PARTICULAR ASPECTS

REGARDING THE CONSEQUENCES

OF CORRUPTION WITHIN
ARBITRATION

MOTTO:
„Who has power, is tempted to abuse it”
(Montesquie
u)

Andreea Greblă1
Patricia Crișan2
Ramona Coman3

1
2nd year law student, Petru Maior University of Tîrgu-Mureș
2
2nd year law student, Petru Maior University of Tîrgu-Mureș
3
Asist. Univ. Dr. at Petru Maior University of Tîrgu-Mureș
Abstract
Most developed systems consider corruption to be contra bonos mores and illegal but
unfortunately it is a widespread practice. International commercial arbitration is a private
dispute resolution, founded upon an agreement to arbitrate, in a trans-boarder context. It is a
time-efficient form of dispute resolution, which offers the parties extensive discretion, in the
conduct of the proceedings. As we know international arbitration has been used to resolve
disputes for a long time. Unfortunately, another side of business transactions - corruption -
has been around a long time also. Inevitably, it has appeared in international commercial
arbitration cases. This paper reviews some of those cases and analyses how the relations
between parties and the arbitrators can affect the proceedings.

2
 1. CORRUPTION

1.1. Introduction

Defined as a state of deviation from morality, from duty4, corruption is derived from
the Latin word corrumpere, meaning to break, to destroy. Obviously, an act of corruption
breaks the law, duties, moral norms and covers all situations where agents and public officers
break the confidence entrusted to them.5
Black's Law Dictionary provides a broader juridical definition of corruption and close
to meaning that we will adopt new for this "act committed with intent granting any advantage
inconsistent with official duties and rights of others; the use by an employee of his official
position or function in order to realize a benefit for himself or another person at the expense
of the rights of others".6
Legal communities are becoming increasingly sensitive to corrupt practices, and there
is a growing anti-corruption industry of both governmental and non-governmental bodies.7

An international consensus on a broad definition of both public and private sector

corruption can be found in Articles 15, 16, and 21 of the United Nations Convention against
Corruption 2003 (UNCAC). Article 15 applies to the bribery of both national and foreign
public officials and is defined as:

(a) The promise, offering or giving, to a public official, directly or indirectly, of an

undue advantage, for the official himself or herself or another person or entity, in order that
the official act or refrain from acting in the exercise of his or her official duties8;
Bribery is not the only form of corruption in international trade that is outlawed.
Article 18 UNCAC outlines the practice of “trading in influence”, an offence involving a
person having “real or supposed influence” over public bodies or officials, trading the
“abuse” of such influence (as opposed to the payment of bribes), in return for an “undue
advantage” from a person seeking this influence9.
4
Explanatory Dictionary of the Romanian language.
5
Olimpiu A. Sabău-Pop, Corruption and combating corruption by legal means, Universul Juridic, Bucharest,
2011
6
Black's Law Dictionary/ ed. Bryan A. Garner. – 7th ed. – St. Paul: West Group, 1999.

7
Including the Global Compact and the Group of States against Corruption within the Council of Europe,
Transparency International, and the United Nations Convention against Corruption Coalition.
8
Article 15, United Nations Convention against Corruption 2003.
9
Article 18, United Nations Convention against Corruption 2003.
3
 Corruption poses a threat to democracy, the rule of law, social equity and justice,
eroding the principles of efficient administration undermines the market economy and
endangers the stability of state institutions10 and as a consequence, it is perceived as a serious
worldwide problem, although the nature and scope can differ from one society to another.11

1.2. Corruption issue

Transparency International (TI) is the largest global organization in the field of
corruption.
Corruption Perceptions Index (CPI) compiled by Transparency International
annually, measures the perceived corruption in the public sector of each country. This
indicator was launched in 1995, Romania was evaluated in 1997.
According to the Corruption Perceptions Index 2014 corruption is still a fairly
extensive phenomenon, more than two thirds of the 175 countries score below 50, on a scale
from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean). Denmark comes
out on top in 2014 with a score of 92, Romania has a score of 43 finishing in 69th, while
North Korea and Somalia share last place, scoring just eight.12
For our country 2007 was the corruption year. According to a study made in
December 2007 which reflects the experience of the public regarding corruption - Romania
was the country with the highest level of corruption in the European Union.
Justice was also subject of Global Corruption Barometer conducted by
Transparency International: police and judiciary services can appear to be highest in the
giving or taking bribe.13 The public has no confidence in these institutions nor to remedy the
situation in the coming years; anti-corruption efforts are perceived as ineffective.
In many countries we speak of a systemic judicial corruption. In our country, it retains
the courts, registries, archives and grafts courts are still marked by a lack of integrity and
mismanagement, visible quality and timeliness of services.

