Analysing Obstacles and Challenges in Fighting Corruption in Cases of Illegal Investments

Round 1

Reviewer 1 Report

Thanks for this very interesting article on corruption in investment processes. I think the article is written really well, especially the first part of the manuscript where the analysis goes in-depth into the definition of corruption, legality of investments, anticorruption clauses in trade and investment agreements, procedural obstacles in arbitral proceedings, and due diligence and good faith issues, etc. Those sections are dense, deep, and empirically solid with the focus on analysis of existing case law and practice. The second part of the manuscript, however, whether the article discusses model legislation is a bit problematic and cannot be published as is. First, the section is far too brief. The legal and practical workings of APUNCAC are poorly elaborated. There is also hardly any discussion of the limitations of the proposal. I think it is worthwhile elaborating on how and why States should be attracted to sign the model protocol and who/how the ICAC will be financed. In addition, I find the very name APUNCAC to be far too general. The proposed model protocol only applies to multinational investments. The name of Anticorruption Protocol is just not reflecting on this rather narrow mandate. Why is Transparency International singled out to support the ICAC? There are many other anticorruption NGOs (e.g., UNCAC Coalition). I am convinced that picking on one does little justice to the rest of equally notable organizations with a similar mission and mandate. With these recommended revisions, I also suggest that the conclusion is expanded. It should reflect the contents of the article in a more comprehensive way. 

Other than these broad comments, I would like to bring to the author's attention the following:

• There are a few typos and grammar mistakes in the text. I wasn't able to spot them all. See p. 2, para 2. repetitive sentences/points; p. 2, para. 3 typo (“analusis”); p. 25 (“to addresses”), etc.
• Please mind the inconsistent usage of capitalization of State/state.
• There seems to be a problem with references on p. 25. Reference 201 is incomplete. The 8^th Session of the COSP contains multiple documents. Which specific one is referred to?  It is also unclear what Article 7 of APUNCAC says. Where can it be found? The reference in footnote 203 is unclear. I’ve checked the 8^th Session of the COSP report linked in the text and found no exact quote there.

Author Response

Response to Reviewer 1

Thank you very much for your comments, they have been very useful in improving the manuscript submitted.

1. The section about the APUNCAC has been revised.

1. Typos and grammar mistakes in the text have been addressed.

3. With regard to the section on APUNCAC, it is worth mentioning that whereas the topic of illegal investments has been well researched, there is few bibliography about the topic.

Reviewer 2 Report

This is a well written and informed article on the problem of how investment arbitration does and should react to cases of corruption or other illegalities. Its first part describes the way how tribunals have reacted to evidence of corruption in the making of investments in the past. There are a few minor points which I will list separately, but overall it is written addressing most of the important cases and taking into account much of the existing literature which is already very extensive.

If it were only this descriptive part it would not add much to the existing literature. However, it then turns to what it calls an “innovative response” to dealing with corruption, the mechanism created under APUNCAC. This provides an interesting linking aspect with the new UN mechanism that the author suggests should be coupled with what investment tribunals have done in the past. However, it is this section which should be extended in order to explain in more detail how the combination of investigations under this protocol and proceedings before investment tribunals could work.

In addition a few minor points should be taken care of:

• Footnote 1 only references the first Fraport decision; however, the same finding was reached by the second tribunal deciding after the annulment.
• Throughout the article, while there is a distinction between legality being a jurisdictional or a merits question, whether corruption goes to jurisdiction or admissibility is insufficiently addressed.
• on page 8 last paragraph, the excerpt from the Achmea decision referenced as footnotes 48 and 49 is duplicated. And also the concluding sentence referencing an “accept view” that foreign investments are only protected by international law when they are made in accordance with the legislation of the host state would need to be referenced and, in my view, does not correctly reflect the divergence of opinions.
• on page 19 second paragraph, the statement that in Saba Fakes the tribunal “extended the legality requirement to the issues of consent and whole protection” is unclear, specifically what “whole protection” is meant to signify. Also given that Saba Fakes expressly criticised the Phoenix tribunal for considering a legality requirement to be implicit in the notion of investment, the assertion does not appear plausible.

Author Response

Response to Reviewer 2

Thank you very much for your comments, they have been very useful in improving the manuscript submitted.

