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Journal of International Economic Law, 2020, 0, 1–23
doi:10.1093/jiel/jgaa026
Original Article
Anti-Corruption Provisions
in International Investment Agreements: Investor
Obligations, Sustainability Considerations,
and Symmetric Balance
Yueming Yan*
ABSTRACT
Incorporating anti-corruption provisions into international investment agreements is a
vital step for governments to address transnational corruption in international invest-
ment. This empirical study analyses a category of anti-corruption provisions that fos-
ters compliance by investors. These anti-corruption provisions address anti-corruption
issues either within corporate social responsibility clauses or through ‘carve-out’ state-
ments. The former encourages investors to voluntarily comply with corporate social
responsibility, including anti-corruption commitments, while the latter imposes direct
obligations on investors by denying substantive treaty protection or access to arbitra-
tion if their investments were obtained through corruption. However, these provisions
are unsatisfactory in terms of achieving their intended objectives: promoting sustainable
development and achieving a symmetrical balance between investors and states. This
paper addresses two central weaknesses of anti-corruption provisions. First, corporate
social responsibility-based anti-corruption provisions are soft law norms that result in lim-
ited obligations or effects. Second, ‘carve-out’ anti-corruption provisions actually favour
states’ interests, because they solely evaluate investors’ conduct without considering a
state’s corrupt act. This paper recommends that, in addition to promoting responsible and
corruption-free investments on the investor side, states should commit to take necessary
measures to promote the integrity of public officials, establish cooperation and improve
anti-corruption standards, and preserve sufficient remedial measures for investors in cases
of solicitation by state officials.
* Ph.D. Candidate, Faculty of Law, McGill University. Email: yueming.yan@mail.mcgill.ca. The author would
like to thank Prof. Andrea Bjorklund, the Honourable L. Yves Fortier, Dr Jean-Michel Marcoux, and Ms Chen
Yu for their insightful discussions with me about this paper. The author thanks Prof. Manjiao Chi, Prof. Sheng
Zhang, and Dr Lukas Vanhonnaeker for their helpful feedback on an earlier version of this paper. The author
also wishes to thank the two anonymous peer reviewers for their invaluable suggestions and comments. This
paper comprises work that forms part of the author’s doctoral thesis at McGill University Faculty of Law. It is
published with the consent of the author’s thesis committee.
© The Author(s) 2020. Published by Oxford University Press. All rights reserved.
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I. INTRODUCTION
In the new generation of international investment agreements (IIAs) and model invest-
ment treaties, there is an increasing number of provisions that address anti-corruption
issues. In particular, more states are imposing corporate responsibilities and treaty
obligations on foreign investors to enhance their compliance with domestic and inter-
national anti-corruption norms. This type of anti-corruption provisions (ACPs) exists
either within corporate social responsibility (CSR) clauses or in separate ‘carve-out’
statements that deny substantive treaty protection and preclude investors from access
to arbitration if they make investments through and by corrupt means.1
The inclusion of provisions that address anti-corruption issues is considered to be
instrumental to the promotion of sustainable development and thus to striking a bal-
ance between investment protection and a state’s right to regulate. However, these
two objectives cannot be effectively achieved by reliance on CSR clauses or ‘carve-out’
statements on anti-corruption. This is the case for two reasons. First, anti-corruption
responsibilities in the CSR context largely rely on investors’ voluntary compliance, and
most of these clauses are not subject to arbitration. Second, ‘carve-out’ ACPs that com-
pletely exclude corruption-contamined investments from arbitration focus solely on
investor behaviour and do not consider state conduct, thereby excluding state conduct
from the scope of the ACP. Bearing in mind that both the supply side and the demand
side of a corrupt act are prohibited under the United Nations Convention against Cor-
ruption (UNCAC), such ‘carve-out’ ACPs do little to discourage acts of solicitation or
extortion by host states and have the potential to undermine the ability of IIAs to attract
investment flows.
In order to better understand ACPs that aim to foster compliance by foreign
investors, this paper will explore the different forms these provisions take in IIAs and
model agreements; analyse their implications for investor-state arbitration (ISA); and
evaluate their intended purposes and potential effects. This paper is divided into five
parts. Part I introduces the problem. Part II briefly reviews the development of ACPs
in investment treaties. Part III details a comprehensive study of provisions aimed at
enforcing anti-corruption obligations of investors, as well as the implications of these
provisions for ISA. Part IV examines whether, how, and to what extent these ACPs
meaningfully meet the goals of eliminating corruption, promoting sustainable devel-
opment, and developing an equilibrium between the interests of investors and states.
Part V provides a conclusion and summation of arguments.
1 The UNCTAD World Investment Report 2015 explains that the ‘carve-out’ aspect is one of the important
tools for IIA reforms, which aims at ‘circumscribing (in IIA clauses or reservations) the scope of the treaty,
scope of protection investments/investors, scope of application of key clauses and the scope of access to
investor-state dispute settlement)’. UNCTAD World Investment Report 2015: Reforming International Invest-
ment Governance, 2015 at 133–134; Stefan Mbiyavanga, ‘Improving Domestic Governance through Inter-
national Investment Law: Should Bilateral Investment Treaties Learn from International Anti-corruption
Conventions?’ 2017 OECD Global Anti-Corruption & Integrity Forum 17 (2017), at 8.
Anti-Corruption Provisions in International Investment Agreements • 3