10
The national program of prevention of corruption, approved by Government Decision no. 1065/2001,
published in the Official Gazette no. 728 of 15 November 2001.
11
Parvaneh Mousavi, Masoud Pourkiani, European Online Journal of Natural and Social Sciences 2013, vol.2,
No.3 (s), pp. 178-187, www.european-science.com
12
http://www.transparency.org.ro/politici_si_studii/indici/ipc/2014/01_CPI2014_Comunicat_Presa_RO.pdf
13
This report examines how the bribery act on the entire judiciary - judges and other employees accepting
bribes to delay or accelerate the development of certain processes to admit or reject certain calls or give a
solution to some problems.
4
 The result was somehow expected, a May 2007 report on judicial corruption specialist
- Global Corruption Report 2007: Corruption in Judicial Systems14, which shows the
negative effects of petty corruption but also of political influence over the fairness of justice.

2. CORRUPTION IN INTERNATIONAL COMMERCIAL ARBITRATION

In the context of this study, corruption is treated from the perspective of the arbitral
proceedings.
As we have already seen, corruption is the abuse of power for private benefit to be
achieved. It is preferable that definition which is sufficiently broad and can be easily adapted
to situations of unfair behavior of those involved in the arbitration or to their decisions.
Adapting this definition, we can say that by an act of arbitration corruption we assign
any negative influence of people who work in the system, and which affect the impartiality of
procedures in order to obtain an unlawful benefit by them or for parties.

2. 1. Arbitration
Nowadays, arbitration became accepted worldwide as the principal method of
resolving international dispute because of its advantages (the neutrality, the flexibility, the
confidentiality etc).
Due to its private nature, it is a much preferred form of dispute resolution. In
arbitration, parties are free to choose the arbitrators, as well as the rules, place, and language
of the proceedings. In international commercial arbitration, companies often prefer a neutral
process, to avoid being subject to another country’s judicial system, which could potentially
give the other party a home-court advantage.15

2.2. Impartiality and independence of arbitrators

A fundamental aspect of the arbitration process is that Arbitrators must be
independent and impartial.

14
The Global Corruption Barometer is a tool that explores citizens' opinions and experiences with corruption
while the Global Corruption Report, presented in the form of publications, is an analysis of the state of
corruption around the world. Transparency International Report summarizes news and analysis from experts and
supporters of the movement, highlighting recent developments on corruption. Each report covers a period of 12
months from July to June, and reviews the impact of corruption in a specific sector, including detailed studies
from different countries. The report released on 24 May 2007 focuses on corruption in the judiciary and
available on TI-Ro website. In 2008, CCR analyzed corruption in the water sector corruption in public health in
2006, and in 2005, corruption in construction works in areas of post-conflict reconstruction.
15
“Current and Preferred Practices in the Arbitral Process”, International Arbitration Survey, 2012.
5
 The essential obligation of the arbitrators regarding the arbitrating parties is the
adjudication of the dispute submitted to their jurisdiction in the arbitration agreement. This
obligation is an accepted principle of arbitration laws in Europe and from it derives the
independence and the impartiality of the arbitrators16- which assure the confidence of the
parties they receive “private justice”.
The impartiality and the independence are two different concepts. “An impartial
arbitrator, by definition, is one who is biased in favour of, or prejudiced against, a particular
party on its case, while an independent arbitrator is one who has no close relationship-
financial, professional, or personal – with a party on its counsel, it also means the absence of
any pressure and influence.17
Integrity involves honesty and good faith. Basically, integrity manifests itself in
performing arbitration acts with objectivity, in full equality to the timescales required by law,
to ensure the legality of those acts. Integrity is absolute; in arbitration, integrity is more than a
virtue, it is a necessity.
Many nations have enacted arbitration legislation which provides a basic legal
framework for international arbitration agreements, arbitral proceedings an arbitral awards,
existing also a supportive National Arbitration Legislation.
In the IBA Guidelines18 it is stated that “Every arbitrator shall be impartial and
independent of the parties at the time of accepting an appointment to serve and shall remain
so until the final award has been rendered or the proceedings have otherwise finally
terminated.”
American Arbitration Association (AAA)19, IBA Rules and UNCITRAL have expressly
adopted a “justifiable doubts” standard regarding the impartiality or independence. In
UNCITRAL rules the article 10(1) provides: “Any arbitrator may be challenged if
circumstances exist that give rise to justifiable doubts as so the arbitrator’s impartiality and
independence”. The disclosure by and challenge of arbitrators is stated in articles 11 to 13.20

