declaring the claim inadmissible.
10.27 Beyond the development of legal doctrine, World Duty Free’s implications not only for the people of Kenya but also for the international community in the fight against corruption were not lost on the case’s principal protagonists: the public official who oversaw Kenya’s legal team in this case, former Kenyan Attorney General Amos Wako, stated in a 2012 interview that there was little doubt that the case was of the greatest public interest. Indeed, ‘[t]he claim was more than the budget of the country at that time and there was great fear that, if it succeeded, Kenya’s economic and social development would be halted and the country would become a failed state’ . He also believed that the outcome of the case, including the invalidation of the investment agreement, ‘sent out a signal to parties engaged in corrupt practices worldwide’.47 There can be no doubt that explicitly punishing the investor in this case for engaging in bribery is a significant moment in the international effort to combat corruption, as it demonstrates that there is at least one effective avenue beyond the national sphere—investment arbitration—where specific instances of such pathological conduct can be punished.48
10.28 That said, at least in terms of attribution, the case raises important and largely unanswered questions. The threshold question for purposes of invoking principles of State responsibility is why public international law was not employed by the tribunal at all. In fealty to Article 42(1) of the ICSID Convention,49 the tribunal appears to have made a conscious decision to limit itself to the contractual choice of the parties, that is, to English and Kenyan law.50 Assuming that the contractual choice of law would forestall the direct application of public international law in this case, one can still inquire as to why no renvoi to customary international law was even considered by the tribunal through the application of the contractual choice of law,51 considering that under English law (and presumably (p. 252) Kenyan law as well),52 customary international law is ‘part of the law of the land’ and can be applied directly (albeit with some conditions).53 Indeed, international ordre public—used unsparingly in the case in relation to anti-corruption norms—was utilized precisely by introducing it as part of the corpus of English and Kenyan national law.54
10.29 For purposes of clarifying the role of State responsibility in the issue of transnational corruption, it is to be regretted that public international law—particularly the rules on attribution—was not explicitly discussed or employed in the decision. It is exceedingly rare for corruption to be proven and given effect in the resolution of an investment dispute;55 World Duty Free is one of the only publicly-known investment arbitrations where corruption was found to have occurred. This is a key point, as a tribunal’s finding that there was corruption would be a condition precedent to the engagement of State responsibility (i.e. the occurrence of an internationally wrongful act),56 providing an opportunity for the issue to be fully fleshed out. And with the expertise in public international law which the tribunal possessed (the President of the Tribunal, for example, being a former president of the ICJ), perhaps a potentially enduring precedent on the attribution of public official corruption upon host States would have resulted.
(p. 253) 10.30 Nonetheless, the Award does discuss whether the corrupt acts of a Head of State (in this case, the solicitation and acceptance of a bribe), which in this case the tribunal ruled to be of par delictum with the corruption of the investor,57 is attributable to the host State itself, albeit not in the sense found in the Articles on State Responsibility. Instead, the question of attribution was considered within the context of ‘affirmation or waiver’, i.e. whether Kenya had effectively consented to, acquiesced in, or waived any right to invoke corruption. (The tribunal had relatedly concluded that the ‘investment facilitation fee’ of US$2 million—found to be a bribe by the tribunal—paid by Mr Ali was made ‘as an agent for his principal and with its authority; and the bribe is legally to be imputed to the Claimant’.)58 Limiting its inquiry to national law alone, the tribunal ruled that ‘there is no warrant at English or Kenyan law for attributing knowledge to the state (as the otherwise innocent principal) of a state officer engaged as its agent in bribery’.59 Instead, knowledge of the corrupt acts could only be attributed to the State when Mr Ali made his admissions in his witness statement in December 2002, over 13 years after the bribe was paid in March 1989.60 Whether State responsibility analysis under international law would yield a different result is uncertain, but it does beg an observation: while the World Duty Free tribunal saw the question of Kenya’s knowledge of its former Head of State’s corruption as primarily a question of actual knowledge (a question of fact), if the principles of attribution under the law of State responsibility did apply in this situation and the Head of State’s conduct is considered attributable, such knowledge may—if the requisites for attribution are met—be ascribed to Kenya by operation of international law (a legal presumption deemed to be fact). The succeeding parts of this chapter focus on this issue within the framework of the Articles on State Responsibility.61
10.31 Finally, the jurisdictional basis for World Duty Free and its link with State responsibility bear analysis. Unlike most investment arbitrations in which the consent of the host State to arbitration is derived from a bilateral or multilateral investment treaty, consent to arbitration in this case was derived solely from the contract between the investor and the host State (here, the contract’s dispute settlement clause refers to both the ICSID Convention and the ICSID arbitral rules).62 Having a contract instead of an investment treaty as the basis for jurisdiction (p. 254) has important choice-of-law implications. As discussed earlier, the World Duty Free tribunal’s conclusions were based on English law, and rightly so, as that national law was the contractually-stipulated applicable law.63 However, when—as in the great majority of cases—a tribunal’s jurisdiction is based on an investment treaty, international law will be part of the applicable law,64 as the substantive investment protections which an investor will rely on spring from the investment treaty itself, not the contract. The proper interpretation and application of that investment treaty to a particular dispute—including the ‘legality clause’ provisions frequently invoked by host States as a defence against the tribunal’s jurisdiction when issues of corruption are raised—will also require international law to be factored in. Under the Vienna Convention on the Law of Treaties, interpretation requires that ‘any relevant rules of international law applicable in the relations between the parties’65 need to be taken into account.
10.32 The fact that World Duty Free was not an investment treaty dispute and did not employ public international law helps explain why the almost precedential value accorded to World Duty Free is mistaken, at least in the area of State responsibility. Because World Duty Free’s substantive decision on that matter is derived solely from Kenyan law, subsequent investment treaty-based cases should not necessarily write large the principles applied in that case without first analysing the international law on State responsibility squarely. The large majority of ICSID (and certainly UNCITRAL Arbitration Rules-based investment arbitration) cases arise out of dispute settlement provisions in bilateral and multilateral investment treaties, and as Professor Crawford emphasizes, contractual liability for breaches based on national law must be distinguished from State responsibility for breaches of international law—one does not entail the other.66
10.33 Ultimately, a review and analysis of the case law provides no real answer to questions on the scope of State responsibility for corruption under international law; it is thus necessary to examine the principles of public international law, particularly as expressed in the ILC’s Articles on State Responsibility.
10.34 Much like the case law, the few commentators who have advanced views on the scope of responsibility that host States bear for corruption have not been entirely definitive. Bernardo (p. 255) Cremades pointed to general principles of State responsibility when positing that corruption of public officials should be attributable to host States:
In international law, a State is responsible for acts committed by its officials, of whatever status, in their official capacity, even when the officials exceed their authority, contravene instructions, or violate internal law. Accordingly, if a public official accepts a bribe to exercise his public duties in a certain manner, for example by smoothing the regulatory path for a foreign investment, then the acts of that official are attributed to the State itself in public international law.67
10.35 Dr Cremades seemed hesitant, however, to conclude outright that States are responsible for public official corruption—he added that ‘[t]here is an issue as to whether it is possible to distinguish between the official’s act (such as issuing a license or consent, or awarding a contract) and the official’s dishonesty for the purposes of attribution’.68
10.36 This observation approaches the essence of the uncertainties surrounding State responsibility for corruption, but does not fully capture it. The issue does involve the question of whether ‘the official’s dishonesty’ (i.e. his/her corrupt conduct) can be attributed to the host State; clearly illegal acts, even when done by artifice, are attributable to the State as a basic canon of State responsibility. In the same vein, perhaps the more nuanced question is whether such ‘dishonesty’ can be considered so removed from the ‘official’s acts’ as to be considered wholly private and thus not attributable to the State. Another question that bears consideration is whether corruption is by its nature a singular substantive category of illegality under international law that necessitates the development of special rules on attribution that modify the generally applicable principles.
10.37 Corruption is not distinctive because it is uniquely pathological behaviour—one can readily identify illegalities that are more overtly disruptive of world public order such as genocide, crimes against humanity, unlawful use of force, piracy—in other words, peremptory norms that have achieved the status of jus cogens—of all of which are capable of engaging State responsibility in addition to individual criminal responsibility.69 Nor is there any serious question that corruption is capable in some instances of being subject to principles of State responsibility, as seen with corrupt solicitations/extortion originating from a public official directed against a foreign investor, which would engage the responsibility of the host State both as a violation of international anti-corruption norms and as a violation of the fair and equitable treatment standard.70
10.38 The cases surveyed suggest that the degree to which corruption has been a truly bilateral undertaking is decisive: if corruption were only attempted through solicitation/extortion by the public official or an offer made by the investor (or intermediary) that was not accepted, corruption would potentially engage the international responsibility of States. However, if a bribe was consummated (i.e. a quid pro quo freely paid and freely received by the private (p. 256) investor and public official), the picture alters dramatically: investors would not be allowed any arbitral recourse, as corruption participated in by its agents (whether employees or third-party intermediaries) would be attributable to the investor. However, host States would not be subject to similar responsibility, as the corruption of their public officials would not be attributable to them. Unpacking the basis of this asymmetry requires an analysis of the constitutive elements of State responsibility.
1. The framework of State responsibility
10.39 The Articles on State Responsibility lay out a progressively detailed set of provisions detailing the elements that lead to, preclude, or otherwise affect the responsibility of States for internationally wrongful acts. Having been completed essentially in draft treaty form, the ILC Articles may lead some to the conclusion that these rules are less evolutionary developments of international law and more a codification of customary principles on State responsibility, an impression that is mistaken and that the ILC itself would certainly not endorse.71 Nonetheless, the ILC Articles have largely been adopted in their entirety as applicable to all forms of international dispute resolution, and international investment arbitration has been a strong consumer of the Articles,72 applying it to questions of attribution of local government acts, judicial acts, acts of government-owned corporations or private individuals, often without engaging in an inquiry into the customary status of particular rules.
a. Elements of an internationally wrongful act of a State
(i) is attributable to the State under international law; and
(ii) constitutes a breach of an international obligation of the State.
10.42 The schematic of the ILC Articles resembles the order of a civil code. A series of questions are asked, requiring affirmative answers for State responsibility to attach: first, is the act in question attributable to the State? And second, is the act complained of a breach of an international obligation?
10.43 The commentaries do not suggest that the enumeration sets a hierarchy of importance between these two elements, and there may well be good reason to begin an inquiry on State responsibility by ascertaining the true scope of the principle of international law on which the supposed breach occurred (i.e. the ‘primary rule’), given the fact that the content of the substantive principle often has implications upon the question of attribution.73 The order of the ILC Articles suggests, however, that attribution is the natural initial point of inquiry. This is consistent with the International Court of Justice’s jurisprudence: in the Diplomatic and Consular Staff case between Iran and the United States, the Court stated that in order to establish State responsibility, ‘[f]irst, (p. 257) it must determine how far, legally, the acts in question may be regarded as imputable to the Iranian State’. Following this, ‘it must consider their compatibility or incompatibility with the obligations of Iran under treaties in force or under any other rules of international law that may be applicable.’74
10.44 From this basic test for determining whether or not States bear responsibility, there are two possible reasons as to why States might not be responsible for corrupt acts performed by public officials (called ‘State organs’): either (1) the attribution rules relating to corruption are different from other substantive areas; or (2) the ‘primary rule’—substantive international anti-corruption law—does not punish host State corruption, extending only to the corrupt acts of foreign investors. The succeeding sections test both propositions.
b. Attribution in cases of corruption
10.45 The incorporeal nature of the State means that it can only act through its agents. Modern States are large, Weberian bureaucracies; but under international law, this multitude of activity is considered to be performed by a single international actor: ‘[f]or the purposes of the international law of State responsibility,...[t]he State is treated as a unity, consistent with its recognition as a single legal person in international law.’75 The term of art used in international law for the attachment of a given action to a State is attribution (or, with waning frequency, imputation),76 which is ‘a basic notion in the concept of State responsibility and is fundamentally linked with the juridical concept of State in international law’.77 It is the legal operation by which the conduct of a range of entities under national law is treated as conduct of an international law entity, the State.78 The rules on attribution are vitally important to international law because, in the words of Professor Crawford, they distinguish the ‘State sector’ from the ‘non-State sector’ for purposes of responsibility.79
10.46 The question of agency, that is, whose conduct is attributable to the State—particularly which public officials or private individuals’ unlawful acts can bind the State—is the focus of much of the first part of the Articles on State Responsibility. For the international responsibility of a State to arise, the conduct in question must be attributable to the host State under the rules set out in Articles 4 to 11 of the ILC Articles. In some cases, as with State organs under Article 4, all the conduct of such organs is attributable to the State, whether or not it is characterized as conduct jure imperii or jure gestionis. In other cases, as with separate entities exercising elements of governmental authority under Article 5, only certain conduct is so attributable.80 In principle, attribution does not involve any piercing of the corporate veil—although that may be called for (p. 258) in specific cases. Nor does the process of attribution redefine the State in terms of its own internal law: who represents the State domestically may be different from who does so in international law.81
10.47 On first impression, corruption should not have any particular problems fitting within the ILC Articles’ internal logic on attribution. Under Article 4, the conduct of any State organ is considered an act of that State, ‘whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of that State, and whatever its character as an organ of the central government or of a territorial unit of the State’.82 The Articles provide stringent rules on attribution for persons who are not organs of the State—such persons must ‘in fact [be] acting on the instructions of, or under the direction or control of, that State in carrying out the conduct’.83 For State organs, however, their identity as such already means that their actions presumptively bind the State, and no demonstration that they are in fact in possession of instructions or powers from the State is necessary for international responsibility to attach.