II. A BRIEF REVIEW OF THE DEVELOPMENT OF ANTI-CORRUPTION
PROVISIONS
Traditionally, IIAs are intended to protect investors and attract more foreign invest-
ment.2 To this end, investors are protected by a number of rights conferred under
classical bilateral investment treaties (BITs): rights that are accompanied by relatively
few obligations. Meanwhile, BITs impose conditions on the exercise of regulatory pow-
ers by state parties, and states are barred from unduly interfering with the rights of
foreign investors. However, the massive proliferation of BITs and the vast expansion of
investment disputes in ISA have raised an increasing concern of an ‘asymmetric’ feature
of investment treaties—an imbalance between the conflicting interests of the two par-
ties: foreign investors and host states. This asymmetry is especially pronounced when
a state’s regulatory actions, guided by sustainable development principles, are adjudi-
cated by investment tribunals to have breached investor’s BIT rights.3 In response to
this concern, the IIA reform was launched, with the aim of creating better sustainable
development regulations and thereby achieving a symmetric balance between invest-
ment protection and the state’s right to regulate.4 The Investment Policy Framework
for Sustainable Development of the United Nations Conference on Trade and Devel-
opment (UNCTAD) has thus identified essential policies that should be developed as
part of the IIA reform process, including anti-corruption.5
Historically, IIAs were seldom thought of by governments as suitable vehicles for
anti-corruption measures. Rather, states preferred to address the challenge of cor-
ruption through international and national policies.6 However, the new generation
2 See generally Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, 2nd ed.
(Oxford: Oxford University Press, 2012); M. Sornarajah, The International Law on Foreign Investment, 4th
ed. (Cambridge: Cambridge University Press, 2017).
3 David Collins, An Introduction to International Investment Law (Cambridge: Cambridge University Press,
2017) at 251–273; Surya P. Subedi, International Investment Law: Reconciling Policy and Principle, 3rd ed.
(Oxford: Hart Publishing, 2016).
4 UNCTAD WIR 2015, supra note 1 at 121; Peter Muchlinski, ‘Negotiating New Generation International
Investment Agreements: New Sustainable Development Oriented Initiatives’, in Steffen Hindelang and
Markus Krajewski (eds), Shifting Paradigms in International Investment Law: More Balanced, Less Isolated,
Increasingly Diversified (Oxford: Oxford University Press, 2016), 41 at 41.
5 See UNCTAD Investment Policy Framework for Sustainable Development, 2015.
6 Kathryn Gordon, ‘International Investment Agreements: A Survey of Environmental, Labour and Anti-
Corruption Issues’, in International Investment Law: Understanding Concepts and Tracking Innovations (OECD,
2008), 135 at 138–139, available at https://www.oecd.org/investment/internationalinvestmentagreeme
nts/internationalinvesmentlawunderstandingconceptsandtrackinginnovations.htm. It is worth mentioning
that states are increasingly invoking allegations of corruption to contend investor’s claims in ISA and dis-
cussions centred on the corruption issues are held by arbitrators with varying degrees. In this sense,
some have considered the investment arbitration mechanism as one of the effective tools, at the interna-
tional level, to combat corruption; however, opposite arguments are proposed as well, given the current
dissatisfactory approaches adopted by the tribunals when addressing corruption issues. See e.g. Aloy-
sius Llamzon, ‘The Control of Corruption through International Investment Arbitration: Potential and
Limitations’, 102 Proceedings of the Annual Meeting (American Society of International Law) (2008),
208–212; Andrew T. Bulovsky, ‘Promises Unfulfilled: How Investment Arbitration Tribunals Mishan-
dle Corruption Claims and Undermine International Development’, 118 Michigan Law Review 33; Leo
O’Toole, ‘Investment Arbitration: A Poor Forum for the International Fight Against Corruption’, Yale
Journal of International Law, available at https://www.yjil.yale.edu/investment-arbitration-a-poor-forum-for-
the-international-fight-against-corruption/ (visited 17 September 2020), 2019.

