Academic journal article Michigan Law Review

Promisesunfulfilled:howinvestment Arbitration Tribunalsmishandlecorruption Claims Andundermine Internationaldevelopment

Academic journal article Michigan Law Review

Promisesunfulfilled:howinvestment Arbitration Tribunalsmishandlecorruption Claims Andundermine Internationaldevelopment

Article excerpt

Introduction

On February 24, 1998, the Kenyan government seized control of World Duty Free's stores inside the Nairobi and Mombasa International Airports.1 The government had one goal: destroy evidence that World Duty Free obtained the contract for their duty-free stores through a bribe of approximately $2 million to Kenyan President Daniel arap Moi's reelection campaign.2 After the Kenyan government seized the stores, World Duty Free, an Isle of Man corporation, initiated investor-state arbitration3 under the bilateral investment treaty between the Isle of Man and Kenya.4 Although the arbitral tribunal acknowledged that President Moi solicited the bribe,5 the tribunal declined to exercise jurisdiction over the dispute because the initial deal was tainted by corruption.6 As a result, World Duty Free lost its investment and President Moi retained the $2 million.7 The tribunal's refusal to exercise jurisdiction over World Duty Free's case illustrates an evolving dilemma in investment arbitration. How should tribunals handle disputes tainted by corruption allegations?

Investment tribunals are empowered to arbitrate disputes between host states and investors under international legal frameworks that provide substantive and procedural protections for private investments.8 Numerous host states, however, have argued that investments tainted by corruption or similar illegality do not qualify for protection and thus that tribunals lack subject-matter jurisdiction9 over these disputes.10 Arbitral tribunals have been responsive to these host states' arguments and have declined to exercise jurisdiction over disputes tainted by corruption.11 When investment tribunals decline to exercise jurisdiction over these disputes, however, tribunals undermine their intended purpose to incentivize investment12 and promote development.13 To remedy this predicament, this Note proposes a framework for the adjudication of corruption claims in investment arbitration. It argues that tribunals should invoke equitable estoppel to accept jurisdiction over the dispute and use a contributory-fault approach to determine liability.14 This framework would bolster the investment-arbitration and anticorruption regimes, thereby incentivizing investment and promoting development.

Part I traces the history of international investment treaties and discusses their intended role in promoting economic development. Part II argues that investment tribunals' mismanagement of corruption claims undermines the purpose of these treaties. It also explains how this phenomenon subverts the global fight against corruption. Part III advocates that arbitral tribunals should accept jurisdiction over disputes tainted by corruption and evaluate each party's role in the corrupt act. Ultimately, this Note presents an actionable solution to an increasingly salient issue in investment arbitration and international development.

I. The Rise of the Modern Investment Treaty

Since World War II, international investment has been recognized as a valuable tool for achieving economic-integration and developmental goals.15 Achieving these goals, however, required adequate incentives and protections for investors. Bilateral investment treaties and their dispute resolution systems, commonly known as investment arbitration, provided those incentives. Section I.A highlights the history of international investment treaties and describes the developmental goals articulated at the Bretton Woods Conference in 1944. Section I.B explains the nature of bilateral investment treaties and investment arbitration. Section I.C describes the overlap between the investment-arbitration and anti-corruption regimes.

A.The Purpose of International Investment Treaties

International investment treaties date back to the late eighteenth century, when countries began forming treaties of friendship, commerce, and navigation to promote commercial relations between signatories.16 The first agreement of this type was the Treaty of Amity and Commerce,17 signed by the United States and France in 1782. …

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