10.48 Attribution under the law on State responsibility is markedly different from other areas of international law. Under the law of treaties, for example, the power of a public official to bind a State to a treaty or contract is dependent on their ability to produce the appropriate ‘full powers’ before that official can be said to represent the State (although even here, high public officials such as Heads of State, Ministers of Foreign Affairs, or Ambassadors to the counterparty State are considered to have such power and need not provide ‘full powers’).84 Under the law on State responsibility, however, the principle is that responsibility is engaged for internationally wrongful conduct, regardless of the level of administration or authority from which such conduct emanates.85 Thus, the law on international responsibility is much more inclusive—any of the individual or collective entities that make up the State and act (p. 259) on its behalf are organs of that State under the Articles.86 No meaningful distinction is made between ‘superior’ and ‘subordinate’ officials, so long as they are acting in their official capacities.87 Were such a distinction to be made, a serious element of uncertainty would be introduced in international relations.88
2. Corruption and attribution under the law of State responsibility
10.49 While many of the rules on attribution are straightforward, it is this scope of what can be considered acting in an ‘official capacity’ that often vexes when applied to transnational corruption. Conceptually, corruption of the type relevant to investment arbitration will involve a public official utilizing his public authority to provide benefits to an investor for the official’s private gain. To a lay person, that public official’s actions would not be considered acting ‘officially’ because of the illegal—and clearly personal—motive involved. However, if it is true that the nature of corruption is such that the State should not be liable for the illegal acts of its officials that benefit the latter privately, that same logic would apply for agents of foreign investors as well—it is possible that local country managers might be using bribes to obtain government contracts without culpable knowledge on the part of ‘headquarters’, and thus operate outside the scope of their mandate. Indeed, some national laws would presume that in a bribery situation, such agents act as falsus procurator and thus outside the scope of their mandate.89
Excess of authority or contravention of instructions. The conduct of an organ of a State or of a person or entity empowered to exercise elements of the governmental authority shall be considered an act of the State under international law if the organ, person or entity acts in that capacity, even if it exceeds its authority or contravenes instructions. (emphasis supplied)
10.51 Article 7 serves a practical purpose: without this form of deemed attribution, State responsibility for unlawful acts as a whole would not occur, as it would be all too easy for States to claim that a particular act of one of its organs could not be attributed to it for violating its national laws.91 Indeed, the rule evolved precisely in response to the need for clarity and security in international relations.92 States thus cannot take refuge behind the idea that: ‘the organ or entity in question has overtly committed unlawful acts under the cover of its official status or has manifestly exceeded its competence. It is so even if other organs of the State have disowned the conduct in question.’93
10.52 Article 7 has direct bearing upon corruption—States regularly invoke anti-corruption laws and consequent ultra vires arguments in stating that States cannot be held liable for corrupt practices. The law on State responsibility would not permit such arguments to succeed per se: ‘a State will be responsible even for ultra vires acts of its servants, that is to say, even when they acted beyond their powers. Indeed, one can go further and say that, if an organ of State, or public servants of States, acted in a way expressly forbidden by the State and which violated international law, the State would still be responsible for that wrongful conduct.’94 By this standard, the specific World Duty Free holding that a Head of State’s corrupt actuations are not attributable because that act was in violation of Kenyan law95 would not have been sustained in international law, had the law on State responsibility been applied.
10.53 As an example of how the various forms of corruption may be treated by the rules on attribution, the Caire case is illustrative. In that case, Mexican officers sought and failed to extort money from a French national; the latter was murdered in the local barracks. The Commission found that the responsibility of Mexico had been engaged by virtue of the acts (p. 261) of the two officers even if they acted outside their competence and violated the orders of superiors, ‘since they acted under cover of their status as officers and used means placed at their disposal on account of that status’.96 In the same vein, in situations where public officers solicit or extort bribes from investors (such as the allegations in EDF v. Romania), such corrupt attempts would, if proven, engage the responsibility of the host States.
10.54 Because of the absence of agreement between the two sides, bribe solicitations and extortion by public officials are truncated forms of corruption that are relatively ‘easy’ to analyse—there are no questions of equal culpability and ‘clean hands’ to complicate the direct application of attribution rules for ultra vires acts. However, corruption is, of course, an expansive term97 that encompasses various other modalities even when limited to the area of transnational investment—corruption incidents can occur at the inception of an investment or at some point in the life of that investment, can be proposed by an unprincipled investor or extorted by rapacious public officials of host States, and can involve agents and intermediaries on both sides that complicate the analysis of the degree of agency and independence by which these actors were operating. In reality, transnational corruption is often a messy and disconcerting combination of many of these elements wherein no side is blameless.
10.55 The more difficult incidents to consider arise when freely consummated corruption is alleged at the inception of the investment. It can be argued that this modality of corruption falls outside both the real and apparent authority of the public official, such that the public official cannot be considered as having ‘act[ed] in that capacity’, in the words of Article 7. Indeed, the ILC Commentary emphasizes that while the case law consistently finds responsibility for ultra vires acts, these must be distinguished from circumstances where the conduct of those public officials is so far removed from the scope of their official functions that such acts should be considered private in nature.98 Thus, only ultra vires ‘official’ conduct is attributable to the State.99 Earlier versions of the Articles are instructive, as they articulated this distinction between ultra vires acts and purely private acts with greater clarity—in Rapporteur Roberto Ago’s draft Article 10(2), for example, it stated: ‘[h]owever, such conduct is not considered to be an act of the State if, by its very nature, it was wholly foreign to the specific functions of the organ or if, even from other aspects, the organ’s lack of competence was manifest’.100
10.56 The fact pattern of freely consummated corruption is particularly difficult to parse through these general principles of attribution because both the acts performed (and indeed the (p. 262) actors themselves as agents for their principals, the investor and the host State) operate at two levels. The first is the level publicly visible, at which governmental action or approvals are taken. The public act would, under ordinary attribution analysis, be clothed with real or apparent authority as the official is, in the words of Article 7, a person in authority who ‘acts in that capacity’, even if the motivation behind such acts were illicit—such a public official acting with corrupt motives would nonetheless be ‘cloaked with governmental authority’, in the words of the Iran-United States Claims Tribunal, and thus engage the State’s responsibility.101
10.57 However, the second, veiled aspect of consummated corruption is the agreement of the two sides to exchange cash (or some other form of consideration) for some government action or inaction. While attribution is still triggered when public acts are motivated by those officials’ desire for private gain (see Article 7), what is not so easily severable is the complicity of the investor in tainting the public act with corrupt motivations. Both public power and private interests intermingle very closely in such instances—indeed, no bribe would have been paid unless the public official did have authority to bind the State or act on behalf of the State to perform an act beneficial to that investor. Private gain could be the motivation for a public official to perform an otherwise entirely legal, and therefore not strictly ultra vires act (but for the quid pro quo aspect) or exercise discretion in a manner that would not be unduly harmful to the host State (at least in purely economic terms). Thus the external exercise of public power can be entirely legal (and even beneficial to the public interest in terms of having large-scale infrastructure projects proceed to construction and operation), leaving only the secret corrupt motivation as the primary taint upon the investment. A subjective element is thus brought into the inquiry, as attribution would involve a determination of whether the investor knew that the public official was acting unlawfully. This logic seems defensible and perhaps even preferable in the archetypal (and often mythical) case of the ‘bad’ investor who enters into the host State with the intention of corrupting its way into lucrative contracts with a host State; but such a clear delineation between the ‘active’ corruptor and the ‘passive’ corrupted is rare in the real world.102
10.58 In other situations of international responsibility, it is not uncommon for the injured party to know that the public official of another State is acting unlawfully at the time that act is being committed, as for example when an illegal act of expropriation is occurring. So knowledge of illegality by the other party is not enough; it is the participation of the investor in corruption that may explain the difference. This participation even after full knowledge that the public official is acting with private enrichment in mind arguably negates the application of ordinary attribution rules, at least with respect to the bilateral relationship between investor and host State, as the investor would know that the public official was not ‘act[ing] in that capacity’ (see Article 7) and could thus not be engaging in an act of State. Corruption (p. 263) that would ordinarily have been subject to the attribution-for-ultra vires-acts doctrine would thus be precluded in the case of the investor.103
One form of ultra vires conduct covered by article 7 would be for a State official to accept a bribe to perform some act or conclude some transaction. The articles are not concerned with questions that would then arise as to the validity of the transaction (cf. the 1969 Vienna Convention, art. 50). So far as responsibility for the corrupt conduct is concerned, various situations could arise which it is not necessary to deal with expressly in the present articles. Where one State bribes an organ of another to perform some official act, the corrupting State would be responsible either under article 8 or article 17. The question of the responsibility of the State whose official had been bribed towards the corrupting State in such a case could hardly arise, but there could be issues of its responsibility towards a third party, which would be properly resolved under article 7.105
10.60 The Commentary sheds light on the drafters’ intent concerning the attribution of a corrupt public official’s acts upon the State, but does so perhaps a little too concisely, meriting a close reading. The first sentence states that a public official’s acceptance of a bribe falls within the category of ultra vires acts covered by Article 7, suggesting that a State’s responsibility is engaged when its public officials accept a bribe. The Commentary then affirms that contractual or conventional liability is not to be conflated with responsibility, which is an entirely separate matter under international law—invalidation of a treaty does not necessarily negate some form of non-contractual international responsibility.106 By implication, (p. 264) therefore, responsibility does attach in principle to the State whose public officials engage in corruption.
10.61 Then, after acknowledging that ‘various situations could arise’ regarding responsibility for corrupt conduct ‘that are not necessary to deal with in the present [A]rticles’, the Commentary considers two hypotheticals: first, when one State bribes an organ of another to perform some official act, the corrupting State is deemed responsible.107 The second hypothetical, more essential in investment arbitration decision-making (and an analogue to the World Duty Free fact pattern), generates less straightforward answers: the question of the responsibility of the host State whose official had been bribed ‘could hardly arise’—a noteworthy comment given the occasions where such questions of responsibility have arisen and been put squarely at issue (and will continue to be so put) in the case law.
10.62 Nonetheless, the Commentary’s apparent obviation of responsibility on the part of the State whose public official was bribed is limited ‘towards the corrupting State’. The Commentary then states that for third parties (who are presumably not aware of the corruption), the bribed public official’s acts would potentially be attributable to the State itself, as the question ‘would be properly resolved under article 7’, i.e. the rule on State organs acting in excess of authority or contravention of instructions. In this manner, it seems that for the ILC international responsibility for corruption is both situational and relational. For the State whose public official received the bribe and performed public acts pursuant to it, the trigger for responsibility lies in whether the party invoking State responsibility had participated in the corrupt act. The corrupt official’s acts are not attributable to the State if the entity invoking such responsibility had participated in the corrupt conduct; for third parties, however, the State’s international responsibility can be triggered.
3. Corruption as a ‘breach of an international obligation of the State’
10.63 One reason for continued disquiet about having rules on attribution be the sole reason for absolving the host State from international responsibility for the corruption of its public officials is that in so doing, corruption appears to carve itself out of the application of the foundational principle that organs of a State engaged in unlawful acts necessarily engage the responsibility of that State. As observed by Judge Higgins, the very fact that the organ is an emanation of the State is sufficient, and makes it unnecessary to show any fault or malice on the part of ‘the State’.108 However, this doctrine is premised on the presence of a basic (p. 265) building block of international responsibility—the presence of a breach of an international obligation of the State.
10.64 Often, State responsibility is discussed in the case law as if the question of attribution is the beginning and end of the analysis. However, as a normative matter, attribution is only the first of the two elements that lead to international responsibility. The rules on attribution only establish whether or not there is an act of State for purposes of responsibility; the legality of such conduct must still be examined.109 Even assuming that the ultra vires or domestically unlawful corruption of a public official is ultimately attributable to the host State, the question of whether such conduct amounted to a breach of an international obligation would still remain. In some cases, rules on attribution may be wholly dependent on the nature of the substantive rule itself, providing a level of specificity that would override the general principles found in the Articles. Given the level of abstraction in which the Articles on State Responsibility were purposely drafted,110 no attempt was made to craft rules dealing with specific substantive areas of international law. Instead, a general rule on ‘primary’ obligations was laid out: anyone seeking to engage the responsibility of a State for a particular act attributable to it must demonstrate that a violation of a principle of international law occurred.
10.65 The question of whether the host State is responsible for the corruption of its public officials can thus be viewed as matter of renvoi to the content of the substantive, ‘primary rule’ itself, i.e. whether international anti-corruption norms preclude the attachment of responsibility to host States and only attach individual responsibility to public officials. In other words, does contemporary international law only ascribe wrongfulness to three of the four principal participants to corruption in foreign investment, i.e. to the ‘supplier’ of the bribe (whether that be an intermediary, an officer, or any agent of the investor), to the ‘demander’ of the bribe (the venal public official), and to the foreign investor for whom the ‘supplier’ was acting, but never to the host State itself? As discussed earlier, attribution would ordinarily occur for unlawful ultra vires acts of public officials, but limitations in the content of the primary rule itself may be one way to explain why attribution does not often attach.
10.66 Of course, there is no doubt whatsoever that corruption is proscribed under international law. Entire multilateral conventions have been dedicated to combating foreign bribery and other corrupt practices, and all contemporary States’ formal laws prohibit different modalities of corruption (although it should be recognized that the ability to say so unequivocally is relatively recent—the example often invoked is that Germany continued well into the 1990s to allow its companies operating abroad to claim bribe payments as legitimate tax-deductible expenses). The content of the proscription is less precise, however. It is true that one of the pillars of international anti-corruption norms, the OECD Anti-Bribery Convention, is focused exclusively on the criminalization of the offer or payment of a bribe to foreign public officials,111 virtually ignoring the other side of the corruption equation—the acceptance of (p. 266) that bribe by the public official. Is it possible that substantive public international law on corruption itself is the issue? That only the ‘supply’ side of bribery—the bribor or provider of the cash component of the corrupt act (inevitably the investor)—has crystallized into customary international law, but not the ‘demand’ side, i.e. the government official who is the recipient of the corrupt act?