• Footnote 1 only references the first Fraport decision; however, the same finding was reached by the second tribunal deciding after the annulment. This was corrected.
• Throughout the article, while there is a distinction between legality being a jurisdictional or a merits question, whether corruption goes to jurisdiction or admissibility is insufficiently addressed. This was already extensively addressed in the article, but was revised.
• On page 8 last paragraph, the excerpt from the Achmea decision referenced as footnotes 48 and 49 is duplicated. And, also, the concluding sentence referencing an “accept view” that foreign investments are only protected by international law when they are made in accordance with the legislation of the host state would need to be referenced and, in my view, does not correctly reflect the divergence of opinions. This was revised.
• On page 19 second paragraph, the statement that in Saba Fakes the tribunal “extended the legality requirement to the issues of consent and whole protection” is unclear, specifically what “whole protection” is meant to signify. Also given that Saba Fakes expressly criticised the Phoenix tribunal for considering a legality requirement to be implicit in the notion of investment, the assertion does not appear plausible. Thank you for this comment.

Reviewer 3 Report

This is a valuable contribution to the special issue. It accumulates a substantial weight of evidence that the current system of arbitration of international investments does not deal adequately with the theme of corruption. Instead, it defines corruption inconsistently, in many cases serving to obscure its role in the matters under arbitration. It looks to the existing system and options it presents for reform, and uses a substantial amount of evidence to persuasively argue that an independent system outside the existing one that deals with corruption in international investments is needed. It reviews APUNCAC and finds that a body like this would be better suited to this task. I believe that this is the kind of article this special issue needs, hence my recommendation for publication.

The main strength of the article is its wealth of empirical data, organized by this strong logic. That is sufficient justification for publishing in this issue. However, at some points I felt that a little more analysis could have strengthened it for its purposes, to be made explicit though not expanded.

For instanced, the analyses often did not give the context of the case, whether it was a multinational accusing a small state of corruption to get out of its obligations, or a large state doing the same to a smaller, weaker state, or a smaller state, of the type often called kleptocracies. The political differences between these different scenarios affect problems that may affect arbitration, and the feasibility of different systems.

I would also liked to have seen more discussion by the author of how s/he sees the two adjacent systems brought together (I appreciate that it is done to some extent, but this issue is crucial to the practical success of the proposal). In essence, should matters brought before investment arbitration be able to be appealed to a stronger court with a clearer understanding of corruption and backed by real investigative powers, whose report could then be fed in authoritatively to the investment tribunal? Or could plaintiffs who identify the core issue in their case as corruption be able to go direct to APUNCAC as a one-stop-shop, reducing the dissipative effect of having to go through chains of processes to finally reach an outcome?

I have no view as to which of these alternatives I would prefer or hope or expect the author to prefer, if either. My point is that this would be a way to probe APUNCAC a little more, which the author does not attempt.

There are some minor typos the author should address:

2.18 analusis -> analysis, 6.6 in -> to, 7.6 implicit/implicitly redundant, 9.23 being -> to be,  20.1 add being before guilty, 20.14 in -> of, 21.4 out -> outright, 21.13 strean -> stem, 24.6 repeats -> repeated.

Author Response

Thank you very much for your comments, they have been very useful in improving the manuscript submitted.

In terms of the analysis of the APUNCAC, this has been reviewed in response to the comment and recommendation about “that a little more analysis could have strengthened it for its purposes, to be made explicit though not expanded”.

 “For instance, the analyses often did not give the context of the case, whether it was a multinational accusing a small state of corruption to get out of its obligations, or a large state doing the same to a smaller, weaker state, or a smaller state, of the type often called kleptocracies. The political differences between these different scenarios affect problems that may affect arbitration, and the feasibility of different systems.” Due to space constraints, clearly, it is not possible to include all the details of the case law and cases referred to in the text.  

 “I would also like to have seen more discussion by the author of how s/he sees the two adjacent systems brought together (I appreciate that it is done to some extent, but this issue is crucial to the practical success of the proposal).” With regard to the interactions and interrelations between the two systems, the manuscript already addresses the interplay of the system

“In essence, should matters brought before investment arbitration be able to be appealed to a stronger court with a clearer understanding of corruption and backed by real investigative powers, whose report could then be fed in authoritatively to the investment tribunal?”

There is no appeal possible from the investment arbitration tribunal to the corruption court. The systems are not interrelated in this way. This was never the aim of the article.

“Or could plaintiffs who identify the core issue in their case as corruption be able to go direct to APUNCAC as a one-stop-shop, reducing the dissipative effect of having to go through chains of processes to finally reach an outcome?”

This is the most likely option.

Following the reviewer’s recommendations, a more detailed analysis of the APUNCAC is now included in the text.

There are some minor typos the author should address: The text has been checked for typos.