of IIAs is transforming this approach. Many states have incorporated ACPs in their
IIAs, either in the forms of BITs, free trade agreements (FTAs) or in other categories
of treaties with investment provisions, such as the two recent significant comprehen-
sive agreements—the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA).
These treaties address anti-corruption issues in various locations, such as in the
preamble, within other clauses, through a separate clause or through an independent
chapter. The substance of ACPs included in these agreements is diverse, but ACPs can
be roughly divided into two main categories (as shown in the diagram below).7 One
category of ACPs contains state commitments on anti-corruption. For instance, it may
provide a commitment to combating corruption in accordance with domestic laws, but
fail to offer concrete measures.8 Japan has adopted this approach in its recent BITs
and economic partnership agreements (EPAs).9 Some ACPs of state commitments
aim to promote international anti-corruption cooperation and to improve standards
by referring to international and regional anti-corruption conventions.10 The European
Union (EU) inserts such commitments in its IIAs where the UNCAC, among others,
is the most commonly referred to.11 There are also ACPs that require states to take
concrete domestic legislative measures, such as establishing criminal offences relating
to corruption and maintaining appropriate penalties. States—such as the US—often
7 The international conventions condemning corruption have established various modalities of corruption,
including bribery, money laundering, trading in influence, etc. Among these four types of ACPs, states nor-
mally use the generic term of ‘corruption’ without specifying which forms of corruption they are referring
to. A precise understanding of the concept of corruption then depends on the wording of this provision, the
context and the object and purpose of the treaty, under the context of Arts.31 to 33 (treaty interpretation
provisions) of the 1969 Vienna Convention on the Law of Treaties (VCLT). In investment arbitration, the
alleged corrupt acts are mostly referring to transnational bribery in international investment activities but the
parties and the tribunals generally use the broad concept of ‘corruption’ to address the related issues.
8 For example, in the Japan-Morocco BIT (2020), Art.7 (Measures against Corruption) provides: ‘[e]ach
Contracting Party shall endeavor to ensure that measures and efforts are undertaken to prevent and com-
bat corruption regarding matters covered by this Agreement in accordance with its applicable laws and
regulations’.
9 For a rather deep discussion, see Charles N. Brower and Jawad Ahmad, ‘The State’s Corruption Defence,
Prosecutorial Efforts, and Anti-Corruption Norms in Investment Treaty Arbitration’, in Katia Yannaca-Small
(ed.), Arbitration under International Investment Agreements: A Guide to the Key Issues, 2nd ed. (Oxford: Oxford
University Press, 2018), 455 at 476–478.
10 For instance, in the EU-Armenia Comprehensive and Enhanced Partnership Agreement (2017), paragraph
2 of Art.16 (Fight against organized crime and corruption) stipulates that:
The Parties shall enhance bilateral, regional and international cooperation among law-enforcement bodies, …. The Parties
are committed to implementing effectively the relevant international standards, in particular those enshrined in the UN
Convention against Transnational Organised Crime of 2000 and the three Protocols thereto. The Parties shall cooperate
in preventing and fighting corruption in line with the UN Convention Against Corruption of 2003, the recommendations
of the Group of States against corruption (GRECO) and the OECD, transparency with regard to asset declaration, the
protection of whistle-blowers, and the disclosure of information on final beneficiaries of legal entities.
11 For a review on the EU practices and policy on anti-corruption in its IIA-drafting history, see Yueming Yan, ‘A
Comprehensive Chapter on Anti-corruption in the China-EU CAI: A Progressive or an Unnecessary Step?’ in
Yuwen Li, Tong Qi and Cheng Bian (eds), China, the EU and International Investment Law: Reforming Investor-
State Dispute Settlement (London: Routledge, 2019), 227 at 232–235.

incorporate legislative obligations in separate anti-corruption clauses or chapters in the
FTA-drafting practice.12
CSR-Based Clause
Investor Obligations
‘Carve-Out’ Statement
Anti-Corruption Provisions
A Commitment without Concrete
Measures
State Commitments Concrete Legislative Measures
Establishing Cooperation and