10.67 Much can be said about the largely de lege ferenda nature of many international anti-corruption norms and the continued lack of effective international control mechanisms for combating transnational corruption as indications that States remain disturbingly unserious about the issue.112 That said, it is unlikely that international anti-corruption norms do not extend to the proscription of public officials receiving bribes. In World Duty Free, for example, the tribunal noted ‘that bribery or influence peddling, as well as both active and passive corruption, are sanctioned by criminal law in most, if not all, countries’.113 One manifestation of the opinio juris on anti-corruption is the U.N. Convention Against Corruption, which was intended to be a comprehensive anti-corruption framework for the entire international community. The Convention requires States to criminalize both the ‘promise, offering or giving, to a public official, directly or indirectly’, and importantly, ‘the solicitation and acceptance by a public official, directly or indirectly, of an undue advantage’.114 The treaty then goes on to require the State Party to enact laws and other measures to prevent ‘embezzlement, misappropriation or other diversion of property by a public official’,115 and the ‘abuse of functions or position, that is, the performance or failure to perform an act...by a public official...for the purpose of obtaining an undue advantage...’.116 While the OECD Anti-Bribery Convention and the UNCAC oblige signatories to consider corruption a criminal act and to enact penal legislation in their States, the act of making corruption and international crime (p. 267) subject to individual criminal responsibility would not negate State responsibility. The law on State responsibility does not differentiate between ‘civil’ and ‘criminal’ responsibility; in that sense, it is an undifferentiated regime.117
10.68 Whatever vagaries there may be in the content of international anti-corruption law, it is almost inconceivable that an arbitral tribunal would sanction the idea that international anti-corruption norms would not extend to a prohibition of public official corruption. Corruption is an area where law and morality comingle and are manifested in passionate ‘crusades’ where zero-tolerance is formally professed but often not practised, and where blackletter laws will not countenance any nuancing of serious acts of corruption,118 perhaps more so when the ‘foreign’ aspect of transnational corruption is involved in developing countries, with all its latent colonial connotations. Moreover, awards of investment arbitration tribunals are subject to some form of review (in the case of UNCITRAL Rules investment arbitrations, for example, review would arise both in the national courts in the place of arbitration and the courts of the place of enforcement under the New York Convention), and it is difficult to imagine any court sanctioning anything less than a blanket proscription of public official corruption as a matter of public policy.
10.69 Thus, rather than any proscription of public official corruption, the more pertinent and nuanced inquiry would be whether international anti-corruption norms include a specific rule of attribution that would limit the application of anti-corruption norms to the public official and not ascribe responsibility to the host State itself. Indeed, there is a certain degree of artificiality in concluding that host State corruption is not attributable under the ‘secondary’ rule on attribution embodied in Article 7 of the ILC Articles, when in reality it is the ‘primary rule’ itself—the particularities of transnational corruption that necessarily affect the content of international anti-corruption law, including in the area of attribution—that creates the ‘lex specialis’ rule on attribution that operates as an exception to the general rule.119 After all, rules of attribution operate not in a vacuum, and only find meaning when embodied within the reality that is meant to be regulated by ‘substantive’ international law areas such as corruption.
10.70 International law provides scant guidance in this regard one way or another—there are only isolated instances where international instruments have impliedly attributed international responsibility for public official corruption upon the State, obliging compensation for those (p. 268) who have suffered damage.120 It is possible that the general principles of attribution under the ILC Articles cannot be resorted to, having been supplanted by the ‘primary’ rules of substantive international anti-corruption law. However, as yet, there seems to be no articulation of any special rule of attribution in cases of anti-corruption law—at best, the principle hinted at in a handful of cases such as SPP v. Egypt and World Duty Free; but the authorities relied upon in those cases are not of public international law provenance.
4. Situational responsibility: the critical roles of consent, waiver, and acquiescence
10.71 Regardless of whether specific forms of corruption are or are not attributable to the host State under the ILC Articles or because international anti-corruption norms include a special rule on the attribution of public official corruption to the host State, the law on State responsibility recognizes that under specific circumstances, the investor’s own actuations may preclude it from attaching wrongfulness to the host State, or at least deprive the investor of the right to invoke the host State’s international responsibility. This situational aspect to State responsibility is highly relevant in an area where the law is as fact-specific as anti-corruption. The phrase ‘breach of an international obligation of the State’ in Article 2(b) was chosen deliberately by the ILC instead of a breach of a principle of international law, as ‘what matters... is not simply the existence of a rule but its application in the specific case to the responsible State’.121 Within the architecture of the law on State responsibility, the factors that can affect the attachment of responsibility in specific instances of corruption include the concepts of consent, waiver, and acquiescence.
10.72 To examine the possible role consent might play, the ILC Articles are a good place to start. Chapter V (entitled ‘Circumstances Precluding Wrongfulness’) contains six circumstances—consent, self-defence, countermeasures, force majeure, distress, and necessity122—that preclude a finding of wrongfulness for acts that would otherwise be violative (p. 269) of a State’s international obligations. The presence of any of these circumstances in a specific case operates to shield States from responsibility for breaches of international obligations—as stated by the ICJ in Gabchikovo-Nagymaros, where Hungary argued that where a state of necessity was attendant, ‘the existence of a circumstance precluding wrongfulness does not annul or terminate the obligation or that those obligations had ceased to be binding [...]. It would only permit the affirmation that, under the circumstances, Hungary would not incur international responsibility by acting as it did.’123 Indeed, some scholars consider that the absence of circumstances precluding wrongfulness constitutes de facto a third essential element (along with attribution and breach) of an internationally wrongful act.124
Valid consent by a State to the commission of a given act by another State precludes the wrongfulness of that act in relation to the former State to the extent that the act remains within the limits of that consent.
10.74 The conceptual underpinnings of consent as a circumstance precluding wrongfulness have been called into question by scholars.125 If a party consented to what would otherwise be an internationally wrongful act, could that act be called wrongful in the first place? It stands to reason that derogation of such nature should be conceived within the ambit of international agreements rather than responsibility. As stated by one scholar, ‘if there was consent there was no injured State, because there was no wrongful act’.126 Put another way, when consent occurs, the primary rule itself is modified by the bilateral agreement of the parties, and no international substantive obligation is breached in the first place. Consent becomes as such an aspect of the international obligation itself—there is no ‘wrongful act’—and it is not necessary to resort to any secondary rule under the Articles on State Responsibility to preclude the wrongfulness of the act.127
10.75 In principle, nothing stops a State from freely consenting to a corrupt act—consent is, after all, the basis of all international rights and obligations, and States routinely consent to acts that would otherwise be unlawful (e.g. allowing commercial planes to fly over their airspace). Indeed, corruption itself has sometimes been used by States as a tool to further national security objectives, and exceptions to leading national anti-corruption statutes such as the U.S. Foreign Corrupt Practices Act confirm this explicitly.128
(p. 270) 10.76 However, the validity of ‘consent’ given by public officials for violations of international law will depend on the rule in question.129 In the case of corruption, of course, there is a longstanding presumption in law that, as in cases of fraud and coercion, consent given by this means is vitiated consent.130 The Articles point to this need to refer to rules outside the law on State responsibility by qualifying that the consent given must be ‘valid’; in this sense, validity of consent is conceptually separate from the attribution of consent.131 One would not therefore be able to simply say that the host State is deemed to have consented to the corruption of its public officials because unlawful acts would be attributable under rules on State responsibility.
10.77 There is also the temporal aspect to consider—the expression of consent should be made in advance of or contemporaneously with the act, which would effectively preclude the coming into being of a claim. Consent given after the wrongful conduct occurred is more properly conceived as an expression of waiver or acquiescence that leads to a subsequent loss of the right to invoke responsibility instead of a circumstance precluding the wrongfulness of such an act ab initio.132
10.78 The upshot is that ‘consent’ within the contemplation of the Articles will probably not find any application in the case of corruption, as there is little difference between the law of treaties (and national contract law) and that of State responsibility in that ‘valid’ consent will always be necessary. In any event, there is little practical likelihood that any public official would contemporaneously and expressly consent to any official act where corruption tainted the official commitment. Rather, the trigger for modulating or negating State responsibility for corruption lies in the dutifulness of the State in minimizing the possibility for such corruption to occur or in punishing corruption once it does. These involve important questions of waiver and acquiescence.
10.79 Investors often decry the ‘unfairness’ of having to absorb all the adverse consequences of a corrupt act that both it and a high public official had participated in and ‘consented’ to (especially if bribe payments occurred within the milieu of a kleptocratic government-dominated investment environment in which the investor was ‘forced’ to play a part, a common lament (p. 271) by foreign investors doing business in poor but resource-rich countries). However, it is not the ‘consent’ articulated in Article 20. Funnelling that sentiment within the strictures of the law on State responsibility requires an examination of the waiver and acquiescence principles embodied in Article 45 of the Articles:
(a) the injured State has validly waived the claim;
(b) the injured State is to be considered as having, by reason of its conduct, validly acquiesced in the lapse of the claim.
10.81 Consent, waiver, and acquiescence can be conceived as increments on a scale from the strongest and most explicit expression of adherence (consent), to an expression of adherence that may be explicit or slightly less so, but done voluntarily and unequivocally (waiver),133 to a failure to invoke a right in a timely manner, which is more of a sin of omission than commission (acquiescence). Even if waiver and acquiescence appear less formal, Article 45 makes clear that these acts/omissions must be ‘validly’ made—waivers would not be validly made if done on the basis of a material error or misrepresentation that taints the ability of the State to waive its rights knowingly and freely.134
10.82 The consequences of waiver and acquiescence in all legal systems are identical—the loss of a right, claim, or defence. In the realm of State responsibility, these principles entail the loss of the right to invoke international responsibility, including claims for cessation, non-repetition, or reparation.135 While some domestic systems would consider waiver and acquisition as having only procedural effects, under international law, these concepts have developed a different import, and constitute substantive principles that affect the ability to raise the matter of responsibility.
10.83 In the case of corruption, principles of waiver and acquiescence can go both ways: for the host State, a claim that corruption existed at the time the investment was made, depriving the tribunal of jurisdiction to hear the case in its entirety, is an affirmative defence that can be likened to assertion of a legal right. As such, the investor would potentially be able to respond that the host State has either waived the right to make such a claim or had acquiesced in the corrupt act. On the other hand, the host State would likely invoke waiver or acquiescence corruption as a response to investor claims that the host State’s public officials had solicited or extorted bribes from the investor, a far less frequent occurrence based on the case law surveyed.
10.84 Waiver may be defined as the voluntary renunciation of a right or claim, and reflects the long-held maxim volenti non fit iniuria (‘to a willing person, injury is not done’).136 Parsing (p. 272) the concept of waiver leads to the identification of six requirements;137 for purposes of corruption, however, one can stop at the requirement that a declaration be made, as it would be a very rare occurrence indeed for any public official having full knowledge of a corrupt act to openly declare that the State is willing to renounce its claim. Instead, any such voluntary act would more likely be inferred from conduct rather than be express, and implied waiver would in practice be difficult to distinguish from conduct amounting to acquiescence. In this sense, waiver and acquiescence are cognate concepts,138 with the latter bearing more practical application in the area of corruption.
10.85 A period of passivity even after having known of the corruption of erring public officials may be grounds for depriving a host State from putting forth a defence based on the corruption of the other party on grounds of acquiescence. Article 45(b) emphasizes the ‘conduct’ of the State, ‘which would include, where applicable, unreasonable delay, as the determining criterion for the lapse of the claim’.139 Such conduct can include, and indeed often centres on, the inaction of a State that leads to the loss of a right or claim if, under the circumstances, that State could reasonably be expected to act in a certain manner.140 Because acquiescence is essentially a matter of inference, general principles such as good faith and equity form its basis, as with another related principle—estoppel.141 In practical terms, this would potentially mean that in international arbitration proceedings, a finding of acquiescence or waiver implied by conduct may lead a tribunal to rule that the host State’s corruption-based defences are to be considered abandoned. The International Court of Justice has recognized the possibility that delay in a State’s making of a claim may render it inadmissible.142
10.86 Acquiescence is a well-developed substantive area of international law that can often affect matters as important as sovereignty itself: international courts and arbitral tribunals have repeatedly found that the non-action of one State in the midst of acts of effectivité by another can lead to the latter State acquiring sovereignty over the territory in question.143 Other areas of international law recognize that the legal effects of corruption can be altered through acquiescence: under the law of treaties, for example, corruption in the making of the treaty is one of the express grounds (p. 273) for invalidating that treaty. However, the instrument can remain valid if a State, ‘by reason of its conduct [can] be considered as having acquiesced in the validity of the treaty or its maintenance in force or in operation’.144 Some might ask whether acquiescence or waiver is even possible in the case of corruption; but even the most liberal statement of the international law against corruption has not elevated such to the category of norms from which no derogation is permitted,145 whether by active consent or through acquiescence.146
10.87 Acquiescence may complicate a host State’s ability to invoke corruption as a complete defence against an investor’s claims when the State’s public officials (usually comprising a successor government) are made aware of the corruption of a public official but take no effective steps to prosecute those officials. Such inaction can be viewed by a tribunal as disinterest at best and complicity with corrupt acts at worst. In a number of investment arbitration decisions, the failure to prosecute or punish illegal acts by the host State seems to have played a role in the tribunal’s refusal to entertain defences of corruption or other forms of illegal conduct. In SPP v. Egypt, the tribunal highlighted Egypt’s refusal to implicate particular officials to the alleged corrupt acts as a reason for not entertaining its ‘repeated allusions’147 to corruption. Similarly, in Wena v. Egypt, Egypt’s failure to prosecute alleged corrupt officials made the tribunal ‘reluctant to immunize Egypt from liability’.148 And in Fraport v. Philippines, although corruption issues were not decided upon expressly by the tribunal (primacy was given to violations of national ‘anti-dummy’ legislation), that case is also notable for the original tribunal giving due regard to estoppel, recognizing that such could occur when the violation of law is knowingly overlooked by the host State.149 Fraport is thus an instance where the findings of prosecutors of the host State concerning alleged violations of domestic law played a prominent role in the proceedings.150
(p. 274) 10.88 World Duty Free is in some sense the antithesis of the acquiescence principles already discussed, as Kenya was permitted to invoke corruption as a defence notwithstanding the fact it had not, at that point, sought to prosecute former President Moi. (Indeed, for all the good it has done for international efforts to combat corruption, this is perhaps the main area where the case can be criticized.) The fact that the bribe was apparently solicited by the President himself (not having been initiated by the claimant), and, relevantly, that no proceedings to prosecute former President Moi or recover the bribe were initiated by Kenyan authorities even after they were made aware of the bribe paid, were ‘highly disturbing’ to the tribunal,151 which expressed some sympathy with the investor’s cry of unfairness.152 Nonetheless, the tribunal did not give any mitigating legal effect to the Kenyan government’s inaction. The justification for finding that Kenya had not ‘affirmed or waived’ corruption was that actual knowledge of former President Moi’s corruption only occurred during the arbitration, when the investor’s CEO freely admitted to paying US$2 million to President Moi over 13 years after the bribe was actually paid, and that ‘there is no warrant at English or Kenyan law for attributing knowledge to the state (as the otherwise innocent principal) of a state officer engaged as its agent in bribery’.153 For this reason, the World Duty Free tribunal did not sustain the investor’s acquiescence and estoppel arguments.
