Report No. 260

C. Article 9. Obligation against Corruption

(i) Analysis and comment:

4.3.1 This obligation to prevent anti-corrupt practices appears to have been derived from existing requirements under Indian laws on corruption69 and India's obligations70 under the 2003 United Nations Convention Against Corruption,71 as well as provisions relating to foreign contributions to political parties and candidates.72 It is similar to the SADC Model (Article 10), and the IISD Model (Article 13), with the exception of disclosures relating to political funding.

69 Prevention of Corruption Act, 1988

70 United Nations Convention against Corruption, Signature and Ratification Status as of 1 April 2015, available at
http://www.unodc.org/unodc/en/treaties/CAC/signatories.html

71 UNODC, United Nations Convention Against Corruption, available at:
http://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf

72 Section 29B, Representation of the People Act, 1951, and Section 3, Foreign Contribution Regulation Act, 2010

4.3.2 Arbitral tribunals have in the past allowed For example, In World Duty Free vs. Republic of Kenya, the tribunal held that no claim could be brought under an agreement that was procured by the investor through corrupt means. The tribunal held that bribery is contrary to the international public policy of most, if not all, States and Kenya was entitled to avoid the contract under the applicable laws, namely the laws of England and Kenya.

See, ICSID Case No. Arb./00/7, Award, 5 September 2006, available at:
http://www.italaw.com/documents/WDFv.KenyaAward.pdf .
In Metal-Tech Ltd vs. Republic of Uzbekistan, the tribunal relied on the legality requirement contained in the definition of "investment" under the Israel-Uzbekistan BIT to hold that an investment made through corrupt means would not be entitled to the benefits of the dispute settlement provisions in the treaty. The Israel-Uzbekistan BIT defined "Investment" in Article 1(1):

"The term 'investments' shall comprise any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made, including, but not limited to..." corruption by the investor to be raised as a ground for denial of benefits to the investor by holding that investment must be lawful even when there is no express provision requiring so in the contract.74

74 Vicente Yu and Fiona Marshal, 'Investors' Obligations and Host State Policy Space', 2nd Annual Forum for Developing Country Investment Negotiators, held in Marrakech, Morocco, 2-4 November 2008, available at:
https://www.iisd.org/pdf/2008/dci_inv_obligations.pdf

4.3.3 India's interests as a Host State can be protected by requiring that the investment has to be made and maintained in accordance with its laws, as already done at several places in the 2015 Model. This is because all the requirements stipulated under Article 9 are already covered under various domestic Indian laws. However, the implications of this provision should also be considered from the perspective of Indian investors investing abroad.

An obligation against corruption is toothless without complementary obligations upon the Host State, such as the requirement of transparency and competition in public procurement and decision-making. Some of these obligations are already imposed on States Parties to the UN Convention Against Corruption (Article 9). The issue of transparency requirements is discussed in more detail in the comments on Article 11.

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