Improving Standards
The other category of ACPs is directed at foreign investors and is aimed at enhanc-
ing investors’ compliance with anti-corruption norms. Such ACP is of particular
importance to this paper, because it suggests a strong normative integration of anti-
corruption measures and because it has a significant impact on the reasoning of arbitral
tribunals.13 Some scholars argue that ACPs denying investors’ access to arbitration rep-
resent ‘a bold political statement by the parties to the investment treaty’ and emphasize
that ‘investment law and arbitration do not represent a one-way-street favouring foreign
investors’.14 However, this argument does not reflect the complexity of transnational
corruption and neglects discussion of increasingly prevalent acts of public officials
soliciting or extorting bribes in investment activities. These issues become apparent
when one analyses the approach of the ISA tribunal in addressing allegations of corrup-
tion in World Duty Free v Kenya and reviews the subsequent criticism of this approach
by scholars.15 These critiques suggest that applying a blanket prohibition to corruption-
contaminated investments seeking to enter arbitration is also a flawed approach. Thus,
although states might plausibly seek to safeguard their right to regulate and to promote
12 The US is the first nation to incorporate anti-corruption clauses in the main text of its IIAs, mainly in its FTAs,
such as the US-Singapore FTA (2003), US-Korea FTA (2006), US-Morocco FTA (2004), the US-Oman
FTA (2006), and the US-Peru Trade Promotion Agreement (2006). Although these ACPs were drafted over
a decade ago, the content of these clauses is not a non-representational commitment to the fight against cor-
ruption, but rather are concrete and operational measures that states are obliged to take for the purposes of
corruption prevention in international investment and trade activities. The US leadership in addressing anti-
corruption issues in its IIAs probably results from the implementation of its national anti-corruption act: the
Foreign Corruption Practices Act (FCPA), which has in turn influenced the current generation of international
anti-corruption conventions, like the UNCAC and other global anti-corruption movements.
13 Jean-Michel Marcoux, International Investment Law and Globalization: Foreign Investment, Responsibilities and
Intergovernmental Organizations (London: Routledge, 2019), at 32–34.
14 Mbiyavanga, supra note 1 at 10.
15 An in-depth discussion of the case and the relevant critiques is provided in Part IV Section B of this paper.

sustainable development through reliance on ACPs imposing anti-corruption obliga-
tions on investors, it is questionable whether such ACPs meaningfully contribute to
the ideal symmetric balance between state and investor interests.
III. ANTI-CORRUPTION PROVISIONS DIRECTED AT INVESTOR CONDUCT

This part presents the results of an empirical study of ACPs that aim to foster com-
pliance by investors in IIAs and aims to explore the implications of such ACPs in
ISA. According to the UNCTAD IIA Mapping Project, 45 out of the 2577 mapped
treaties were identified as containing corruption-related clauses.16 Among these 45
IIAs, 20 treaties contain ACPs that are directed at investor conduct; this type of
provisions also appears in another 15 unmapped IIAs and 10 model agreements on
investment.17 Depending on how much each ACP ‘demands’ of foreign investors,
these provisions can be roughly divided into two groups: CSR-based ACPs [A] and
‘carve-out’ ACPs [B]. While group [A] mainly encourages investors to voluntarily com-
ply with CSR, including anti-corruption commitments, group [B] typically requires
investors to establish corruption-free investments in order to obtain substantive treaty
protection and access to ISA. This framework is reflected here in diagrammatic format:
35 IIAs
(20 Mapped+15 Unmapped) CSR-Based ACPs Within CSR Clause
Imposing Direct Investor Obligations

ACPs
(Investor Obligations)
‘Carve-Out’ ACPs Denying Treaty Protection
10 Model Investment
Agreements
Precluding Access to Arbitration
Clauses in an investment agreement have a significant impact on arbitrators hear-

ing disputes involving investment agreements. So far, tribunals in ISA have not had the
chance to apply or interpret any ACPs. Rather, to deal with allegations of corruption,
ISA tribunals have relied on the ‘in accordance with laws’ clause,18 the (un)clean hands
16 UNCTAD, International Investment Agreements Navigator, Mapping of IIA Content [UNCTAD Mapping of IIA
Content].
17 See Annex. Notably, the ACPs in some of these 35 IIAs are actually deprived from their respective model
treaties, such as the CSR-based ACPs in Canadian BITs (from the Canada Model Foreign Investment Pro-
tection and Promotion Agreement 2014) and the ‘carve-out’ ACPs in Brazilian investment treaties (from the
Brazil Model BIT 2015).
18 Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award of 4 October 2013, 2013 at para
422 [Metal-Tech v Uzbekistan].