10.89 World Duty Free is a unique precedent because of the free admission of the facts constituting the bribe; that admission was taken by the tribunal to be the point at which the bribe was made known to Kenya. The short lapse of time between the revelation of the bribe in the arbitration and the arbitral decision was one reason why the tribunal thought that waiver or ‘affirmation’ could not have occurred. Under the law on State responsibility, however, the key temporal point is failure to assert a claim when a State would be expected to do so, which is not always the point of actual knowledge. And while a certain period of time is often required to elapse before acquiescence arises, no fixed time limits exist and even a short period can be sufficient if the failure to act occurs when the violation was clear to the State.154 When a successor government becomes aware of the corruption of past public officials and invokes corruption as an affirmative defence, it is only fair that the host State, from that point at least, be held to account for what they have not done in pursuing corruption.
10.90 The possibility that future investors will freely admit to corruption in an active arbitration is low, so any future invocations of corruption as a defence are likely to occur because the host State will by necessity have on their own been well aware of the corruption they allege. By the (p. 275) time the State invokes corruption as a defence against host States, it would presumably have had knowledge of the corrupt act and could thus be placed in a position where it could, through inaction, be deemed to have waived or at least acquiesced to the corrupt act complained of. It would be legitimate in those occasions for tribunals to ask whether concrete prosecutorial steps were taken to punish these public officials—this is perhaps the strongest way for the host State to demonstrate that it did not, through its conduct, acquiesce in the wrongful act.
10.91 One important criterion concerning the doctrine of acquiescence is that legal effects only attach to a failure to act when a State did not assert a claim in circumstances that would have required action.155 Clearly, such circumstances encompass the failure of a State to fulfil its duty to prosecute public officials known to have engaged in corruption, a duty found primarily under national anti-corruption legislation but also under international anti-corruption norms derived from international treaties, which require domestic anti-corruption legislation and diligent enforcement of those laws. The failure to take effective steps to curb corruption is arguably part of the corpus of international anti-corruption law—the OECD Anti-Bribery Convention and the U.N. Convention Against Corruption both require legislation and the taking of active measures to curb corruption, including by criminal prosecution of suspected public officials. Omissions are no less the basis for State responsibility than acts,156 either because an omission can be attributed to the non-acting State, or because the primary rule itself requires a positive obligation for compliance. Inaction in pursuing corruption can thus be considered a separate violation of international law engaging international responsibility.
10.92 That said, principles of acquiescence do not require the existence of a positive principle in international law that corrupt public officials must be prosecuted. No ‘primary rule’ on prosecution is necessary to lead a tribunal to a finding that, under the circumstances, the host State has lost its ability to invoke corruption against the investor. Failure to prosecute corruption would thus arguably be both a violation of substantive national and international law as well as a form of acquiescence under the law on State responsibility, and the question of whether public official corruption is attributable to the host State would be less relevant, as both could stand independently. Even under the theory (discussed in the previous section on attribution) that the corrupt actuations of a high public official such as a Head of State cannot be attributed to the host State because of the self-evidently private nature of the transaction, the host State would continue to be obliged to prosecute corruption. After all, responsibility can arise from the failure of a State to prevent or redress an internationally wrongful act that was not initially attributable to that State.157
10.93 The law on State responsibility was intended to form the bedrock of public international law: whereas the primary rules of State conduct—the States’ pacta or the substantive rules (p. 276) of customary international law—would be subject to progressive development to reflect the changing needs of the international polity, the law on State responsibility was meant to be the durable and stable set of principles by which the interaction of States would be regulated.158 In the area of transnational corruption, however, the attainment of such stability on the basis of the rules on State responsibility is still very much an aspiration. Much of this can be traced simply to the fact that State responsibility for corruption has been the subject of so little reflection in the case law and scholarship. As considered in this chapter, there have been very few authoritative statements of what the law is on this matter—less than a handful of international investment arbitration decisions have even contemplated the extent to which host States can or should be held responsible for the corruption of their public officials; and one of the only cases that did so—World Duty Free—approached the question of responsibility and attribution solely from the perspective of national law.159 More recently, Metal-Tech seemed to suggest that the corruption of public officials or their intermediaries can be attributed to host States, at least for purposes of allocating the costs of arbitration: there, the tribunal refused to award costs to Uzbekistan notwithstanding the investor’s corrupt conduct, as the State was considered to have ‘participated’ in the corrupt act.160 The absence of any evidence that the tribunal viewed the question from the perspective of State responsibility limits the impact of this finding. It is thus difficult to posit that any kind of international consensus has emerged on the degree to which the corruption of public officials can or should engage State responsibility.
10.94 This chapter has approached this complex issue by attempting to answer a basic question: can a State be held responsible in international law for the corrupt acts of its public officials, and if so, under what circumstances? The question does not have a straightforward answer. As the previous section of this chapter demonstrates, certain aspects of State responsibility for corruption appear to be settled, while others are still very much in flux. It would be unwise to attempt a summation that captures the wide variety of fact patterns attendant on transnational corruption, but a few tentative principles can be abstracted:
(a) Depending on the circumstances, corruption involving public officials161 of a host State can engage the international responsibility of that State.
(p. 277) (b) Responsibility for corruption is an issue separate from that of contractual or conventional liability for the agreement procured through corruption; such investment agreements would likely be voidable and/or unenforceable under the applicable national contract law.
(d) Similarly, if public officials of a host State solicit or extort bribes from investors, and the other party does not freely pay the bribe, the international responsibility of the host State is engaged.
(e) However: if the public official accepts a bribe, the State of that corrupted official is arguably not responsible towards the party that paid the bribe because such corruption amounted to purely private conduct and was known to be so by the investor, and thus cannot be attributed to the host State. (The host State may therefore invoke corruption as a defence.)
(g) In any case, when a host State invokes corruption as a defence against investor claims, both the principles of acquiescence under international law (including the law on State responsibility) and the duty to prosecute corruption (under national and international anti-corruption law) should oblige the State to demonstrate that it has or is actively investigating and prosecuting those public officials who allegedly received bribes.
10.95 This enumeration suggests that an essential asymmetry in attribution exists under current law: a public official’s actions in soliciting or extorting bribes from foreign investors is attributable to the host State; but when solicitation meets acceptance and a bribe is freely paid, consummated corruption binds the investor to the acts of its agent, but the corruption of the public official is not attributable to the host State. Relatedly, while an investor is always made responsible for the corrupt acts of its agents, the host State is made similarly responsible only when corruption is attempted; where the offer and acceptance meet and corruption is consummated, States are not made similarly responsible for the corruption of their public officials. Indeed, World Duty Free seems to conclude that if the bribe were imputable to the State, ‘the payment would not be a bribe’.162 This has an impact on the internal logic of the case’s reasoning—in stating that the investor should be subject to the ex dolo malo non oritur actio rule under English law, the Tribunal stated that ‘if Kenya were guilty of bribery and [were] the claimant in this proceeding, it would likewise fall at the same procedural hurdle, to the benefit of the Claimant as respondent’.163 However, if public official corruption is never attributable to the host State, then the possibility of the host State sharing the burden of corruption is entirely illusory.164
10.96 What is the legal justification for this asymmetry? Parts III and IV explore a number of possibilities, including whether substantive international anti-corruption norms provide for a (p. 278) special rule on attribution that varies the general ‘secondary’ rules provided in the Articles on State Responsibility. Applying Occam’s Razor, the simplest explanation may be the most cogent: corruption is not attributable to the host State because the public official is clearly acting in excess of his authority and the other party, knowing that the public official is acting for private gain, freely participated in the corrupt act. Under this logic, the rule which ordinarily would attribute the acts of State organs acting in excess of authority or in contravention of instructions would not apply because the investor both knew that the public official was acting in his or her private capacity and actually participated in the corrupt act; in other words, the investor knew the public official was engaged in an act manifestly ‘not in th[e] capacity’ of a State organ, person, or entity.165 It has always been difficult to delineate attributable ultra vires acts from non-attributable purely private acts, and international law has sought to do so by developing the ‘theory of appearance’, which protects the entity that thought in good faith that the State organ was acting for the State because the official appeared to be acting effectively in the State’s name.166 Arguably, no such appearance can attach to a corrupt act, because those public officials are manifestly acting in a non-State capacity.
10.97 So far, so good—until the principle of attribution for extortion and bribe solicitations is taken into account. In such instances, one can also say that extortion and bribery solicitation involve public officials acting in an obviously private capacity that the investor should not give any official colour to, and should thus not be attributable to the host State either.167 Moreover, if public officials engaged in corruption are to be considered as obviously acting in a personal, private capacity that cannot be attributed to the State, should an investor not benefit from the same legal presumption and be insulated from the corrupt acts of its employees or agents, on the ground that such agents were also clearly acting in their private capacity? It could be argued that the reason for such differentiation lies in the fact that the coffers and public welfare of the host State will likely suffer from a transaction tainted by corruption, unlike the investor whose shareholders may profit. In principle, this is a forceful argument; but it is a legal conclusion that should be tested against the specific facts of the case before it is applied. The other answer may simply be that unlike corporate entities which (p. 279) can be made subject to account for the wrongdoing of their agents, under the national law of most countries, ‘the State can do no wrong’.168 However, that principle has little place within the context of an investment arbitration proceeding in which the law on State responsibility applies. Thus, the logic supporting the attribution asymmetry does not fully cohere.
10.98 The complexities of real-world corruption tend to confound the application of these abstract principles. Jurists are faced with a basic dilemma when dealing with issues as messy as corruption: the more prescriptively he or she intends to speak about human conduct within the constraints of law, the more abstract she or he must be—and with greater abstraction, it becomes difficult to articulate a rule that comports with the high aspirations of the law but also accounts for a complex reality in which no actor has behaved honourably. Here, the particular problematic is the idea that corruption is attributable to the host State when it is a case of solicitation or extortion, but is not attributable when the public official ‘passively’ receives the bribe. As a practical matter it will often be difficult to separate solicitation and extortion from mere receipt of a bribe. These tend to be the extreme ends of a spectrum, and most incidences of corruption will lie towards the middle of that band, animated by the opportunistic investor seeking to maximize economic gains by obtaining contracts yielding above-market returns, leading to a willingness to bribe on one hand; and the (sometimes-kleptocratic) host State government run by public officials that require all foreign investors to pay bribes as a precondition to being allowed to invest or to maintain the investment (or both), on the other.
10.99 More importantly, the unsettled nature of State responsibility for corruption requires one to admit that policy plays a very large role in any answer given. The reason usually proffered (as in World Duty Free, reflecting various national laws and jurisprudence) for the apportionment of the penalties for corruption to only one party is that (i) courts and tribunals should not allow themselves to be used to facilitate wrongdoing; and (ii) the rule shifting all the burdens of corruption to the party seeking relief (almost certainly the investor) is necessary to protect the innocent citizens of the host State, who would effectively be left holding the bag if the State were to be deemed responsible.
10.100 However, weighty policy reasons for holding the opposite view also exist. State responsibility was meant to attach to unlawful acts of government officials because such responsibility is indispensible to the existence of an international rule of law. The fact that the citizens of a host State will bear the brunt of the private benefits gained by corrupt acts is highly distressing indeed, but the same can be said for international issues of no less erga omnes interest such as environmental degradation, the use of force, large-scale violations of human rights, or any other set of internationally wrongful acts committed by errant governments that the citizens of autocratic and democratic, developed and developing countries alike are all ultimately made to pay for. Moreover, it is not apparent that a rule preventing the application of ordinary principles of attribution for unlawful or ultra vires acts by State organs in corruption cases is an unqualified public good on every occasion. Such a principle would accord to States an absolute right to invoke corruption as a defence against any wrongdoing done (p. 280) to foreign investors, thereby creating a significant moral hazard for host States. It would be tragic if the good intentions evident in withholding State responsibility for the corruption of its public officials were to result in the unintended consequence of actually condoning or even encouraging further corruption.
10.101 Ultimately, when the highest public officials of the host State are complicit in corruption but the State remains insulated from responsibility, an opportunity to further international anti-corruption objectives is lost. It furthers the idea that the international anti-corruption movement in focused mostly on punishing only one side of the equation (the multinational foreign investor) without holding national governments to anywhere near the same rigour and scrutiny. This may have been good policy in the 1990s, when foreign investors were very infrequently brought to account for corrupt acts and international law sought to address that pathology. However, in an era where public officials are held ever more to account by their own citizens whose primary concern is the failure of governance caused by the corruption of whole systems within their national governments, the international law on this matter seems somewhat behind the curve; governments must be brought to far greater account in international law. As observed by Professor Reisman:
The ritual of condemnation of foreign corporations’ spoliations of the resources of developing countries and their elevation to the level of international concern have obscured the problem of spoliations by national officials of the wealth of the states of which they are temporary custodians. The pathology is not restricted to developing countries. Quite the contrary. Gibbon called it ‘the most infallible symptom of constitutional liberty.’ But the consequences for developing countries are often catastrophic, for the issue is not garden-variety corruption. The amounts involved can be stunning, at times reportedly equaling the national debt. In some cases, absconding officials have left the economies of their countries ransacked and destroyed.169
10.103 To help bring about a rebalancing of international responsibility for corruption between investor and host State, it is modestly suggested that host States be required, in every case in which corruption is raised as a defence, to demonstrate that they have actively prosecuted the public officials involved for corruption (Item 7 of the earlier enumeration). Doing so can place investment arbitration as a catalyst for bringing about good governance dividends, incentivizing States to take seriously every corruption defence raised and thereby address the fear that the issue will be used or viewed with cynicism as a tactical ploy.
10.104 The law on State responsibility was originally conceived as a means to ensure that international law extracted compensation for harm done by one State to another.170 This bilaterally-focused ‘compensatory mechanism’ has been the basic logic of the law on State responsibility for an age. A rule that public official corruption is not attributable to the host State when the investor freely engaged in bribery with that public official comports with this traditional compensatory framework, as the consensual nature of corruption would negate the investor’s ability to bind the host State to acts that it clearly knew to be unlawful.
