Recent Developments in International

Investment Arbitration -
Framework for Corruption Cases
Sarah Z. Vasani, Partner, Head of Investor State Disputes
ICSID caseload – statistics (2017)
At least 47 publicly-known cases against central Asian states
▶ Kazakhstan (18)
▶ World Wide Minerals, Rumeli Telekom, Windoor, Stati, Biedermann, Caratube (1 and 2), CCL, KT Asia Investment Group,
Liman, AIG, Enrho, Ruby Roz, AES, Turkiye Petrolleri, Alhambra, Hourani, Aktau

▶ Turkmenistan (11 – frequently Turkish)

▶ Herzig, Dögan, Bozbey, Erhas, Garanti Koza, Kiliç, Çap, İçkale, Mobile Telesystems, Güneş, Görkem

▶ Kyrgyz Republic (10)

▶ Belokon, Beck, CEH, JSC BTA Bank, Levitis, OKKV, Petrobart, Stans, SMIS, JSC Tashkent Mechanical Plant

▶ Uzbekistan (7 – often involving claims of corruption)

▶ Kim, Metal-Tech, Oxus Gold, Romak, Spentex, Newmont, Mobile Telesystems

▶ Tajikistan (1)
▶ Al Bahloul
Six public ICSID awards involving central Asian investors: all six
against central Asian states