doctrine,19 and/or transnational and international public policy20 to dismiss investors’
claims. However, ACPs of investor obligations have the potential to act as a funda-
mental legal basis for arbitrators to make decisions related to anti-corruption. In this
regard, in addition to an empirical study on the broader expansion of provisions man-
dating investor conduct against corruption, it is also necessary and timely to examine
the practical applicability of ACPs in ISA.
A. CSR-based ACPs
Some states attach increased importance to the responsibilities of multinational enter-
prises, organizations and other private entities in investment treaties and thus have
included CSR clauses in these treaties. A CSR clause normally encompasses a variety
of non-economic and public interest issues, and (by and large) states put great weight
on specific aspects of CSR, such as labour rights, environmental protection, and public
health. The specificity of state interest in aspects of CSR accounts, to some extent, for
the lack of a universally accepted definition of CSR and agreement as to the purposes
and scope of CSR clauses. In most IIAs, states recognize the importance of promot-
ing CSR in international investment, but seldom produce a precise list of duties that
investors are encouraged to observe. In other agreements, states clarify which standards
and practice should fall within the scope of CSR clauses in a rather unequivocal manner,
for instance stating that ‘[t]hese principles address issues such as labour, the environ-
ment, human rights, community relations and anti-corruption’. This paper focuses on
those CSR clauses which explicitly mention (anti-)corruption. Among the 35 identi-
fied IIAs and 10 model agreements, CSR-based ACPs are found in 20 of the signed
IIAs, and in one model BIT. CSR-based ACPs are primarily found in BITs, in invest-
ment chapters of agreements on trade activities, and in comprehensive anti-corruption
chapters of multilateral economic cooperation agreements.
One of the major purposes of CSR-based ACPs is to encourage enterprises to
establish investments that have an impact on preserving social values and alleviat-
ing social problems. Many BITs and FTAs signed by Canada, as well as the Canada
2014 Model Foreign Investment Protection and Promotion Agreement (FIPA), have
inserted CSR-based ACPs, which is also the preferred avenue for Canada in dealing
with anti-corruption issues in international investment activities.21 Such provisions
are also found in treaties concluded between other countries, such as the Nigeria-
Singapore BIT (2016) and the Colombia-Costa Rica FTA (2013).22 The wordings
of these CSR clauses are substantively similar. Art.9.17 of the Canada-Panama FTA
(2010) provides that:23
19 Spentex Netherlands, BV v Republic of Uzbekistan, ICSID Case No ARB/13/26, 2016 [Spentex Netherlands v
Uzbekistan].
20 World Duty Free Company v Republic of Kenya, ICSID Case No Arb/00/7, Award of 4 October 2006, 2006 at
para 157 [World Duty Free v Kenya].
21 See Annex.
22 See Annex.
23 Art.9.17 (CSR), Chapter 9 (Investment), Canada-Panama Free Trade Agreement, 2010.

Each Party should encourage enterprises operating within its territory or subject to its
jurisdiction to voluntarily incorporate internationally recognized standards of corporate
social responsibility in their internal policies, such as those statements of principle that
have been endorsed or are supported by the Parties. These principles address issues such
as labour, the environment, human rights, community relations and anti-corruption.
These CSR clauses generally rely on voluntary self-regulation by investors’ on issues