(p. 281) 10.105 Seeking compensation for corruption is, however, emphatically not the manner in which the issue comes to focus in investment arbitration. While there have been a few instances where the host State’s international responsibility was sought for bribe solicitations/extortion made by its public officials, in most cases, corruption is raised not by investors seeking compensation but by host States as a complete defence against any and all investor claims. In other words, State responsibility as a way to extract compensation by the investor is very much a minor occurrence in contemporary investment arbitration—the primary concern of host States is to be allowed to raise claims of the corruption of its own public officials in order to defend itself against alleged violations of investor protection obligations owed under investment treaties or national laws. As a defence, the claim is not compensatory in nature. For the defence to prosper, however, corruption must not be attributable to the host State.
10.106 It is this peculiarity in the ‘use’ of corruption in international investment arbitration that complicates the question of State responsibility considerably, particularly when the fact that the ICSID system was created precisely to protect foreign investment through the establishment of a specialized arbitral mechanism.171 In this light, it is unsurprising to see the hesitancy in the case law to attribute the conduct of public officials to the host State, as doing so may limit the State’s right to contest the validity of the investment by reason of corruption.
10.107 There is, however, another, more modern, aspect to State responsibility. Part of the ‘progressive developments’ of the Articles on State Responsibility was to move the law from one where damage was a precondition for responsibility to one that is far more objective in character.172 Obligations are no longer owed solely to a counterparty; it has moved on from a purely inter-State character to one where accountability is owed to the international community as a whole.173
10.108 If State responsibility is no longer animated only by a compensatory model, but also has obligations to international society as a whole and to the individuals that make up those States, then corruption is an important area from which to test the truth of those aspirations. The application of the international law on responsibility to transnational corruption issues in investment arbitration should involve bringing States to account for the fulfillment of their national and international anti-corruption obligations, before the issue is allowed to be used for mostly exculpatory reasons. Transnational corruption cannot be combated effectively by focusing and punishing only the foreign investor, which is only one side of the equation. States plagued with corruption will be doomed to repeat the failures of governance that have persisted in their public spheres so long as they are not asked to do more. If States are to be allowed to invoke corruption as a defence against investor claims, they must demonstrate that they have engaged in a genuine effort to prosecute and punish those public officials.
In international relations, as in other social relations, the invasion of the legal interest of one subject of the law by another legal person creates responsibility in various forms.... The essential idea of responsibility is simple and has its basis both in religious thought and in the secular morality of which law is the outwork. It is the idea of being liable, answerable, verantwortlichkeit, la responsabilité, la responsabilità. Consequently, responsibility is an inherent element in any community based upon some system—perceived as such, however diffuse—of morality, religion, or law, or several of these.’
Roberto Ago, the longtime Special Rapporteur of the U.N. International Law Commission on State responsibility and an important figure in its development and codification, stated: ‘if one attempts... to deny the idea of State responsibility because it allegedly conflicts with the idea of sovereignty, one is forced to deny the existence of an international legal order.’ Roberto Ago, Third Report on State Responsibility, II ILC Yearbook (1971), 199, 205, para. 31.
2 ‘“States can act only by and through their agents and representatives.” The acts of the agents of a State are, therefore, to be considered as the acts of the State itself. Moreover, since “an officer or person in authority represents pro tanto his government, which in an international sense is the aggregate of all officers and men in authority,” it means that a State is represented by its government, whose acts are imputable to it as its own.’ Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (Cambridge University Press, 1953), 183–4, citing German Settlers in Poland, P.C.I.J. Advisory Opinion, B.6, p. 22 (1923); Moses Case (Mexico v. U.S.), 3 Int’l Arb. 3127, 3129 (1871).
3 See Articles on State Responsibility, Arts. 4 and 7. Article 4(1) states: ‘[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.’ Article 7 states: ‘[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.’
4 See e.g. Vikas Bajaj, Corruption, Corporate Battles Scaring Away Foreign Investors?, NY Times, 1 March2011,reprintedat<http://www.deccanherald.com/content/142134/corruption-corporate-battles- scaring-away.html> (accessed 4 March 2013): ‘Despite India’s stunning growth, foreign businesses and investors have started looking elsewhere. Foreign direct investment in India fell more than 31 per cent, to $24 billion, in 2010 even as investors flocked to developing nations as a group. [...]While inefficiency and bureaucracy are nothing new in India, analysts and executives say foreign investors have lately been spooked by a highly publicised government corruption scandal over the awarding of wireless communications licences.’
5 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted by the Negotiating Conference on 21 November 1997, in force since 15 February 1999, available at: <http://www.oecd.org/document/21/0,3746,en_2649_34859_2017813_1_1_1_1,00.html> [henceforth, ‘OECD Convention’].
6 See e.g. Frank Vogl, ‘The Supply Side of Global Bribery’, Finance and Development (1998) June, 35(2) (identifying the ‘demand side of the equation’ on corruption as ‘public officials who abuse their office for private gain’, while the ‘supply side’ consists of those ‘who pay bribes’).
7 See discussion of World Duty Free at Chapter 6, section A(1).
8 The requirement that investments not be made in contravention of national laws is firmly entrenched in bilateral investment treaties such as the Germany-Philippines BIT, which states: ‘the term “investment” shall mean any kind of asset accepted in accordance with the respective laws and regulations of either Contracting State...’ (art. 1(1)) ‘Each contracting State shall...admit such investments in accordance with its Constitution, laws and regulations...’ (art. 2(1)).
If the legality of the Claimant’s conduct is a jurisdictional issue, and the legality of the Respondent’s conduct is a merits issue, then the Respondent Host State is placed in a powerful position. In the Biblical phrase, the Tribunal must first examine the speck in the eye of the investor and defer, and maybe never address the beam in the eye of the Host State. Such an approach does not respect the fundamental principles of procedure [...]
[World Duty Free v. Kenya] highlights the growing trend on the part of host states to raise the issue of corruption as a defense to claims of unlawful treatment and contractual breach by investors. Often pleading the corruption of a previous regime, host states increasingly ask arbitrators to consider corruption a complete defence to a dispute by dismissing claims or invalidating contracts entirely. There are potential moral hazards involved in allowing host states to insulate themselves from otherwise legitimate obligations to investors due to past bribery. In order to claim corruption as a complete defense, it seems only fair to require the host state to demonstrate that it has actively sought the prosecution of the offending public official and the recovery of the bribe; otherwise, lack of genuine interest in combating corruption may be inferred and lend credence to an estoppel claim.
See also Cameron Miles, ‘Corruption, Jurisdiction and Admissibility in International Investment Claims’ (2012) J. Int’l Disp. Settlement 1, 24–5; R. Zachary Torres-Fowler, Note, ‘Undermining ICSID: How the Global Antibribery Regime Impairs Investor-State Arbitration’ (2012) 52 Va. J. Int’l L. 995, 1038 (‘Despite the obvious levels of culpability by the foreign investors themselves, it seems hardly equitable to allow a host state engaging in acts of bribery or corruption to remain unaccountable themselves. Moving forward, arbitral tribunals should consider relative levels of culpability and apply standards of contributory fault when assessing a corruption defense. The result would not only result in more equitable outcomes, making the arbitral regime a more palatable dispute resolution mechanism for investors, but might additionally further the Global Antibribery Regime by penalizing both investors and host states that supply and demand illicit payments.’)
11 See Chapter 11.
12 See generally Jeswald W. Salacuse and Nicholas P. Sullivan, ‘Do BITs Really Work? An Evaluation of Bilateral Investment Treaties and Their Grand Bargain’ (2005) 46 Harv. Int’l L.J. 67, 67–75; William W. Park and Guillermo Aguilar Alvarez, ‘The New Face of Investment Arbitration’ (2003) 28 Yale. J. Int’l L. 365.
14 The ICJ has ruled on investment claims in the past through the espousal of private claims by the States of which these corporations were nationals, but these cases were very much the exception to its docket; in the over 60 years of its existence, it has only had two cases on international economic law (broadly defined), at their core—Barcelona Traction (Belgium v. Spain) and Elettronica Sicula S.p.A. (ELSI) (U.S.A. v. Italy), both of which continue to be cited in investment arbitration awards, often as authority for general statements on corporate nationality, takings and expropriation, and ‘arbitrary and discriminatory measures’. It also bears mention that the recent 2010 ICJ judgment in Ahmadou Sadio Diallo (Guinea v. DR Congo), which was concerned mainly with the arrest, detention, and expulsion of a Guinean national, Mr Diallo, from the Democratic Republic of Congo, also considered investment issues in relation to Mr Diallo’s shareholdings as associé in two Congolese companies, eventually ruling that his direct rights as associé were not violated. See Judgment of 30 November 2010, para. 99ff.
15 ILC Commentary, reprinted in James Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (Cambridge University Press, 2002), 74 [hereinafter Crawford, The International Law Commission’s Articles (n 15)].
16 ILC Commentary, reprinted in Crawford, The International Law Commission’s Articles (n 15), 74, citing comments of Special Rapporteur Roberto Ago: ‘it is one thing to define a rule and the content of the obligation it imposes, and another to determine whether that obligation has been violated and what should be the consequences of the violation.’
18 For a critical view of the manner by which the Articles on State Responsibility have consolidated the law on international responsibility, see David Caron, ‘The ILC Articles on State Responsibility: The Paradoxical Relationship Between Form and Authority’ (2002) 96 Am. J. Int’l L. 857, 872–3 (‘The Articles will have great effect, and that is a significant achievement. But they should have effect because of their integrity and value, not because they emerged from the ILC in a form that looks like a treaty. The ILC’s work on state responsibility will best serve the needs of the international community only if it is weighed, interpreted, and applied with much care. Indeed, I believe the ILC itself would say it hopes for such real-world testing of its work.’)
19 See e.g. Article 20 of the ILC Articles: ‘Valid consent by a State to the commission of a given act by another State precludes the wrongfulness of that act in relation to the former State to the extent that the act remains within the limits of that consent’ (italics supplied).
20 ILC Commentary, reprinted in Crawford, The International Law Commission’s Articles (n 15), 76. Relatedly, under Article 33 of the Articles on State Responsibility, the scope of obligations set out in Part 2 ‘may be owed to another State, to several States, or to the international community as a whole, depending in particular on the character and content of the international obligation and on the circumstances of the breach’.
21 Alain Pellet, ‘The Definition of Responsibility in International Law’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 3, 7–8. Similarly, individuals and corporations within these areas can also be held accountable for their own internationally wrongful acts.
22 Crawford, The International Law Commission’s Articles (n 15), 1 (‘Work [on State responsibility] began in 1956 under F.V. Garcia Amador (Cuba) as Special Rapporteur. It focused on State responsibility for injuries to aliens and their property, that is to say on the substantive rules of the international law of diplomatic protection.’)
23 See Vaughan Lowe, ‘Injuries to Corporations’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 1005, 1015 (‘It seems that what happens, conceptually, under these investment treaties is that the shareholders are treated as having direct rights that are engaged whenever an injury is inflicted upon a company in which they have invested. As a matter of international law, the category of direct shareholder rights is vastly expanded.’)
24 One prominent non-BIT example is the Algiers Accords that created the Iran-United States Claims Tribunal in response to the Iranian revolution and the holding of U.S. diplomatic and consular personnel at the embassy in Tehran. See Declaration of the Government of the Democratic and Popular Republic of Algeria Relating to the Commitments Made by Iran and the United States (‘General Declaration’); Declaration of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (‘Claims Settlement Declaration’). 20 I.L.M. 223 (1981).
25 See Vaughan Lowe, ‘Injuries to Corporations’ (n 23), 1005, 1015–16 (‘Both under BITs and more generally under the ICSID regime investors have a direct remedy against the respondent State. There is no need for diplomatic protection to be exercised by the national State. Such is the astonishing number and scope of these provisions, which also appear in other multilateral agreements, that it may be expected that the diplomatic protection of shareholders and of companies by States will henceforth be a rare occurrence. The shareholder-investor, or the company, will itself pursue its own remedy in its own name’); R. Doak Bishop, James Crawford, and W. Michael Reisman, Foreign Investment Disputes: Cases, Materials and Commentary (Kluwer, 2005), 759–86.
The ICJ itself has noted in its 2007 Diallo judgment that in contemporary international law, ‘the protection of the rights of companies and the rights of their shareholders, and the settlement of the associated disputes, are essentially governed by bilateral or multilateral agreements for the protection of foreign investments, such as the treaties for the promotion and protection of foreign investments, and the Washington Convention on the settlement of Investment Disputes between States and Nationals of other States, which created the ICSID, and also by contracts between states and foreign investors.’ Diallo, Judgment of 24 May 2007, p. 88ff (‘In that context, the role of diplomatic protection somewhat faded, as in practice recourse is only made to it in rare cases where treaty regimes do not exist or have proved inoperative. It is in this particular and relatively limited context that the question of protection by substitution might be raised.’)
28 Zachary Douglas, ‘Specific Regimes of Responsibility: Investment Treaty Arbitration’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 815, 819, citing Willem Riphagen, ‘State Responsibility: New Theories of Obligation in Interstate Relations’, in The Structure and Process of International Law: Essays in Legal Philosophy, Doctrine and Theory (R. McDonald and D Johnston (eds.), Martinus Nijhoff, 1983), 593 (‘Unlike in the traditional domains of public international law, the obligations created in special regimes involving non-State actors, such as the investor/State sphere of the ICSID Convention, “are not simply based on the separation of States, and consequently not focused on the anti-parallel exercise of sovereignty by interference of one State in the sovereignty of another state...”’)
29 The recent PCA-administered investment arbitration between the Republic of Ecuador and the United States of America pursuant to the Ecuador-U.S. Bilateral Investment Treaty, seeking interpretation of one of the investor protection provisions of that treaty (art. II(7)), is an example of the re-emergence of this rare form of arbitration, which perhaps began with the Italy-Cuba arbitration concerning the interpretation and application of the BIT between the two States, a final award of which was rendered in 2008. See Michele Potestà, Case Note, ‘Republic of Italy v. Republic of Cuba’ (2012) 106 Am. J. Int’l L. 341. The pleadings and expert opinions of the Ecuador v. U.S. case are available on the PCA’s website: <http://www.pca-cpa.org/showpage.asp?pag_id=1455>; however, the tribunal’s decision has not thus far been made public.
30 The ILC Articles themselves recognize this possibility—under Article 55, ‘[t]hese articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act of the content or implementation of the international responsibility of a State are governed by special rules of international law.’
