Originally from The American Review of International Arbitration (ARIA)

PREVIEW

Corruption remains one of the most persistent challenges for the legitimacy and coherence of the investment arbitration system. According to the 2024 Corruption Perceptions Index published by Transparency International, over two-thirds of countries score below 50 (on a 0–100 scale where 0 is “highly corrupt” and 100 is “very clean”), a clear signal that corruption remains a pervasive governance challenge worldwide.  In the Americas, the regional average stands at approximately 42.2, while Sub-Saharan Africa registers an average near 32.5, underlining persistent vulnerability to corrupt practices in many states.

In the Latin American context, public sentiment remains marked by profound skepticism, with substantial segments of the populace perceiving governmental anticorruption initiatives as systematically deficient.  A comparable dynamic is observable across many African jurisdictions, where entrenched distrust toward state institutions has become a defining feature of the political landscape.  These perceptions cannot be dismissed as merely attitudinal; rather, they are grounded in quotidian experience and operate as constitutive forces shaping assessments of political risk, conditioning patterns of investment, and delimiting the very legitimacy of institutional governance. That skepticism has legal relevance. Latin American and African states together account for more than half of all cases filed before the International Centre for Settlement of Investment Disputes (ICSID).  In a significant number of investment disputes, allegations of corruption emerge as a recurrent argumentative device, deployed either by investors—seeking to impugn the legitimacy of adverse state conduct—or by respondent States—seeking to vitiate investor claims or contest the jurisdiction of arbitral tribunals.

Given this backdrop, the rise of corruption allegations in investment arbitration is hardly surprising. Such allegations serve a dual function: a sword wielded by States to defeat claims, or a shield raised by investors seeking to deflect liability or reputational harm. To date, States have more often succeeded in deploying corruption as a jurisdictional escape hatch. Yet fundamental questions remain: Is that outcome always justified? And does it truly deter corruption, or does it instead erode the legitimacy and purpose of the ISDS system? At a time when ISDS faces mounting criticism and legitimacy challenges, it is worth pausing to reflect on how tribunals are confronting corruption in investment disputes.

In the dialectic of investment arbitration, claims and defenses inevitably coexist. Since the seminal decisions in World Duty Free v. Kenya (ICSID 2006) and Metal-Tech v. Uzbekistan (ICSID 2013), arbitral tribunals have been repeatedly confronted with allegations that corruption vitiated either the investment transaction itself or the right to invoke arbitral jurisdiction. Within the framework of bilateral investment treaties and free trade agreements, tribunals have, on several occasions, accepted such arguments and declined jurisdiction. The resulting jurisprudence has generated sustained debate: while some view these outcomes as affirming the principle that investments procured through corruption cannot benefit from treaty protection, others criticize them as effectively insulating States from responsibility notwithstanding their own failure to prevent or redress corrupt practices.