of social responsibility, labour, environment, human rights, anti-corruption, and other
externalities: effectively creating a set of ‘soft law’ norms.24 These provisions do not
impose direct obligations on investors and mainly act as ‘intermediate instruments for
the regulation of business conduct by foreign investors’.25 Methods required to achieve
the purposes of promoting the social responsibilities of enterprises depend heavily on
the relevant private sector’s internal policies and on the domestic legal frameworks of
states.
There are some other IIAs where the word ‘voluntarily’ does not appear26 or where
similar CSR statements (to that example given above) are followed by an additional
obligation that ‘[t]he Parties should remind those enterprises of the importance of
incorporating such corporate social responsibilities standards in their internal poli-
cies’.27 For example, in the CSR clause of the USMCA, the parties give a specific
reference to the ‘OECD Guidelines for Multinational Enterprises’ and ‘recognize the
importance of these principles therein’.28 However, these eliminations or additions do
not profoundly affect the categorization of these provisions as ‘soft law’ norms, because
they are still framed from a ‘state-leading perspective’ and include statements like ‘states
shall encourage investors to…’.
Rather than approaching CSR from the perspective of state parties’ obligations,
Art.13(2) of the Brazil-Morocco CFIA (Cooperation and Facilitation Investment
Agreement) (2019) and Art.12 (CSR) of the India Model BIT 2015 attempt to
increase demands on investors’ social responsibilities: thus the provisions are formu-
lated from an ‘investor’ perspective. For example, the India Model BIT 2015 requires
that ‘[i]nvestors and their enterprises operating within its territory of each Party shall
endeavour to voluntarily incorporate internationally recognized standards of corpo-
rate social responsibility in their practices and internal policies…’.29 By adopting this
approach, it seems that states intend to transform the CSR clause-drafting practice,
24 Ilias Bantekas, ‘Corporate Social Responsibility in International Law’, 22 Boston University International
Law Journal (2004), 309; Manjiao Chi, Integrating Sustainable Development in International Investment Law:
Normative Incompatibility, System Integration and Governance Implications (London: Routledge, 2018), at 101.
25 Laurence Dubin, ‘Corporate Social Responsibility Clauses in Investment Treaties’, Investment Treaty News,
available at https://www.iisd.org/itn/2018/12/21/corporate-social-responsibility-clauses-in-investment-
treaties-laurence-dubin/ (visited 17 September 2020), 2018.
26 Such as in the Canada-Burkina Faso BIT (2015) and the Canada-Mali BIT (2014).
27 Such as in the Canada-Mongolia BIT (2016), the Canada-Colombia FTA (2008), the Canada-Peru FTA
(2008), and the Colombia-Peru-Mexico-Chile Pacific Alliance Additional Protocol (2014).
28 Art.14.17 (CSR), United States-Mexico-Canada Agreement, signed on 30 November 2018 with an agreement
on amendments signed on 10 December 2019, effective on 1 July 2020.
29 Art.12 (CSR), India Model BIT 2015, 2015.

moving from ‘state-leading’ towards ‘investor-dominating’: or, to put it another way,
to strongly prefer ‘direct CSR clauses’ to ‘indirect CSR clauses’.
By using words like ‘investors shall’, states attempt to impose a direct obligation on
investors. However, given that words such as ‘endeavour to’ and ‘voluntarily’ still appear
in this clause, it is hard to conclude that direct investor obligations to comply with
social standards are well-established. Whether this shift towards investor obligations
in BIT wording has actually increased CSR demands on investors is a question that
requires further examination, particularly in light of the treaty context and the object
and purpose of the treaty.30 How to coherently interpret terms such as ‘investors shall’,
‘endeavour to’, and ‘voluntarily’ will thus be a key issue for determination by investment
arbitrators. The invocation of the CSR clauses in ISA and their interpretation should
be managed on a case-by-case basis, with each decision depending on the exact word-
ing employed and the specific investor conduct at issue. For instance, in addition to the
direct CSR clause, the India Model BIT 2015 further includes a ‘carve-out’ statement
that an investor may not submit a claim to arbitration if the investment is procured by
corruption.31 In other words, a breach of the CSR clause in Indian Model BIT 2015 may
trigger the application of such ‘carve-out’ provision and consequently bar the tribunal
from exercising jurisdiction over the related disputes. In conclusion, while the devel-
opment of CSR clauses, in particular those addressing anti-corruption issues, should
be considered to be an innovation in international investment law, there remains to be
much practical work to do in IIA decision-making to determine the purpose, scope and
application of these clauses.
B. ‘Carve-out’ ACPs
Alongside CSR-based ACPs, a number of states are inclined to impose investor obliga-
tions against corruption through ‘carve-out’ statements, which aim to exclude investors’
enjoyment of treaty protection or access to arbitration in cases of non-compliance:
that is, where an investment is obtained through corruption. 16 IIAs and 9 model
investment agreements contain one or more ‘carve-out’ ACPs.32 The various modes
of ‘carve-out’ ACPs can be divided into the following three sub-groups that reflect the
perspective from which they are formulated: [1] imposing direct investor obligations,
[2] denying treaty protection, and [3] precluding access to arbitration.
1. Imposing direct investor obligations

The first sub-group of ‘carve-out’ ACPs are those provisions that impose direct obliga-
tions to not commit corrupt acts in general through statements beginning with ‘investors
and investment shall not…’. For instance, Art.13 in the IISD (International Institute for
Sustainable Development) Model Agreement 2005 stipulates that:33
30 Grant Hanessian and Kabir Duggal, ‘The Final 2015 Indian Model BIT: Is This the Change the World Wishes
to See?’, 32 (1) ICSID Review 216–226 (2017), at 225.
31 See Part III Section B for a detailed discussion on ‘carve-out’ ACPs.
32 See Annex.
33 Art.13 (Anti-Corruption) of Part 3 (Obligations and Duties of Investors and Investments), IISD Model
International Agreement on Investment for Sustainable Development, 2005.