32 See e.g. Ndiva Kofele-Kale, The International Law of Responsibility for Economic Crimes (Ashgate, 2006), 9–12 (defining ‘indigenous spoliation’ as ‘an illegal act of depredation which is committed for private ends by constitutionally responsible rulers, public officials or private individuals. Such terms as “embezzlement” or “misappropriation” or “corruption” or “graft” or “fraudulent enrichment” have been and continue to be, used to describe the widespread practice of office holders confusing the public fisc [sic] with their private accounts, but these concepts do not adequately convey the full force of the relatively new phenomenon of indigenous spoliation. If anything, they signify only the raw act of depredation but not its effect, which is the destruction of the social, economic and moral foundation of the victim nation.’)
33 As stated in Part II, of 18 cases surveyed, there were only five cases (including EDF v. Romania) where corruption (in the form of bribe solicitations/extortion) was raised by the investor as a principal claim. These ranged from bribe solicitations while the investor was negotiating an oil and gas development project with the host State’s national energy company [F-W Oil Interests, Inc. v. Trinidad and Tobago (2006)]; to campaign contributions accepted in order to influence the enactment of regulations harmful to the business of the investor [Methanex v. United States (2005)]; to a bribe solicitation from a national judge to prevent the seizure of the investor’s investment [Rumeli Teleko, v. Kazakhstan (2008)]; to a bribe solicitation for the extension of an investment agreement [EDF (Services) v. Romania (2009)]; to bribery by a competitor firm in order to deny the investor the required license [RSM v. Grenada (2010)].
34 See EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award dated 8 October 2009), para. 102 (EDF argued that all of the acts of certain government-controlled agencies of Romania were allegedly part of ‘an orchestrated action to take the investor’s investment in retaliation for his refusal to pay bribes,’ and were thus attributable to the State).
35 ‘Extortion’ (sometimes also called ‘blackmail’) is another important type of corruption. One can distinguish extortion from bribery by looking into whether the payer receives ‘better than fair treatment’ or must pay to be treated fairly. Put another way, ‘extortion’ is a situation in which the capacity of the official to withhold a service or benefit otherwise required by law exceeds the capacity of the private party to sustain the loss of that service or benefit. ‘The term extortion may be reserved for those situations in which the capacity of the official to withhold a service or benefit otherwise required by law exceeds the capacity of the private party to sustain the loss of that service or benefit.’ W. Michael Reisman, Folded Lies: Bribery, Crusades, and Reforms (Free Press, 1979), 38.
36 What is meant by ‘State agency’ is imprecise as such was not defined in the decision, but it is reasonable to presume that these would include organs of the State or those exercising governmental authority. See EDF (n 34), para. 187ff.
37 EDF (n 34), para. 221.
38 EDF (n 34), para. 221.
39 There were eight publicly-known investment cases before the October 2006 World Duty Free award was rendered in which corruption was alleged, beginning with the 1992 case of SPP v. Egypt (the first known case in which corruption allegation played a role in an ICSID proceeding); six of those cases involved host State allegations of corruption as a defence against investor claims. See SPP v. Egypt, Wena v. Egypt, Lucchetti v. Peru, Inceysa v. El Salvador, Tanesco v. IPTL, and Thunderbird v. Mexico. The two cases where it was the investor that raised corruption issues were Methanex v. U.S., and F-W Oil v. Trinidad and Tobago. For full references see Chapter 6. This fact seems to negate the view that corruption is an ‘emerging defense’ of recent provenance for host States, or that the potential for corruption to act as a defence against investor claims has only recently been realized. Cf. Jason Webb Yackee, ‘Investment Treaties and Investor Corruption: An Emerging Defence for Host States?’ (2012) 52 Virginia J. Int’l L. 723 (arguing that an investor’s involvement in corruption is an ‘emerging defense’ by host States).
41 In World Duty Free itself, the claimant at one stage also made allegations of corruption against the host State. It alleged that the decisions of the Kenyan courts appointing a receiver and expropriating the investment were procured through corruption. However, Kenya responded that there was no evidence of such corruption, and that even if these decisions were corruptly obtained, there was no evidence that the private individual who procured those decisions was acting as an agent of the Kenyan government. World Duty Free Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006, para. 82 (‘Moreover, even if Mr. Ali were able to establish that the appointment of a receiver’ by the Kenyan Court ‘was corruptly procured by Mr. Pattni, he has certainly presented no evidence to substantiate his allegation that, in doing so, Mr. Pattni was acting as an “agent” of the Government of Kenya.’)
The tribunal did not move to resolve these allegations of corruption by the investor, perhaps because it determined that corruption attributable to the host State would not affect the outcome of the decision. This is a demonstration of the power of corruption as a defence—whether it is to deny enforcement of a contract using principles of national procedural law, or to deny jurisdiction under a particular interpretation of the ‘legality’ provisions of investment treaties, a finding of corruption will, under present case law, result in the dismissal of the case without the investor receiving any kind of relief; and the question of violations of investor protections or indeed, of corruption accusations against the host State itself within the same case, will not prosper against a finding that the investor was guilty of corruption.
42 Instead, initial insinuations or allegations of corruption have regularly given way to claims and defences based on some of the outward manifestations of corruption, such as fraud or any other serious illegality. See e.g. Inceysa v. El Salvador; Lucchetti v. Peru; Fraport v. Philippines (Chapter 6, section B). See also ‘World Duty Free v The Republic of Kenya: a Unique Precedent?’, Summary of the Chatham House International Law discussion group meeting held on 28 March 2007, available at: <http://www.chathamhouse.org/sites/default/files/public/Research/International%20Law/il280307.pdf> (‘In reality, many arbitrators will allow corruption allegations to colour their judgment without actually stating that that is the case, chiefly due to the evidential difficulties faced if they were explicit in their views.’)
[Corruption] insinuations are now frequently employed by both claimant investors and respondent governments. They should be disregarded—explicitly and implicitly, except if properly and explicitly submitted to the tribunal, substantiated with a specific allegation of corruption and subject to proper legal and factual debate for the tribunal. That is simply the implication of the ‘fair hearing’ principle...It is therefore particularly important for a tribunal not to get influenced, directly or indirectly, by ‘insinuations’ meant to colour and influence the arbitrators’ perception and activate a conscious or subconscious bias, but to make the decision purely on grounds that have been subject to a full and fair hearing by both parties. Cards should be placed, ‘face up’, on the table rather than be waved around, with hints and suggestions. If the Mexican government had wanted to prove bribery it had the opportunity both to raise it and to try to prove it by providing its officials involved in the transaction for cross-examination; but it chose not to produce them.
Thunderbird v. Mexico, Separate Opinion of Prof. Thomas Wälde, para. 20.
43 According to UNCTAD, there are 450 known ‘investor-state dispute settlement’ cases (although it does acknowledge that with the lack of a central registry of cases, the likely number is higher). It is important to emphasize, however, that the annual statistics on investment arbitration published by the United Nations Conference on Trade and Development (UNCTAD) do not count or study contract-based investment arbitrations. In its 2012 report, for example, the UNCTAD studied the 450 known investor-State arbitrations (including the 46 known new cases initiated in 2011); but ‘[t]his number does not include cases that are exclusively based on investment contracts (State contracts) or national investment laws...’. UNCTAD, Latest Developments in Investor-State Dispute Settlement, IIA Issues Note, No. 1, 2012, available at: <http://unctad.org/en/PublicationsLibrary/webdiaeia2012d10_en.pdf>.
44 See n 35 and accompanying text. The degree of divergence between bribery and extortion lies in the extent to which the payment made is voluntary or dictated by necessity. It is not unknown for government officials to engage in outright extortion; but for the most part, a combination of greed, incentive, and threat usually occur in practice, making differentiation difficult. Susan Rose-Ackerman, Corruption and Government: Causes, Consequences and Reform (Cambridge University Press, 1999), 53 n. 10, citing Ian Ayres, ‘Judicial Corruption: Extortion and Bribery’ (1997) 74 Denver U. L. Rev. 1231, 1236–7.
45 It has had a strong impact on more investment arbitration jurisprudence, having been cited a number of times in succeeding cases that have dealt with corruption issues. These include Fraport v. Philippines (dissent of Dr Cremades); African Holding Co. v. DRC, Rumeli v. Kazakhstan, and Siag v. Egypt (dissent of Prof. Orrego) (see Chapter 6, section B).
46 See WDF (n 41), para. 173: ‘Like any other contract, a state contract procured by bribing a state officer is legally unenforceable, as an affront to the public conscience’, citing Lemenda Trading Co Ltd v. African Middle East Petroleum Co. Ltd (1988) 1 Q.B. 428 (Phillips, LCJ).
48 See Constantine Partasides, ‘World Duty Free v. The Republic of Kenya: A Unique Precedent?’, Speech at the Chatham House International Law Discussion Group, 27 March 2007, available at: <http://www.chathamhouse.org/sites/default/files/public/Research/International%20Law/il280307.pdf> (‘The rule of law unquestionably suffers in the face of corruption with impunity. But occasionally the law provides an answer. In the hands of the right judge or arbitrator, it can be transformed from victim to victor. And so I come to the recent and remarkable case of World Duty Free v. The Republic of Kenya.’) Mr Partasides acted as counsel for the Republic of Kenya in World Duty Free.
49 In full, Article 42(1) of the ICSID Convention states: ‘[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.’
50 WDF (n 41), para. 158: ‘[t]he Tribunal now turns to the applicable laws chosen by the Parties in their Agreement of 27th April 1989, as required by Article 42(1) of the ICSID Convention. As already recorded above, Article 9(2)(c) of this Agreement provides that “any arbitral tribunal constituted pursuant to this Agreement shall apply English law”; and Article 10(A) provides that “This Agreement shall be governed by and construed in accordance with the law of Kenya”.’
51 In many countries, customary international law is part of the law of the land, and a tribunal required to employ that State’s national law would in such cases be required to give effect to applicable international law. See W. Michael Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of its Threshold’ (2000) 15 ICSID Rev.-Foreign Inv. L.J. 362. After analysing the situations where international law would potentially play a role in ICSID arbitrations given Article 42(1) of the ICSID Convention, Professor Reisman concluded:
In sum, I submit that there are four situations in which an ICSID tribunal will have occasion to apply international law:
(iv) where the law of the Contracting State party to the dispute, or action taken under that law, violates international law. In this last situation, international law operates as a corrective to national law.
52 See WDF (n 41), para. 159: ‘By Section 2 of the Kenyan Law of Contract Act 1961, the common law of England relating to contract applies in Kenya, save as modified by (inter alia) Kenya’s written laws; and further, as was confirmed by Mr Robertson for the Claimant at the hearing in June 2004, there is no material difference on the specific points at issue between the position at common law in England and Kenya...’
53 See Trendtex Trading Corporation Ltd v. Central Bank of Nigeria  1 All E.R. 881, 889–90 (Denning J): ‘Seeing that the rules of international law have changed—and do change—and that the courts have given effect to the changes without any Act of Parliament, it follows to my mind inexorably that the rules of international law, as existing from time to time, do form part of our English law.’ In their edition of Oppenheim’s International Law, two highly distinguished members of the English and international bench and bar—Sir Robert Jennings and Sir Arthur Watts—stated that the law of nations is part of English law and has been repeatedly acted on by English courts. Jennings and Watts, Oppenheim’s International Law (9th edn., Longman, 1992), 56–7. That said, English courts have recently expressed caution regarding the use of customary international law as a direct source of rights and obligations under English law: see R (Al-Saddoon) v. Secretary of State for Defence  EWCA Civ 7;  Q.B. 486 (Laws LJ) (the ‘proposition that a customary rule may be sued on as a cause of action in the English courts is perhaps not so clear cut’).
54 WDF (n 41), para. 138: ‘Although this name [“international public policy (‘ordre public international’)”] suggests that it is in some way a supra-national principle, it is in fact no more than domestic public policy applied to foreign awards and its content and application remains subjective to each State.’ The tribunal proceeded to review the concept of ‘transnational public policy’ as well, and concluded after a review of national laws, international anti-corruption conventions, and court and arbitral tribunal decisions, that bribery is contrary to both concepts. It concluded: ‘[t]hus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal’ at para. 157.
55 Tribunals have long struggled with the high burden of proof placed on corruption, which renders it difficult and indeed, improbable, that corruption that is denied and refuted by the other side will be proven. See e.g. EDF (Services) Limited v. Romania (n 34), para. 221 (‘...corruption must be proven and it is notoriously difficult to prove since, typically, there is little or no physical evidence. The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence.’)
56 See discussion at section D.
57 WDF (n 41), para. 178 (‘Albeit that the balance of illegality may not be factually identical between Mr. Ali and the Kenyan President, this remains a case, legally, of par delictum.’)
58 WDF (n 41), para. 167.
59 WDF (n 41), para. 185.
60 The claimant’s submissions on waiver and affirmation depend on the allegation that Kenya knew of the bribe long before December 2002. As already indicated, there was no mention of the payment in the Agreement (or its amendment); nor in any contemporary document exchanged between the claimant and Kenya over the subsequent 11 years before this proceeding was commenced in June 2000. More significantly, the claimant itself made no mention of the payment in the early part of this proceeding or throughout the other legal proceedings in the Isle of Man and Kenya. The tribunal finds that the payment was first made known by the claimant to Kenya in December 2002, 30 months after the claimant’s request for arbitration. It had not previously been known to Kenya.
61 See discussion at Chapter 10(D)(1).
9 Arbitration: (1) The parties hereby consent to submit to the jurisdiction of the International Centre for Settlement of Investment Disputes. (‘the Centre’) all disputes arising out of this Agreement or relating to any investment made under it for settlement by arbitration pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States (‘the Convention’). (2) It is hereby stipulated (a) that the Company is a national of the United Arab Emirates:(b) that the transaction to which this Agreement relates is an ‘investment’ within the meaning of the Convention; (c) that any arbitral tribunal constituted pursuant to this Agreement shall apply English law; (d) that any arbitration proceeding pursuant to this Agreement shall be conducted in accordance with the Rules of Procedure for Arbitration Proceedings of the Centre in effect on the date on which the proceeding is instituted.
63 The ICSID Convention recognizes that, as a first resort, ‘[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties’, with international law finding application when no such consensually-agreed system of law applies. In full, Article 42(1) of the ICSID Convention states: ‘[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable’.
However, see the possibility of customary international law forming part of national law, discussed at n 53 and accompanying text.
