The ICC’s Task Force on Corruption publishes paper on red flags and other indicators of corruption in international arbitration

The ICC’s Task Force on Corruption has published a “Red Flags Document”, which provides detailed guidance on the identification and assessment of corruption in arbitration proceedings. The paper seeks to promote an understanding of red flags and their limitations, and to provide an innovative, three-step evaluation methodology for assessing them.

Background to the paper

Allegations of corruption are becoming increasingly common in arbitral proceedings – both commercial and investor-state – and the inherently clandestine nature of these acts, as well as the arbitral tribunal’s lack of compulsory tools (such as subpoena power), may limit the evidence that is available to the tribunal. Therefore, red flags are being put forward more and more by parties as relevant to the dispute being adjudicated, or even as constituting ‘circumstantial evidence’ that is determinative of whether there has been corruption.

As a result, the Task Force asserts that it is critical for arbitrators to understand the various typologies of red flags and the considerations that may come into play when determining whether, in a particular case, they are valid elements of proof, and to what extent.

The Red Flags Document states that it will be part of a wider forthcoming report of the Task Force on Corruption in International Arbitration, which will consist of a general part supplemented by separate annexes on other specific issues including, aside from red flags, the ‘Burden and Standard of Proof’, ‘Issues related to Arbitrators’ and ‘Parallel Proceedings’.

What are ‘red flags’?

There is no definitive list of red flags. The paper defines them as any fact or circumstance that indicates a potential risk of corruption, most often bribery involving a public official. Red flags can be:

• General red flags, which relate to immutable contextual characteristics of the country, geography or government administration in question, as well as the industry or business sector; and
• Specific red flags, which are facts or circumstances regarding the counterparty to the proposed transaction, the relationship or payment (where a third party is involved) or the transaction itself.

The paper provides an illustrative list as to what instances may give rise to allegations of corruption whilst stressing that no red flags list can be exhaustive. The paper consistently emphasises that red flags are simply indicators of corruption risk which need to be confirmed or validated before their probative value can be considered. They should not be treated as presumptive (or as circumstantial evidence) but must be considered in all their context.

The paper also notes that there may also be indicators that suggest a lack of corruption, which it calls ‘green’ flags.

The three-step methodology

The paper outlines a three-step methodology that tribunals should use to evaluate red flags.

• Identify

This is an issue-spotting exercise. Red flags may have been put forward by either party or they may be identified by the tribunal on its own initiative.

• Validate / confirm

The crucial step is to critically examine the red flags to see whether they are confirmed or validated as a threshold matter, and to what extent. Examples are given as to why a red flag might not be validated (it rests on a source that lacks credibility, there was a lack of understanding about the business purpose or context, etc.) and why a red flag may be validated (there is little evidence of the provision of legitimate services, there is a lack of qualifications for the task for which the third-party was engaged etc.).

Even when validated, red flags are merely indicators of risk and do not constitute definitive evidence of corrupt practices.

• Overall assessment

This may involve consideration of the relative seriousness, or probative value, of the individual red flags, by assessing their strength in terms of the corruption allegations as identified in step 2 (immediately above) and their assessment in the full context (that is in relation to other flags). However, there is still ‘a leap to be made’ from this assessment of risk factors to evidence (even circumstantial) to support a legal conclusion.

Consideration of red flags in evidence

The paper uses the ‘faisceau d’indices’ analysis used in French courts to illustrate how circumstantial evidence can be drawn from red flags. Essentially, the Task Force asserts that a collection of validated specific red flags, that converge to support one conclusion, could be relied upon as evidence of a corrupt practice by a tribunal. The paper states that a decision-maker would need to satisfy themselves that all, or at least substantial parts, of the relevant red flags are converging towards an inference of corruption. The document touches upon the burden and standard of proof in the context of red flags, but overall, the Task Force keeps its conclusions and recommendations as to the standard of proof applicable to allegations of corruption for the wider report.

The role of the Arbitral Tribunal

The paper notes that one of the essential duties of arbitrators is to resolve disputes submitted to them. This means that they should not divert time and resources to investigations that are not necessary. However, the Task Force states that transnational public order requires that arbitrators and judges have zero tolerance for corruption. The paper lists a number of tools at the disposal of arbitrators when they are considering issues of corruption. This includes the powers within the arbitral process to investigate facts and draw adverse inferences, it also includes arbitrators’ ability to notify state authorities of their concerns or stay arbitral proceedings where state authorities are conducting a parallel investigation.

New and emerging issues

The paper also identifies two emerging issues that are relevant to the assessment of red flags by tribunals:

• The role of corporate compliance measures, which can constitute a green or red flag – although this depends on other factors (such as whether such a programme was a requirement at the time).

• The role of AI in red flag generation and analysis. Using AI to enhance anti-bribery and corruption compliance makes sense, given the data available. The paper highlights developments including companies deploying machine-learning solutions for compliance and academic studies proving AI's utility in predicting corruption through public data analysis. The Task Force concludes that AI-generated red flags bring the same dilemmas as red flags identified in the traditional way, but recognises that there is a nuance to it that includes the need for technical expertise to properly evaluate the AI red flags.

Comment

The paper provides a robust and innovative framework for the identification and assessment of corruption red flags. As such, it gives much needed practical guidance on evaluating many of the issues related to corruption red flags in international arbitration. It is published in the ICC Dispute Resolution Bulletin 2024 – Issue 2 (November 2024).

In the meantime, the Task Force will continue its work on its wider report on corruption in international arbitration, which we will report on it in a due course.