▶ JSC Tashkent Mechanical Plant v. Kyrgyz Republic

▶ Caratube v. Kazakhstan (1 and 2)
▶ Kim v. Uzbekistan
▶ CEH v. Kyrgyz Republic
▶ AIG Capital Partners v. Kazakhstan
Transparency international – 2016 corruption perceptions index
World Duty Free v Kenya (4 October 2006)
▶ Contract for the construction, maintenance and operation of duty-free complexes at the
Nairobi and Mombassa airports
▶ Contract procured by paying a US$ 2 million bribe to the then President of Kenya
▶ Consequence of the bribe – WDF’s claim was dismissed
▶ “The Tribunal notes that, in some of these cases, it was alleged that corruption is widespread either
within the purchasing country or in the particular sector of activity. However, all arbitral tribunals
concluded that such facts do no alter in any way the legal consequences dictated by the prohibition
of corruption … They recognised that in some countries or sectors of activities, corruption is a
common practice without which the award of a contract is difficult—or even impossible—
but they always refused to condone such practices. The present Tribunal agrees with such
conclusion” (para. 156)
▶ “In light of domestic laws and international conventions relating to corruption, and in light of
the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced that
bribery is contrary to the international public policy of most, if not all, States or, to use
another formula, to transnational public policy. Thus, claims based on contracts of corruption
or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal” (para. 157)
Metal-Tech v. Uzbekistan (4 October 2013)
▶ Joint venture to build and operate a modernised plant to produce
molybdenum products
▶ Issue: whether the investment was legal when initially established, in
accordance with Article 1(1) of the Uzbekistan – Israel BIT
Metal-Tech v. Uzbekistan (4 October 2013)
▶ Burden of proof
▶ “The Tribunal will determine on the basis of the evidence before it whether
corruption has been established with reasonable certainty. In this context, it
notes that corruption is by essence difficult to establish and that it is thus
generally admitted that it can be shown through circumstantial evidence”
(para 79)
▶ Tribunal has “relative freedom in determining the standard necessary to
sustain a determination of corruption” (para. 238)
Metal -Tech v. Uzbekistan (4 October 2013)
▶ Identified “red flags” of corruption indicators (from Lord Wolf, former Chief
Justice of England and Wales):
1. an Adviser has a lack of experience in the sector
2. non-residence of an Adviser in the country where the customer or the project is
located
3. no significant business presence of the Adviser within the country
4. an Adviser requires urgent payment or unusually high commissions
5. an Adviser requests payments be made in cash, use of a corporate vehicle, payment
in a third country, etc and
6. an Adviser has a close personal / professional relationship to the government or
customers that could improperly influence the customer’s decision
Metal-Tech v. Uzbekistan (4 October 2013)
▶ Detailed factual analysis relevant to corruption
▶ Payment: over US$ 4 million paid to “consultants” for “assistance with the operation
of the JV”
▶ Amount of payment v. initial capital contribution of US$ 500,000; an amount 50
times greater than the consultants’ local Uzbek salaries
▶ No services or proof of services
▶ Lack of qualification of the consultants (only basis for payment was relationship
to government officials)
▶ Sham consulting contracts
▶ Lack of transparency of the payee
▶ Connection with public officials in charge of claimant’s investment
Metal-Tech v. Uzbekistan (4 October 2013)
▶ Conclusion – Tribunal found it lacked jurisdiction in light of the finding of
corruption
▶ “[C]orruption is established to an extent sufficient to violate Uzbekistan law in connection with the
establishment of the Claimant’s investment in Uzbekistan. As a consequence, the investment
has not been ‘implemented in accordance with the laws and regulations of the Contracting
Party in whose territory the investment is made’ as required by Article 1(1) of the BIT” (para
372)
▶ “Uzbekistan’s consent to ICSID arbitration, as expressed in Article 8(1) of the BIT, is restricted to
disputes “concerning an investment.” Article 1(1) of the BIT defines investments to mean only
investments implemented in compliance with local law. Accordingly, the present dispute does not
come within the reach of Article 8(1) and is not covered by Uzbekistan’s consent. This means that
this dispute does not meet the consent requirement set in Article 25(1) of the ICSID Convention.
Accordingly, failing consent by the host state under the BIT and the ICSID Convention, this Tribunal
lacks jurisdiction over this dispute” (para. 373)
Metal-Tech v. Uzbekistan (4 October 2013)
▶ “While reaching the conclusion that the claims are barred as a result of
corruption, the Tribunal is sensitive to the ongoing debate that findings on
corruption often come down heavily on claimants, while possibly
exonerating defendants that may have themselves been involved in the
corrupt acts. It is true that the outcome in cases of corruption often appears
unsatisfactory because, at first sight at least, it seems to give an unfair
advantage to the defendant party. The idea, however, is not to punish one party
at the cost of the other, but rather to ensure the promotion of the rule of law,
which entails that a court or tribunal cannot grant assistance to a party that has
engaged in a corrupt act” (para. 389)
Vladislav Kim v. Uzbekistan (8 March 2017)
▶ Dispute relates to Claimants’ interest in two cement plants in Uzbekistan
▶ Case brought under Kazakhstan-Uzbekistan BIT
▶ Uzbekistan claimed that Claimants procured their investment through corruption
and, as a result, Claimants’ claim was not admissible. Allegation based on, inter
alia:
1. alleged overpayment of the purchase price to acquire the shares of the two
cement companies by US$ 8 million; the payment was made to to Ambassador
Gulnara Karimova, daughter of the then President of Uzbekistan
2. the US$ 8 million payment disguised within the purchase price constituted a
bribe in violation of international public policy and
3. Claimants’ payment of US$3 million to Mr. Bizakov, a prominent business man
who introduced Claimants to the opportunity, constituted corruption
Vladislav Kim v. Uzbekistan (8 March 2017)
▶ Conclusion – no corruption proven – jurisdiction is established
▶ Tribunal concluded it was “difficult to assess whether or not any overpayment was
made because there is uncertainty in valuing the shares themselves. Moreover,
even if there were some overpayment, the mere fact of such an overpayment would
not in and of itself establish that the overpayment should be regarded as a bribe”
(para. 24)
▶ Uzbekistan did not establish that Karimova was a government official during the
relevant period so as to satisfy the requirements of the Uzbek Criminal Code, nor
did it identify what, if any, action that Ms. Karimova took or could have taken as a
result of any Government position she may have held so as to advantage Claimants
and thereby establish that the terms of the Uzbek Criminal Code had been met
▶ No evidence that Mr. Bizakov was a member of the government
Shifting burden of proof and significance of “red flags”
▶ “[T]he Parties differ on whether the allegation of corruption, as with other crimes, need be
established with an exacting standard such as “clear or convincing evidence” or
whether the difficulty of proving corruption indicates that the violation need only be
established with “reasonable certainty”. The Tribunal observes that the international
community and many nations have placed a high priority on combatting corruption and
that it may be the case that the standard of proof is shifting in this area of law” (Kim,
para. 544)

▶ “[R]ed flags most often provide only circumstantial, as opposed to direct,

evidence. As circumstantial evidence, red flags can play an important supporting
role in the assessment of guilt. Whether red flags can directly establish, for example,
an element of a crime depends on the legal system applicable. There is not a universal
answer” (Kim, para. 548)
Shifting burden of proof and significance of “red flags”
▶ Higher burden of proof re criminal allegations (beyond reasonable doubt), greater severity
of criminal sanctions

▶ Since arbitral tribunals can't impose criminal sanctions, should lower burden of proof
(balance of probabilities / preponderance of evidence) apply?