(A) Investors and their investments shall not, prior to the establishment of an investment
or afterwards, offer, promise or give any undue pecuniary or other advantage, whether
directly or through intermediaries, to a public official of the host state, for that official
or for a third party, in order that the official or third party act or refrain from acting in
relation to the performance of official duties, in order to achieve any favour in relation to
a proposed investment or any licences, permits, contracts or other rights in relation to an
investment.
(B) Investors and their investments shall not be complicit in any act described in
Paragraph (A), including incitement, aiding and abetting, and conspiracy to commit or
authorization of such acts.
This clause incorporates an explicit obligation that investors shall neither conduct
any corrupt acts nor be complicit in any corrupt activities. Within this obligation,
a precise scope of the category of ‘acts of corruption’ is set out, specifying: ‘offer-
ing, promising or giving any undue pecuniary or other advantages’. However, this
clause does not clearly indicate the legal consequences that will apply in cases of non-
compliance.34 For example, what are the consequences for investors if they give a bribe
to a public official of the host state in the establishment and operation of an investment?
Another relevant question might be: what happens when a state makes a counterclaim
against an investor who carried out corrupt acts in the making of his investment? This
question is addressed further below.
One possible resolution of this issue is for states to respond to a breach of this clause
by raising ‘legality requirement’ as one of jurisdictional objections. The legality require-
ment is also known as the ‘in accordance with laws’ clause contained in the investment
treaty.35 This is a longstanding position in IIA practices to impose a legality require-
ment on investments and, to date, 1642 investment treaties (not only those included
in the old generation of BITs but also some newer treaties) include the condition that
investments be made ‘in accordance with laws’.36 In investment arbitration practices,
the ‘in accordance with laws’ clause has been frequently invoked in arbitration proceed-
ings where the tribunal denies jurisdiction or admissibility of a claim that is based on
an illegal investment.37
34 Art.21 (Bribery) of the Draft Pan-African Investment Code 2016 also constitutes a ‘carve-out’ ACP where
direct investor obligations are imposed. See Draft-Pan African Investment Code (Draft-PAIC), 2016.
35 For example, in the Israel-Uzbekistan BIT (1994), Art.1(1) provides that ‘[t]he term “investment” shall com-
prise 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…’ (emphasis added).
36 UNCTAD Mapping of IIA Content, supra note 16.
37 See, e.g. Phoenix Action, Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award of 15 April 2009, 2009
[Phoenix Action v Czech Republic]; Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v Plurina-
tional State of Bolivia, ICSID Case No ARB/06/2, Decision on Jurisdiction of 27 September 2012, 2012 [Quiborax
v Bolivia].

Three investment agreements, namely the SADC (South African Development
Community) Model BIT 2012,38 the Morocco Model BIT 2019,39 and the Morocco-
Nigeria BIT (2016),40 make it clear that a breach of the relevant anti-corruption clause
shall be evaluated as ‘a breach of domestic law’. More precisely, in addition to inserting
a direct obligation of anti-corruption on investors, these treaties also stipulate that ‘[a]
breach of this article by an Investor or an Investment is deemed to constitute a breach of
the domestic law of the Host State Party concerning the establishment and operation
of an investment’. The effect of this provision is that any investment that is not entirely
corruption-free in its establishment and during its operation shall be deemed a viola-
tion of the host state’s national legislation. That violation will then trigger the automatic
application of the ‘in accordance with laws’ clause within the investment treaties in ISA.
As noted above, prior to the emergence of this sub-group of ACPs, those ‘in accor-
dance with laws’ provisions have occasionally been raised by host states as a defence
against investor claims when those investments were obtained through corruption.
The tribunals have also taken a consistent stand against illegal investments by reject-
ing investor claims as the legal consequences of breaching the ‘in accordance with laws’
clause. For example, this action was taken in the cases of TSA Spectrum v Argentina,41
Metal-Tech v Uzbekistan,42 and Vladislav Kim and others v Uzbekistan.43
2. Denying treaty protection

