Originally from Investment Treaty Arbitration and International Law - Volume 13

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I. INTRODUCTION

Corruption is a term that encompasses a wide range of conduct by different actors that may entail different degrees of culpability.  For example, an investor could initiate and consummate the payment of a bribe to a public official in return for preferential treatment, such as the granting of a concession at below-market economic terms despite the investor not being the most qualified candidate for the development of the concession.  The amount of this bribe could vary, as could the degree of preferential treatment granted by the public official.  In this situation, both the investor and the State are implicated, although an observer might intuitively assign greater culpability to the investor for initiating the bribe.  The observer might also consider that the public official has acted illegally to the detriment of the State for their own personal gain, and that the State itself is really the victim of this corrupt conduct – the investor has likewise obtained a benefit to which it was not entitled, by illegal or fraudulent means.  The question of the State’s responsibility for the public official’s ultra vires act, as well as the appropriate legal consequences of the type of corruption described here, will be discussed below.

On the other hand, an investor could comply with the legal requirements of the host State in establishing its investment, only to find later that in operating the investment, certain officials periodically ask for payments in return for providing approvals (say, for work visas or for customs exemptions) that were already agreed pursuant to the terms of the concession agreement.  Having already invested significant capital in the establishment and initial development of its investment, and faced with the prospect of costly delays in respect of bringing in the necessary personnel and equipment to operate the investment, the investor decides to make these payments, while seeking to pursue domestic legal recourse against the officials in question.  This scenario may be best characterized as extortion by the public official for private gain, with or without detriment to the State and its people.