▶ Are "red flags" bearing the hallmarks of corruption (i.e. circumstantial evidence)
sufficient? What would they comprise?
▶ e.g. (alleged in Kim case) urgency of the payments; lack of formal due diligence
or site visits; the fact that payments were made through a third-party
intermediary; the fact that payments were made to bank accounts in a third
country; involvement of multi-layered corporate structures
International public policy?
▶ First arose in World Duty Free v Kenya (2006):
▶ “In light of domestic laws and international conventions relating to corruption, and in light of
the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced
that bribery is contrary to the international public policy of most, if not all, States or, to
use another formula, to transnational public policy. Thus, claims based on contracts of
corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal”
(para. 157)

▶ Adopted recently by Kim tribunal:

▶ “Other tribunals have found there to be an international public policy against corruption, the
violation of which would result in the inadmissibility of a claim where the investment at issue
was made possible by such corruption. The Tribunal agrees that such an international
public policy exists and is present implicitly in BITs” (para. 593)
Is it fair to always bar claims where bribery / corruption has been
established?
▶ Metal-Tech:
▶ “While reaching the conclusion that the claims are barred as a result of corruption, the Tribunal is
sensitive to the ongoing debate that findings on corruption often come down heavily on claimants,
while possibly exonerating defendants that may have themselves been involved in the corrupt
acts. It is true that the outcome in cases of corruption often appears unsatisfactory because, at first sight
at least, it seems to give an unfair advantage to the defendant party. The idea, however, is not to punish
one party at the cost of the other, but rather to ensure the promotion of the rule of law, which entails that
a court or tribunal cannot grant assistance to a party that has engaged in a corrupt act” (para. 389)

▶ World Duty Free:

▶ “The Tribunal notes that, in some of these cases, it was alleged that corruption is widespread either
within the purchasing country or in the particular sector of activity. However, all arbitral tribunals
concluded that such facts do no alter in any way the legal consequences dictated by the prohibition of
corruption … They recognised that in some countries or sectors of activities, corruption is a common
practice without which the award of a contract is difficult—or even impossible—but they always refused
to condone such practices. The present Tribunal agrees with such conclusion” (para. 156)

▶ Should tribunals take a more holistic / flexible approach?

Contact
Sarah Z. Vasani
Partner, International Arbitration, Head of Investor State Disputes
+44 (0) 20 7160 3560
+44 (0) 78 7565 1312
sarah.vasani@addleshawgoddard.com

Sarah Z. Vasani is an experienced international arbitration lawyer specialising in both international commercial arbitration and investor state disputes. She leads Addleshaw Goddard's
Investor State Dispute Resolution Practice, and is commended for providing "excellent client service" and has been described by her clients as a "strategic, energetic, tenacious and an
incredibly capable counsellor and advocate" with "exceptionally strong written and oral advocacy skills". Sarah was recently recognised by Who's Who Legal and Global Arbitration Review as
a 2017 "Future Leader in International Arbitration", who described her as "a 'persuasive and effective counsel' who possesses particularly commendable expertise in energy”.
Sarah represents clients before key arbitral institutions including the International Centre for the Settlement of Investment Disputes (ICSID), London Court of International Arbitration (LCIA),
International Chamber of Commerce (ICC), International Centre for Dispute Resolution (ICDR), World Intellectual Property Organization (WIPO), Singapore International Arbitration Court
(SIAC), Hong Kong International Arbitration Court (HKIAC), Stockholm Chamber of Commerce (SCC), and in arbitrations conducted under the UNCITRAL Rules, and under foreign investment
laws. In addition to advocating for her clients' interests before international tribunals in hearings on procedural issues, interim measures, jurisdiction, and merits, and enforcement, set aside,
and annulment proceedings, Sarah also advises clients on investment (re)structuring, and on strategies, options, and tactics for minimising the prospects of full-blown disputes.
Sarah has particular experience in energy, oil and gas, mining, and other large scale project disputes in Africa, the Middle East, Central Asia, the Indian Subcontinent, and Latin America. She
has represented clients such as Exterran, Chevron, ConocoPhillips, El Paso Corporation, Sempra Energy, Murphy Oil Corporation, Reliance Industries, PA Resources, and Madagascar Oil.
Sarah is a Visiting Professor at the University of Bedfordshire, where she teaches international investment arbitration. She has spoken and published extensively on topics relating to
international arbitration and cross-border issues, including the resolution of energy disputes, collateral attacks on arbitration in national courts, improving efficiency in international arbitration,
dispute resolution in the Middle East and Africa, arbitration with states and state entities, energy disputes in times of civil unrest, corruption, and diversity of arbitrator candidates in
international arbitration.
Sarah is qualified in England & Wales, the District of Columbia, and Texas, and is a Solicitor-Advocate of the Higher Courts of England and Wales. Sarah works fluently in both English and
Spanish.
Prior to joining Addleshaw Goddard in 2016, Sarah spent a decade in the Houston, Washington D.C., and London offices of another international law firm.