16
L’impartialité du juge et l’arbitre, Étude du droit comparé, Jacques van Compernolle et Giuseppe Tarzia,
Bruylant, Bruxelles, 2006.
17
A Redfern and Hunter, The Law and practice of International Commercial Arbitration, Sweet & Maxwell,
1999, London , p. 220.
18
IBA Guidelines, Part I (1) General Principles.
19
Commercial Arbitration Rules R-17 https://www.adr.org/aaa/faces/rules/searchrules/rulesdetail?
doc=ADRSTG_004130&_afrLoop=4880601089614524&_afrWindowMode=0&_afrWindowId=null#
%40%3F_afrWindowId%3Dnull%26_afrLoop%3D4880601089614524%26doc
%3DADRSTG_004130%26_afrWindowMode%3D0%26_adf.ctrl-state%3D14ygdb4tyg_92
20
Ben Atkinson Wortley, Some Principles Common to Public and Private International Law, Recueil Des Cours
(1954).
6
 LCIA Rules 201421 Article 5.3 states that “All arbitrators conducting an arbitration
under these Rules shall be and remain at all times impartial and independent of the parties.”
The Article also obliges each Arbitral candidate to sign a written declaration stating:
“Whether there are any circumstances currently known to the candidate which are likely to
give rise in the mind of any party to any justifiable doubts as to his or her impartiality or
independence and, if so, specifying in full such circumstances in the declaration.” 22 This duty
continues after an Arbitrator is appointed.23

The SCC Rules 2010, Article 14 states that “every Arbitrator must be impartial and
independent”24 and imposes a duty upon them to “disclose any circumstances which may give
rise to justifiable doubts as to his/her impartiality or independence.” 25 Once an Arbitrator has
been appointed he must submit a signed statement of impartiality and independence
disclosing any circumstances which may give rise to justifiable doubts as to his impartiality
or independence.26An Arbitrator must immediately inform the parties where such
circumstances arise in the course of arbitration.27

The Arbitration Act 1996 (the Act) that consolidates and updates English arbitration
law and procedure stated in section 1 of Part I:

1. The provisions of this Part are founded on the following principles, and shall be
construed accordingly:

(a) The object of arbitration is to obtain the fair resolution of disputes by an impartial
Tribunal without unnecessary delay or expense;
Section 33 (1) of the Act impose to the Tribunal. It must: 28

(a) Act fairly and impartially as between the parties, giving each party a reasonable
opportunity of putting his case and dealing with that of his opponent

21
Article 5.3, The London Court of International Arbitration Rules 2014.
22
Article 5.4, The London Court of International Arbitration Rules 2014.
23
Article 5.5, The London Court of International Arbitration Rules 2014.
24
Article 14 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010.
25
Article 14 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010.
26
Article 14 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010.
27
Article 14 (3), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010.
28
Section 33 (2), The Arbitration Act 1996.
7
 Vladimir Pavić states in his 2012 paper “Bribery and international commercial
arbitration – the role of mandatory rules and public policy” 29 that it is very unlikely that the
Arbitrators themselves will be involved in demanding or accepting bribes during the Arbitral
proceedings. It is more frequent that fraudulent acts are committed during the course of
proceedings, for instance false testimony and forged documents.

Nevertheless, in practice, the manner the arbitrators are chosen or the domain
preponderant unregulated (eg the relationship between the arbitrator and the parties is not
stated in most national laws30) could be sources of corruption. The arbitrator chosen by a
party could be impartial or could have other interests and there are lots of cases where the
award were vacated for these reasons.

We resumed to a presentation of a few cases regarding the lack of independence and

impartiality of the arbitrators in order to prove that such situations frequently occur in
practice.
A first example is the case Readington31 where the award was vacated because the
winning party was a debtor to the arbitrator and the money which he collected out of the
award was use to repay him.
Another possible situation is highlighted in the case Austin South I, Ltd v Barton-
Malow Co., where the arbitrator had briefly collaborated with a party, five years earlier in a
different job or in the case Corp. of India v IDI Mgmt. Inc. where a party-appointed arbitrator
had acted as counsel for the party on several past occasions.
It also exist the situation when an arbitrator has substantial, undisclosed business
dealings with a party or close personal relationship. In Petroleum Cargo Carriers Ltd v
Unitas Inc, for example, the award was annulled because arbitrator’s firm received $350,000
in commissions from a party. In another case32, the arbitrator was employee of company with
significant business dealings with party.
In the case Schmitz v Zilveti the award was vacated because arbitrator’s law firm
represented parent company of party to arbitration and in other case 33 the presiding arbitrator
29
Pavić, Vladimir, ,,Bribery and International Commercial Arbitration – The Role of Mandatory Rules and
Public Policy” (17 November 2012). Victoria University Wellington Law Review (2012) Vol. 43 pp. 661-686.
Available at: http://ssrn.com/abstract=2252499
30
http://www.diva-portal.se/smash/get/diva2:658396/FULLTEXT01.pdf
31
Cook Indus., Inc v C. Itoh & Co. (Am.) Inc.
32
952 F.2d 1144, 1148, 9th Cir. 1991.
33
Pacific & Artic Ry, & Nav. Co. v. Trans. Union, Gary B. Born, International Arbitration Cases and materials,
Wolters Kluwer, The Netherlands, 2011.
8
was friend of president of party to arbitration and dined together (at party’s expense) with
president before hearing.34

