Using Red Flags to Prevent Arbitration from Becoming a Safe Harbour for Contracts that Disguise Corruption
This bulletin provides insights about recent Anti-Corruption Initiatives and their Impact on Arbitration, by François Vincke, using Red Flags to Prevent Arbitration from Becoming a Safe Harbour for Contracts that Disguise Corruption, by Vladimir Khvalei, Dealing with Corruption in Arbitration: A Review of ICC Experience, by Christian Albanesi and Emmanuel Jolivet, and extracts from ICC Arbitral Awards Relating to Bribery and Corruption.
Parties involved in bribery and corruption in international commerce invariably hide their unlawful dealings under the cover of a seemingly legitimate contract such as an agency or consultancy agreement. Disputes arising from such deals are often referred to arbitration in the belief that arbitration is less likely to expose the true nature of their dealings than if the dispute were referred to the courts. This article alerts arbitrators to this trend and discusses the circumstances that in a given case may point to the possible existence of bribery and corruption in the underlying transaction. Known as 'red flags', such circumstances relate, inter alia, to the identity of the parties (typically state or publicly-owned entities whose real owners are difficult to identify), the location of the parties' dealings (in a country or a sector prone to corruption), remuneration (timing, excessively high rates of commission, payments overseas), the services to be provided (ill-defined and intangible), the parties' business activity (no evidence of real or prior activity, lack of qualified personnel and actual offices). The author argues that on the basis of these and other red flags arbitrators may make a procedural presumption that the parties' transaction is unlawful and shift the burden of proof to the party accused of corruption to present counter-evidence of the legitimacy of their contract. In the appendices to the article, the author proposes three checklists indicating typical circumstances that (i) should prompt arbitrators to investigate corruption, (ii) justify a presumption of corruption and (iii) disprove suspicions of corruption.
Read >
Parties involved in bribery and corruption in international commerce invariably hide their unlawful dealings under the cover of a seemingly legitimate contract such as an agency or consultancy agreement. Disputes arising from such deals are often referred to arbitration in the belief that arbitration is less likely to expose the true nature of their dealings than if the dispute were referred to the courts. This article alerts arbitrators to this trend and discusses the circumstances that in a given case may point to the possible existence of bribery and corruption in the underlying transaction. Known as 'red flags', such circumstances relate, inter alia, to the identity of the parties (typically state or publicly-owned entities whose real owners are difficult to identify), the location of the parties' dealings (in a country or a sector prone to corruption), remuneration (timing, excessively high rates of commission, payments overseas), the services to be provided (ill-defined and intangible), the parties' business activity (no evidence of real or prior activity, lack of qualified personnel and actual offices). The author argues that on the basis of these and other red flags arbitrators may make a procedural presumption that the parties' transaction is unlawful and shift the burden of proof to the party accused of corruption to present counter-evidence of the legitimacy of their contract. In the appendices to the article, the author proposes three checklists indicating typical circumstances that (i) should prompt arbitrators to investigate corruption, (ii) justify a presumption of corruption and (iii) disprove suspicions of corruption.
Read >