Use of Corruption Defense by Host States in Investor-state Arbitration

Abstract

Concerns about corruption have significantly grown in international investment law. Although foreign investment may boost the social and economic development of the host country, investment tainted by corruption has adverse effects, such as rising transaction costs and declining confidence in the business climate. As a result, there is a contentious argument over whether an investor who used bribery during their investment can file a claim against the host State in international investment arbitration. When investors are involved in corruption to facilitate their investment, the question of how to use corruption defense is crucial for respondent States, particularly those engaged in a ferocious fight against corruption like Vietnam. Therefore, this paper seeks to answer this question. It reveals that in investment arbitration, host States can use corruption defense in diverse ways: as an objection to jurisdiction, a challenge to the admissibility of the claims, or a substantive defense. Further, this paper evaluates the viability of these options by examining how arbitral tribunals have dealt with host States' corruption claims in the past and how the current treaty reforms may affect tribunals' decisions in future disputes. Based on this analysis, the author provides recommendations for respondent States to effectively use corruption defense in investment disputes.