Hawley: UK should be taking the lead
The government’s refusal to address the risks of corruption infecting arbitration “is a missed opportunity to close a crucial gap that allows UK courts to be a vehicle for money laundering”, a campaign group has argued.
Spotlight on Corruption said several recent major court cases “have shown how vulnerable arbitration can be to abuse by corrupt actors” but published a letter from justice minister Lord Ponsonby in which he rejected its call for amendments to the Arbitration Bill.
The group claimed that “unscrupulous actors exploit confidentiality rules to use arbitration as an unwitting vehicle for corruption”.
During the bill’s second reading last month, Labour peer and former lawyer Lord Hacking raised the issue of corruption, citing the high-profile ruling last November of Mr Justice Robin Knowles, in which he held that an $11bn arbitral award against the Federal Republic of Nigeria was obtained by fraud.
Calling for talks about whether corruption should be addressed by the bill, he cited his experience as an international arbitrator in a number of commodity cases relating to Ukraine and Russia. “Corruption was evident all the time, and we had to be very careful in reaching our decision.”
Amendments that have been mooted would clarify when arbitrators in England and Wales should report corruption allegations or suspicions to law enforcement, and refer disputes involving allegations of corruption to the High Court for directions as to whether the public interest in transparency outweighs the parties’ preference for confidentiality in the proceedings.
Lord Ponsonby cautioned in the debate that “we do not want anything that will hold up the current bill” and in his letter to Spotlight on Corruption argued that “arbitral bodies have ethics, experience, good standing and professional conduct requirements in place for their members, rules and procedures that provide for duties of fairness and impartiality, as well as training, guidelines, and support with responding to allegations of corruption”.
He added that case management policies and procedures “also provide mitigations against corruption, including through ‘red flags analysis’ as well as compliance with existing requirements under domestic legislation and directives”.
Lord Ponsonby said the previous government wrote to leading arbitral institutions to see their views – the Chartered Institute of Arbitrators, the International Chamber of Commerce, the London Court of International Arbitration, the London Maritime Arbitrators Association and the Grain and Feed Trade Association, in addition to Law Society and the Bar Council.
“None of those institutions contacted supported amending the Arbitration Bill on this issue of strengthening anti-corruption.
“In addition, concerns were raised that an attempt to find a ‘one-size-fits-all’ approach could risk reducing this jurisdiction’s appeal. Nigeria v P&ID was a highly unusual case, where the High Court effectively performed its proper role in setting aside the award.”
The minister said the new government’s position was that no amendment should be made to the bill, as “the Arbitration Act 1996 and the common law already provides a nuanced and flexible approach to deal with corrupt conduct”.
The government agreed with the Law Commission’s conclusions “that a statutory rule in favour of either confidentiality or transparency in arbitration would likely not be sufficiently comprehensive, nuanced or future-proofed, and the debate in the sector internationally should be allowed to further develop.
“It may also be inappropriate for English law to determine the choice of privacy for other states in their arbitrations.”
Susan Hawley, executive director of Spotlight on Corruption, observed that “consulting arbitral institutions about whether they need more rules to tackle corruption is rather like consulting the foxes about who should be in charge of the henhouse”.
The comments of Robin Knowles J showed that he “certainly didn’t think that the case was a one off”, she noted.
Rather than wait for international developments – such as the International Chamber of Commerce’s anti-corruption task force, which is expected to report and publish guidance by the end of 2025 – Ms Hawley said the UK “should be leading the charge internationally to tackle the risks of dirty money in arbitration”.
She concluded: “Corruption in UK arbitral cases ultimately undermines the UK’s credibility as a centre for arbitration.
“The government would do well to be proactive in strengthening safeguards against corruption in arbitral proceedings and repairing reputational damage following the P&ID case, rather than waiting to see what happens elsewhere.”
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