Originally from Investment Treaty Arbitration and International Law - Volume 13

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“[C]orruption is an international evil; it is contrary to good morals and to an international public policy common to the community of nations.”  —
Judge Gunnar Lagergren

Investment treaties aim to stimulate foreign investment and promote the rule of law. Corruption  impedes foreign investment and is antithetical to the rule of law. Why should, therefore, investments tainted by corruption ever be permitted to benefit from the protection of investment treaties?

This paper argues that corrupt behaviour by the investor should result in the disqualification  of otherwise meritorious investment-treaty claims, regardless of whether the corrupt behaviour occurred at the time of establishment of the investment or later, during the life of the investment (“post-establishment” corruption).

Section I argues that, as a matter of policy, investments tainted by corruption should not be accorded the protection of investment treaties, regardless of when the corruption occurred. Section II responds to potential arguments for not disqualifying claims due to post-establishment corruption. Section III discusses two seminal investment-treaty cases dealing with corruption allegations. Section IV identifies legal bases on which claims can be excluded due to corruption, whenever the relevant act occurred. Section V argues in favour of the principle of proportionality in considering the effects of corruption on the validity of investment-treaty claims. The chapter concludes with the observation that the timing of the corrupt act — be it at the time of establishment of an investment, or during the operation of the investment — should be just one of several factors to be considered in determining the legal consequences of the corrupt act on the validity of investment-related claims. If justice so requires, corruption occurring after the establishment of an investment should disqualify otherwise meritorious treaty claims.