64 Bishop, Crawford, and Reisman, Foreign Investment Disputes (n 25), 624 (‘In some cases, international arbitrations will be constituted pursuant to treaty rules, whether of some existing institutions (e.g. ICSID) or on an ad hoc basis (e.g. pursuant to Chapter 11 of NAFTA or a bilateral investment treaty). In such cases the foundational instrument will be the treaty and international law will be part of the applicable law.’)
65 Vienna Convention on the Law of Treaties, Art. 31(3)(c) (‘There shall be taken into account, together with the context:...any relevant rules of international law applicable in the relations between the parties.’)
67 Bernardo Cremades, ‘Corruption in Investment Arbitration’, in Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum Robert Briner (Gerald Aksen (ed.), ICC Publications, 2005), 203, 216, citing Crawford, The International Law Commission’s Articles (n 15), 106–9; Ian Brownlie, State Responsibility, Part I (n 1), 145–52.
68 Cremades, ‘Corruption in Investment Arbitration’ (n 67), 203, 216.
69 For a discussion of State responsibility in the case of genocide, see Antonio Cassese, ‘The Nicaragua and Tadić Tests Revisited in Light of the ICJ Judgment on Genocide in Bosnia’ (2007) 18 Eur. J. Int’l L. 649.
70 See EDF (Services) v. Romania (n 34).
71 For a critique of the form of the Articles leading to its ‘authority’, see Caron, ‘The ILC Articles’ (n 18).
72 See Kaj Hober, ‘State Responsibility and Investment Arbitration’ (2008) 25 J. Int’l Arb. 545, discussing the use of the ILC Articles in a number of cases where attribution was at issue, e.g. the case of Salini v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 16 July 2001, 42 I.L.M. 609 (2003) (attribution—role and functions—of a Minister).
73 ILC Commentary on Article 2, para. 3, reprinted in Crawford, The International Law Commission’s Articles (n 15), 82.
75 ILC Commentary on Art. 2 of the Articles, reprinted in Crawford, The International Law Commission’s Articles (n 15), 83 para. 6.
76 ‘In international practice and judicial decisions, the term “imputation” is also used. But the term “attribution” avoids any suggestion that the legal process of connecting conduct to the State is a fiction, or that the conduct in question is “really” that of someone else.’ ILC Commentary, Art. 2, para. 12, reprinted in Crawford, The International Law Commission’s Articles (n 15), 84.
It is useful to summarise the rules on attribution [...] before applying the general principles to the facts of this case. The following acts are attributable to the State, under the rules of international law:
– all acts—including acts de jure gestionis—of State organs;
– acts of public or private entities or persons exercising governmental authority, if executed in the exercise of such authority—which by definition cannot include acts de jure gestionis;
– acts of public or private entities or persons done on the instructions of, or under the direction or control of that State—which can encompass acts de jure gestionis as well as acts de jure imperii.
Gustav Hamester v. Republic of Ghana, ICSID Case No. ARB/07/24, Award of 18 June 2010, para. 180.
81 Crawford, Treaty and Contract in Investment Arbitration (n 78), 5, citing Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility, Judgment, I.C.J. Rep. 1994, 112, paras. 28–29.
Conduct of organs of a State
• The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.
86 ‘[T]he reference to a State organ in article 4 is intended in the most general sense. It is not limited to the organs of the central government, to officials at a high level or to persons with responsibility for the external relations of the State. It extends to organs of government of whatever kind or classification, exercising whatever functions, and at whatever level in the hierarchy...’ ILC Commentary, Art. 4, para. 6, reprinted in Crawford, The International Law Commission’s Articles (n 15), 95.
87 Indeed, arbitral tribunals faced with the issue of attribution of acts by minor organs of the State have consistently treated such acts as attributable to the State. ILC Commentary on Article 4, para. 7, reprinted in Crawford, The International Law Commission’s Articles (n 15), 96. See also Higgins, Problems and Process (n 26), 150 (‘...it matters not what type of organ of State is concerned,...’).
88 Djamchid Momtaz, ‘Attribution of Conduct to the State: State Organs and Entities Empowered to Exercise Elements of Governmental Authority’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 237, 241.
89 Under basic principles of agency, an agent acting on behalf and in the name of a principal creates an agent–principal relationship—one may call it a mandate. Employees and officers of corporations often act as mandate agents with apparent authority to conduct business on behalf of the corporate principal. In a contractual situation, the agent acting within its mandate does not become a party to the contract but merely acts as representative of the principal. Problems inevitably arise concerning the scope of an agent’s mandate and the extent of a principal’s liability for illegal acts done by the agent. In a situation of bribery, where the agent grants undue advantages in exchange for bribes, the agent would usually be considered falsus procurator, i.e. as having acted outside the scope of his or her mandate. Contracts made outside the scope of the mandate are voidable, but the counterparty relying in good faith on the agent’s authority to act on behalf of the principal may claim damages, although in the case of bribery it is improbable that the counterparty would have been considered to have acted in good faith. Overall, therefore, any agent accepting a bribe without the permission of his or her principal acts outside the scope of the mandate given, and cannot be binding on the principal. The principal may, however, implicitly or explicitly ratify or accept the acts of the agent and thus validate the contract post hoc. This general view on agency can be said to be representative of general rules on agency in Civil Codes as diverse as those in continental Europe all the way to the Philippines. See e.g. for Sweden: Jori Munukka, ‘Civil Law Consequences of Corruption in Sweden’, in The Civil Law Consequences of Corruption (Olaf Meyer (ed.), Nomos, 2009), 117, 129. For Germany: ‘Olaf Meyer, Combating Corruption by Means of Private Law—The German Experience’, in The Civil Law Consequences of Corruption (Olaf Meyer (ed.), Nomos, 2009), 145, 153.
91 Relatedly, Article 3, codifying a core principle of State responsibility found in numerous international awards and decisions, states: ‘[t]he characterization of an act as internationally wrongful is governed by international law. Such characterization is not affected by the characterization of the same act as lawful by internal law.’
92 ILC Commentary on Article 7, para. 3, reprinted in Crawford, The International Law Commission’s Articles (n 15), 106.
94 Higgins, Problems and Process (n 26),150, citingTheodore Meron, ‘International Responsibility of States for Unauthorized Acts of their Officials’ (1957) 23 British Y.B. Int’l L. 85.
Moreover, there can be no affirmation or waiver in this case based on the knowledge of the Kenyan President attributable to Kenya. The President was here acting corruptly, to the detriment of Kenya and in violation of Kenyan law (including the 1956 Act). There is no warrant at English or Kenyan law for attributing knowledge to the state (as the otherwise innocent principal) of a state officer engaged as its agent in bribery. (emphasis supplied)
97 Corruption is defined in operational terms by the leading international anti-corruption NGO, Transparency International, as the ‘abuse of entrusted power for private gain’. (See Chapter 2, section A). One of the principal anti-corruption treaties, the OECD Anti-Bribery Convention, does not contain a definition of corruption at all. Instead, it focuses on ‘bribery of a foreign public official’, which the treaty defines in the following terms: ‘to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage ...’. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Art. 1(1), adopted by the Negotiating Conference on 21 November 1997, in force since 15 February 1999, available at: <http://www.oecd.org/document/21/0,3746,en_2649_34859_2017813_1_1_1_1,00.html> [henceforth, ‘OECD Convention’].
99 Hober, ‘State Responsibility’ (n 72), 550. Prof. Hober continues: ‘Article 7 of the ILC Articles is the international law equivalent of the private law concept of apparent authority.’
102 It would likely not raise any eyebrows to say that the corrupting entity should not have the ability to raise claims of responsibility against the State whose officials it has actively bribed; legal and even moral conclusions are easier to draw when identifying rules using Manichean ‘ideals’ of corruption, where there exists a definite corruptor and a definite corrupted. Reality is often far more complex, and the delineating between corruptor and corrupted is not so easy—there will always be the provider of cash for a governmental action in a case of bribery, of course, but the question of who actively initiated or solicited the bribe in countries where endemic corruption exists is often difficult, because in these environments, all investors have to pay to be able to proceed with the investments.
103 To the lay observer, one might even call this an instance where the parties’ knowing participation amounted to consent to corruption, a circumstance precluding responsibility under the law on State responsibility. However, there are doubts as to whether ‘consent’ as envisaged in Article 20 is applicable in the case of corruption. See discussion at Chapter 10(D)(4).
In a similar vein is Article 11, which provides: ‘[c]onduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own.’
104 Hober, ‘State Responsibility’ (n 72), 550 (‘Article 7 of the ILC Articles is the international law equivalent of the private law concept of apparent authority.’)
105 U.N. International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries 2001, Report of the International Law Commission on the work of its fifty-third session, p. 46 n. 150 (emphasis supplied) [hereinafter ‘ILC Commentary’].
106 Under the Vienna Convention, bribery as inducement for entering into a treaty allows the State whose representative was bribed to invalidate its consent to be bound. See VCLT, Art. 50 (‘[i]f the expression of a State’s consent to be bound by a treaty has been procured through the corruption of its representative directly or indirectly by another negotiating State, the State may invoke such corruption as invalidating its consent to be bound by the treaty.’) Through corruption, the representative of a State loses his status as a representative as he negotiates as a private individual rather than as an organ of State, at least for purposes of treaty law. See Mark Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Martinus Nijhoff, 2009), 626.
More importantly, Article 73 of the VCLT makes clear that the Vienna Convention of a treaty does not prejudge questions of State responsibility, so the invalidity of a treaty due to corruption does not necessarily preclude such analysis. See VCLT, Art. 73 (‘The provisions of the present Convention shall not prejudge any question that may arise in regard to a treaty from a succession of States or from the international responsibility of a State or from the outbreak of hostilities between States.’ [italics supplied]).
Notably, in the ILC’s Commentary to Article 50 of the VCLT, it stated that ‘in order to be a ground for invalidating the treaty, the corrupt acts must be shown to be directly or indirectly imputable to the other negotiating State’. U.N. International Law Commission, Draft Articles on the Law of Treaties with commentaries, Report of the International Law Commission to the General Assembly, 1966 ILC Yearbook, Vol. 2, Commentary to Article 50, para. 5. This provision is relatively new and was identified as a ground for invalidity only late in the ILC’s work. Evidently, the members of the ILC were concerned that corruption was of great enough concern to separate it from the genus fraud; de Arechaga, for example, stated that ‘the practice was widespread’. Villiger, 623 n. 2, citing Statement in the ILC by Eduardo Jimenez de Arechaga, I ILC Yearbook 2, 142, para. 7 (1966). Surprisingly, however, there does not appear to be any recorded example of corruption in the treaty context.Anthony Aust, Modern Treaty Law and Practice (2nd edn., Cambridge University Press, 2007), 317. The provision was felt to be important for the protection of weak States against economically stronger States. Villiger, 624.
107 As the basis for the corrupting State’s responsibility, the Commentary references Articles 8 (‘Conduct directed or controlled by a State’) and 17 (‘Direction and control exercised over the commission of an internationally wrongful act’).
108 See Higgins, Problems and Process (n 26), citing Estate of Jean-Baptiste Caire (France) v. United Mexican States, 5 RIAA 516 (1929).
109 ILC Commentary, Ch. II, para. 4, reprinted in Crawford, The International Law Commission’s Articles (n 15), 92.
110 See Crawford, The International Law Commission’s Articles (n 15), 2 (‘...the point was not to elaborate the substantive rules themselves or the specific obligations of States arising from them. These would differ from treaty to treaty and from State to State. Rather the focus was to be on the framework or matrix of rules of responsibility, identifying whether there has been a breach by a State and what were its consequences.’)
111 Under Article 1(1) of the OECD Convention, ‘[e]ach Party shall take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business’.
112 See discussion in Chapter 4, section D.
The same trend can be observed in Africa: on 11 July 2003, in Maputo, Mozambique, the Heads of States and Governments of the African Union approved a Convention on Preventing and Combating Corruption, which has been signed by 39 African States (including Kenya) and has already been ratified by 11 of these 39 States. In this Convention, the Member States of the African Union declare themselves ‘concerned about the negative effects of corruption and impunity on the political, economic, social and cultural stability of African States and its devastating effects on the economic and social development of the African peoples’. They ‘acknowledge that corruption undermines accountability and transparency in the management of public affairs as well as socio-economic development in the continent’. Article 4 of the Convention lists the acts of corruption to which it applies and covers in particular ‘the solicitation or acceptance, directly or indirectly, by a public official or any other person, of any goods of monetary value or other benefit, such as a gift, favour, promise or advantage for himself or herself or for another person or entity, in exchange of any act or omission in the performance of his or her public functions’. Under Article 5 of the Convention, legislative and other measures must be taken to establish such acts as offences.
World Duty Free (n 41), para. 144 (emphasis supplied).
Each State Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally, the embezzlement, misappropriation or other diversion by a public official for his or her benefit or for the benefit of another person or entity, of any property, public or private funds or securities or any other thing of value entrusted to the public official by virtue of his or her position.’
117 Crawford, ‘The System of International Responsibility’ (n 66), 22.
118 See Reisman, Folded Lies (n 35), 96: ‘Campaigns to change bribery practices take two forms. One, by far the more common, is the “crusade” against corrupt practices. It is a highly open and often ostentatious elite-initiated or elite-coopted campaign that may publicly humiliate or penalize some elite members but does not change the basis power structure, the composition of the elite, or their fundamental practices. The social significance of its sound and fury lies in the popular catharsis and reinforcement of the myth system that result; its political significance lies in the reinforcement of the elite.’
119 See Luigi Condorelli and Claus Kress, ‘The Rules of Attribution: General Considerations’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 221, 225:
...there undoubtedly exists a close link, in some cases extremely close, between the applicable primary rule and the rules of attribution...It is also true, as will be seen in more detail below, that a primary rule may, in certain cases, be accompanied by a special rule of attribution, i.e. a secondary rule specially conceived in order to permit the operation of the primary rule in question...However, even admitting that this is the case, it in no way precludes adoption of the view that it is not only entirely correct, but also useful to recognize the existence of general rules of attribution...It is useful because the existence of a special rule of attribution ratione materiae constitutes very much the exception, such that normally it is necessary to rely on the general (secondary) rules of attribution.