2.3. Corruption in Romanian arbitration: The Vlasov case

A recent case of corruption in Romania involves the former Chair of the Romanian
Chamber of Commerce and Industry.
Mihail Vlasov graduated the Law University of Iasi in 1974. He was judge before the
revolution when, before 1989 was sentenced to six months of prison for bribery. In 1990 was
acquitted because was found innocent.
In 2007 he was chosen as the former Chair of the Romanian Chamber of Commerce
and Industry but his name was involved in many scandals. Recently, was sentenced by the
High Court of Cassation and Justice (ICCJ Romania’s Supreme Court) to five years in prison
for influence peddling.
The Bucharest Court of Appeals had condemned Vlasov to a prison term of four
years, but the National Anticorruption Directorate (DNA) appealed the sentence and won.
Vlasov will be forbidden to occupy public offices or to exercise a profession or trade
or engage in the same activity that has been used for committing the offense for a period of 5
years, after imprisonment.
Mihail Vlasov is accused of receiving a EUR 200,000 bribe from a businessman, part
of a higher amount of EUR 1 million in order to influence the International Commercial
Arbitration Court arbiters for a favorable ruling for the denouncer. He served more than a
month jail time during March –April 2014 in this case and then was placed under house arrest
and, ultimately, was subject to legal restrictions pending trial.

Mihail Vlasov was reported to the National Anti-corruption Directorate by

businessman Gheza Iosif Petroczki, from whom he would have asked EUR 1 million on
March 13, 2014. Five days later, Vlasov, in his quality of CCIR president, was caught in the
act in a restaurant in Bucharest, after he received EUR 200,000 from the above-mentioned
businessman.35

This is the case which put Romanian arbitration on the map of corruption and which
will have a major impact on economic development of our country.
34

35
http://www.nineoclock.ro/interception-in-vlasov-case-%E2%80%9Cdo-you-have-the-money-the-driver-is-
going-with-you%E2%80%9D/
9
Conclusion

The fight against corruption has a major importance for international business
transactions. Good governance, ethics and transparency are indispensable in this matter. If the
international arbitration system becomes a safe place for corrupt practices, it would no longer
be useful for the worldwide business community. Thus, corrupt practices cannot be tolerated
within the system and it is essential the discovery and the punishment of any act of corruption
especially in the arbitration domain because without impartiality and independence the
arbitration awards would be unfair… and the “private justice” would not be fulfilled.

Bibliography

1. Books

A Redfern and Hunter, The Law and practice of International Commercial

Arbitration, Sweet & Maxwell, 1999, London

Ben Atkinson Wortley, Some Principles Common to Public and Private International
Law, Recueil Des Cours (1954);

10
 Gary B. Born, International Arbitration Cases and materials, Wolters Kluwer, The
Netherlands, 2011

Jacques van Compernolle et Giuseppe Tarzia, L’impartialité du juge et l’arbitre, Étude

du droit comparé, Bruylant, Bruxelles, 2006

Olimpiu A. Sabău-Pop, Corruption and combating corruption by legal means,

Universul Juridic, Bucharest, 2011

2. Dictionaries
Explanatory Dictionary of the Romanian language.

Black's Law Dictionary/ ed. Bryan A. Garner. – 7th ed. – St. Paul: West Group, 1999.

3. Journals
Parvaneh Mousavi, Masoud Pourkiani, European Online Journal of Natural and
Social Sciences 2013, vol.2, No.3

Pavić, Vladimir, ,,Bribery and International Commercial Arbitration – The Role of

Mandatory Rules and Public Policy” (17 November 2012). Victoria University
Wellington Law Review (2012) Vol. 43

Official Gazette

4. Jurisprudence
Cook Indus., Inc v C. Itoh & Co. (Am.) Inc.

952 F.2d 1144, 1148, 9th Cir. 1991

Austin South I, Ltd v Barton-Malow Co.

Corp. of India v IDI Mgmt. Inc.

Petroleum Cargo Carriers Ltd v Unitas Inc

Schmitz v Zilveti

11
 Pacific & Artic Ry, & Nav. Co. v. Trans. Union

5. Web pages
www.adr.org
http://ssrn.com/abstract=2252499
www.diva-portal.se
www.nineoclock.ro
www.transparency.org.ro

6. Others
Commercial Arbitration Rules
Current and Preferred Practices in the Arbitral Process”, International Arbitration
Survey, 2012
IBA Guidelines, Part I (1) General Principles
The London Court of International Arbitration Rules 2014
The Arbitration Act 1996
United Nations Convention against Corruption 2003

12