120 One of the few international norms concerning responsibility for corruption is found in the Council of Europe’s Civil Law Convention on Corruption. Article 5 of that Convention, entitled ‘State responsibility’, states: ‘[e]ach Party shall provide in its internal law for appropriate procedures for persons who have suffered damage as a result of an act of corruption by its public officials in the exercise of their functions to claim for compensation from the State or, in the case of a non-state Party, from that Party’s appropriate authorities’. Civil Law Convention on Corruption, Council of Europe, ETS no. 174, adopted 4 November 1999. This Convention thus ‘allows each Party to determine at liberty the conditions under which the Party would be liable... for filing claims against the State for damage caused by acts of corruption committed by public officials in the exercise of their functions’.Wolfgang Rau, ‘The Council of Europe’s Civil Law Convention on Corruption’, in The Civil Law Consequences of Corruption 21, 26 (Olaf Meyer (ed.), Nomos, 2009). In a similar vein, a commentator has argued that if a State seeks restitution for the corrupt actuations of its former public officials, such a request for restitution should be denied according to the concept of the refusal of legal protection due to an immoral or illegal performance by both parties. The bribe allegedly received by the old government of the State is attributable to the State; therefore the new government cannot claim that it did not participate in the bribery.Hilmar Raeschke-Kessler, ‘Corrupt Practices in Foreign Investment Context: Contractual and Procedural Aspects’ in Arbitrating Foreign Investment Disputes (Norbert Horn (ed.), Kluwer, 2004), 477, 485.
121 ILC Commentary to Article 2, para. 13, reprinted in Crawford, The International Law Commission’s Articles (n 15), 85.
122 They are not necessarily an exclusive enumeration, but related principles that have an impact on corruption adjudication have been considered and excluded from the Articles. The ‘clean hands’ doctrine, for example—where a State may not benefit from its own wrongful act—is essentially an Anglo-Saxon equitable principle that ‘has been invoked principally in the context of the admissibility of claims before international courts and tribunals, though rarely applied. It also does not need to be included here.’ ILC Commentary on Chapter V, para. 9, reprinted in Crawford, The International Law Commission’s Articles (n 15), 162.
124 Luigi Condorelli and Claus Kress, ‘The Rules of Attribution’ (n 119), 221, 224 (‘...an internationally wrongful act is the product not of two conditions or constitutive elements, as article 2 would seem to suggest, but of three such elements: attribution, breach (i.e. that the conduct attributable to the State in question is contrary to its international obligations), and the absence of any circumstance precluding wrongfulness.’)
126 David, ‘Primary and Secondary Rules’ (n 125), 27, 29, citing 1538th Meetings of the International Law Commission, I ILC Yearbook 40, para. 14 (1979) (comments of Verosta).
128 The FCPA also discharges corporations from the obligations of the law when bribes concern matters of national security and were authorized by a department or agency of government. For Professor Reisman, ‘[t]he result is an almost amusing self-indictment, for FCPA confirms foreign suspicions that the United States government has used corporations operating abroad for intelligence purposes’. Reisman, Folded Lies (n 35), 161.
129 International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries (2001), II ILC Yearbook 2, 73, para. 6 (2001) (‘Who has authority to consent to a departure from a particular rule may depend on the rule. It is one thing to consent to a search of embassy premises, another to the establishment of a military base on the territory of a State. Different officials or agencies may have authority in different contexts, in accordance with the arrangements made by each State and general principles of actual and ostensible authority.’)
131 ‘Whether consent has been validly given is a matter addressed by international law rules outside the framework of State responsibility...Whether a particular person or entity had the authority to grant consent in a given case is a separate question from whether the conduct of that person or entity was attributable to the State for the purposes of Chapter II.’ ILC Commentary on Article 20, paras. 4–5, reprinted in Crawford, The International Law Commission’s Articles (n 15), 164.
132 See ILC Commentary on Article 20, para. 3, reprinted in Crawford, The International Law Commission’s Articles (n 15), 163; Christian Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 1035, 1036.
That said, one should acknowledge that classifications of ‘defences’ or ‘justifications’ are conventional and not entirely logical. Ian Brownlie, Principles of Public International Law (7th edn., Oxford University Press, 2008), 465.
133 See Case Concerning Certain Phosphate Lands in Nauru, 1992 I.C.J. 240, 247 (no waiver by the Australian government was found, as such conduct ‘did not at any time effect a clear and unequivocal waiver of their claims’).
134 See ILC Commentary on Article 45, para. 4, reprinted in Crawford, The International Law Commission’s Articles (n 15), 266 (‘A waiver is only effective if it is validly given. As with other manifestations of State consent, questions of validity can arise with respect to a waiver, for example, possible coercion of the State or its representative, or material error as to the facts of the matter, arising perhaps from a misrepresentation of those facts by the responsible State.’)
135 Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1035.
136 Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1036.
137 These are: (1) There must have been a declaration; (2) by competent authorities; (3) of the State whose rights are affected by the waiver; (4) the declaration must have been made after the breach has occurred; (5) the declaration must not suffer from grounds of invalidity; and (6) the question of whether waivers could be made in relation to peremptory norms of international law. See Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1037–8.
138 Indeed, Professor Tams believes that the International Law Commission’s grouping of implied waiver within the first sub-paragraph of Article 45 (on waiver) instead of acquiescence is erroneous, and that ‘it is unnecessary, and indeed hardly feasible, to draw a distinction between implied waiver and acquiescence’. Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1044.
140 See NS Marques Antunes, Acquiescence, in The Max Planck Encyclopedia of Public International Law (Rudiger Wolfrum (ed.), Oxford University Press, 2008), available at: <http://wwww.mpepil.com>.
141 Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1035, 1043.
142 See Case Concerning Certain Phosphate Lands in Nauru (Nauru v. Australia), 1992 I.C.J. 240, 253 para. 32 (1992) (‘The Court recognizes that, even in the absence of any applicable treaty provision, delay on the part of a claimant State may render an application inadmissible. It notes, however, that international law does not lay down any specific time-limit in that regard. It is therefore for the Court to determine in the light of the circumstances of each case whether the passage of time renders an application inadmissible.’)
143 See e.g. The Grisbadarna Arbitration (Norway/Sweden), Permanent Court of Arbitration (1909), available at: <http://www.pca-cpa.org/showpage.asp?pag_id=1029>; Temple of Preah Vihear (Cambodia v. Thailand), 1962 I.C.J. 6.
Loss of a right to invoke a ground for invalidating, terminating, withdrawing from or suspending the operation of a treaty
A State may no longer invoke a ground for invalidating, terminating, withdrawing from or suspending the operation of a treaty under articles 46 to 50 or articles 60 and 62 if, after becoming aware of the facts:
145 The classic expression of the concept of jus cogens is found in Article 50 of the Vienna Convention on the Law of Treaties: ‘a treaty is void if it conflicts with a peremptory norm of general international law from which no derogation is permitted’. The list of such peremptory norms is a topic of constant debate among scholars. Professor Brownlie lists the ‘least controversial examines of the class’ as follows: the prohibition against the use of force, the law of genocide, the principle of racial non-discrimination, crimes against humanity, and the rules prohibiting trade in slaves and piracy. Brownlie, Principles (n 132), 511.
146 Brownlie, Principles (n 132), 511 (‘The [ILC’s] commentary [on the Vienna Convention] makes it clear that by “derogation” is meant the use of agreement (and presumably acquiescence as a form of agreement) to contract out of the rules of general international law.’)
149 Under the specific facts of Fraport, however, the tribunal found that prosecutors could not have been aware of the ‘secret’ shareholders agreements that were found to have proven the Anti-Dummy Law violation (these shareholder agreements did not involve State organs or entities).
150 Indeed, uncertainties concerning the interface between Philippine prosecutors, the original tribunal, and the parties as to whether the investor was given sufficient opportunity to comment on aspects of the national prosecution led to the annulment of the award in its entirety. In the Fraport annulment decision, the Committee stated: ‘[t]he Tribunal’s Members were not experts in Philippine law. Therefore the interpretation and construction of the Philippine law, to the extent it was relevant, should have been based on the evidence and research as to the actual application of that law by the competent Philippines’ organs.’ Fraport Decision on Annulment, para. 117. This suggests that the practice of national authorities, especially those tasked with the implementation or execution of a particular set of prohibitive laws such as the Anti-Dummy Law, should be considered persuasive when a tribunal is called upon to apply local law. Perhaps more important is the implicit holding that the failure to either prosecute or declare a particular act illegal may potentially estop the host State from invoking the illegality of the investor’s conduct as a defence against the jurisdiction of the tribunal, as the host State would not have ascertained for itself whether illegality was in fact attendant.
151 WDF (n 41), para. 180.
152 See WDF (n 41), para. 177.
153 WDF (n 41), para. 185.
154 In the Grisbadarna arbitration, ‘Norway’s obvious failure to protest against a clear display of sovereign authority by Sweden was held to amount to acquiescence, although the period in question was rather short’. Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1043, citing The Grisbadarna Arbitration (Norway/Sweden), Permanent Court of Arbitration (1909), available at: <http://www.pca-cpa.org/showpage.asp?pag_id=1029>.
155 Tams, ‘Waiver, Acquiescence, and Extinctive Prescription’ (n 132), 1044.
156 ILC Commentary, reprinted in Crawford, The International Law Commission’s Articles (n 15), 82, para. 4.
157 In Diplomatic and Consular Staff in Tehran (n 74), for example, the fact that Iran was not responsible for the acts of the private individuals who seized the United States embassy in Tehran nonetheless brought about responsibility for failure to protect the embassy from seizure in the first place and to subsequently regain control over the premises.
158 Crawford, The International Law Commission’s Articles (n 15), 15 (‘The contents of [States’] pacta are for States and international organizations to decide and modify. The same applies, in general, for the substantive rules of customary international law. Any universal statement of the rules of conduct must thus be subject to constant revision, qualification and development. By contrast the underlying structures of interaction and rule-making at the international level are less fluid, and more durable.’)
159 A number of reasons might explain the paucity of investment arbitration decisions opining on State responsibility for host States. The constraints of the applicable law, discussed in the previous section of this chapter, can certainly limit a tribunal’s appetite to engage with the law on State responsibility, particularly in non-BIT investment arbitrations where the contract clause refers solely to national law. Arbitrators may fear the possibility of ICSID annulment or set aside/non-enforcement by national courts in non-ICSID proceedings for acting ultra petita by engaging the issue, notwithstanding the fact that resort to international law is often demanded by renvoi in most national laws. In addition, limiting concepts such as the jurisdictional constraints contained in investment treaties (e.g. clauses restricting arbitration only for ‘legal disputes arising directly out of an investment’) may play a role, as may issue-framing—arbitrators are often hesitant to engage legal issues not explicitly raised and subjected to contradiction by both parties.
160 Metal-Tech Ltd v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award of 4 October 2013, para. 422: ‘The law is clear—and rightly so—that in such a situation [of an investment tainted by corruption] the investor is deprived of protection and, consequently, the host State avoids any potential liability. That does not mean, however, that the State has not participated in creating the situation that leads to the dismissal of the claims. Because of this participation, which is implicit in the very nature of corruption, it appears fair that the Parties share in the costs.’
161 The term of art for public officials under the Articles on State Responsibility is ‘State organ’. See discussion in Chapter 10(D)(2). While the Articles discuss State responsibility not only for the acts of State organs but also private individuals, the focus in this Article has been upon public officials, as a ‘successful’ act of corruption that results in a modification of the behaviour of public officials presupposes that the recipient of a bribe payment will possess sufficient actual power to be able to control the State’s actuations.
162 WDF (n 41), para. 169.
163 WDF (n 41), para. 181.
164 One might also add that investment arbitration by nature involves investor claims against host States; save for a handful of cases, investors have always acted as claimant against host States, and there is little practical incentive for the host State to invoke investment treaty protections against investors.
165 Article 7 of the Articles embodies both the concept of attribution for acts in excess of authority or in contravention of instructions, but with the qualification ‘if the organ, person or entity acts in that capacity...’. See discussion in section D(2) of this chapter.
166 See Olivier de Frouville, ‘Attribution of Conduct to the State: Private Individuals’, in The Law of International Responsibility (James Crawford et al. (eds.), Oxford University Press, 2010), 257, 263, citing ILC Commentary to Draft Article 10, para. 17, II ILC Yearbook 67 (1975); J.-P. Quéneudec, La Responsabilité Internationale de l-Etat pour les Fautes Personnelles de ses Agents (Paris, LGDJ, 1966), 144–6:
To resolve this problem, international law uses the ‘theory of appearance’. Thus in the Commentary by the ILC to the predecessor to article 7 adopted on first reading (then draft article 10) it was stated:
In international law, the State must recognize that it acts whenever persons or groups of persons whom it has instructed to act in its name in a given area of activity appear to be acting effectively in its name.
The ‘theory of appearance’ apparently fulfills a protective function for the person or the victim State following ‘an excusable error, that is to say done in good faith’, in relation to the act of a functionary which appeared to be an official act.
167 It may perhaps be argued that one way of sidestepping the issue entirely would be to not consider bribe solicitations within the sphere of international anti-corruption law or violations of national law in investment arbitration situations, but to think instead in terms of violations of fair and equitable treatment guarantees found in investment treaties. There is no sidestepping the question of attribution, however, as the bribe solicitation will still have to be determined to be attributable to the host State, regardless of whether the substantive rule violated is the BIT’s fair and equitable treatment standard or that of international or national anti-corruption law.
168 This familiar principle in which the sovereign is immune from civil suit or criminal prosecution is a throwback to ‘the King can do no wrong’; it is present in varying forms in virtually every national jurisdiction. In the United States, for example, the federal government has sovereignty and cannot be sued unless it has waived its immunity or consented to the suit. The primary expression of such waiver is the Federal Tort Claims Act, 28 USC §1346(b) (1948).
170 See Pellet, ‘The Definition of Responsibility’ (n 21), 15.
171 See Chapter 10, section A.
172 ‘The international law of responsibility has distanced itself from the ‘civil law’ model which previously characterized it, and no longer solely plays the role of a compensatory mechanism, to which it was for a long time confined.’ Pellet, ‘The Definition of Responsibility’ (n 21), 15.
173 See ILC Articles, Art. 42 (‘A State is entitled as an injured State to invoke the responsibility of another State if the obligation breached is owed to: (a) that State individually; or (b) A group of States including that State, or the international community as a whole, and the breach of that obligation: (i) specifically affects that State; or (ii) is of such a character as radically to change the position of all the other States to which the obligation is owed with respect to the further performance of the obligation.’)