The second sub-group of ‘carve-out’ ACPs exempts states from the obligation of
protecting investments made in illegal ways, including through fraudulent misrepre-
sentation, bribery and corruption. However, these ACPs are generally drafted from
state’s perspective, framed in language such as ‘nothing shall require states to protect….’
Notwithstanding this framing, the purposes of these ACPs are substantively the same
as those in the first sub-group discussed above, i.e. ACPs requiring investors to estab-
lish corruption-free investments. Within this second sub-group, relevant ACPs are set
out in the Brazilian IIAs,44 for example, Art.15 (Investment Measures and Combating
Corruption and Illegality) of the Brazil BIT Model 2015 stipulating that:
1. Each Party shall adopt measures and make efforts to prevent and fight corruption,
money laundering and terrorism financing with regard to matters covered by this Agree-
ment, in accordance with its laws and regulations.
2. Nothing in this Agreement shall require any Party to protect investments made with
capital or assets of illicit origin or investments in the establishment or operation of which
38 Art.10 (Common Obligation against Corruption), paras 1–2 (Part 3 Rights and Obligations of Investors and
State Parties), SADC Model BIT 2012, 2012.
39 Art.19, Morocco Model BIT 2019, 2019.
40 Art.17 (Anti-Corruption), Reciprocal Investment Promotion and Protection Agreement between the Government
of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, 2016.
41 TSA Spectrum de Argentina SA v Argentine Republic, ICSID Case No ARB/05/5, Award of 19 December 2008,
2008 [TSA Spectrum v Argentina].
42 Metal-Tech v Uzbekistan, supra note 18.
43 Vladislav Kim and others v Republic of Uzbekistan, ICSID Case No ARB/13/6, Decision on Jurisdiction of 8 March
2017, 2017 [Kim v Uzbekistan].
44 See Annex.

illegal acts have been demonstrated to occur and for which national legislation provides
asset forfeiture.
The second paragraph of Art. 15 of the Brazil BIT Model 2015 develops a general,
catch-all approach to anti-corruption by rendering all investments flowing from ‘illegal
acts’ or resulting from capital/assets of illicit origin unprotected by state parties. This
is a different approach from the first sub-group of ‘carve-out’ ACPs, as it covers ‘invest-
ments in the establishment or operation of which illegal acts have been demonstrated
to occur’. This provision appears to capture a broader category of investor misconduct
in relation to corruption. First, there is no indication that the relevant laws to apply are
only those within the host states’ domestic jurisdiction. Second, the provision speci-
fies that the ‘illegal acts’ do not solely mean those acts performed by investors ‘in order
to achieve any favour in relation to a proposed investment or any licences, permits,
contracts or other rights in relation to an investment’. The discovery of other corrupt
activities that are not directed to ‘achieve any favour’, but that still have some relation-
ship to the investment, may also result in the investment being excluded from treaty
protection.
Another broad carve-out mechanism to deny treaty protection could be achieved
by narrowing the scope of the definition of ‘investment’, specifying that an invest-
ment obtained through corruption no longer meets the definition of investment. In
the Canada-Honduras FTA (2013), Art.10.1 (Definitions) of Chapter 10 (Investment)
expressly provides that ‘for greater certainty, the following is not an investment: … (iv)
an investment allowed or made pursuant to fraudulent misrepresentation, bribery, or
corruption…’.45
There are some nuanced differences to consider when comparing Art.10.1 of the
Canada-Honduras FTA (2013) to the ‘carve-out’ ACPs in Brazilian IIAs. The first dif-
ference is the scope of ‘illegal acts’ in both Articles. In the Canada-Honduras FTA
(2013), the scope of illegal acts is limited to ‘fraudulent misrepresentation, bribery or
corruption’. The second difference is that the term ‘allowed or made pursuant to’ in the
Canada-Honduras FTA (2013) mainly refers to the process of ‘the establishment of an
investment’ and excludes subsequent operations of an investment. Finally, an ‘illegal
investment’ in the Brazilian IIAs ACPs does not equate to ‘not an investment’ in the
Canada-Honduras FTA (2013). The difference between these two concepts relates to
their character in investment arbitration. Arbitral tribunals have consistently confirmed
that ‘in accordance with laws’ in the definition of investment provisions does not relate
to the domestic law definition of investment46 but rather the validity of the investment.47
In other words, despite its illegality, an ‘illegal investment’ is generally understood to fall
45 Chapter 10 (Investment), Canada-Honduras Free Trade Agreement, 2013.

46 Saipem S.p.A v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Decision on Jurisdiction and
Recommendation on Provisional Measures of 21 March 2007, para 120. In this case, the tribunal noted that the
term ‘investment’ in the definition clause of the applicable BIT (where the language of ‘in conformity with
the laws and regulations’ is included) was examined without reference to the domestic law of the host state;
however, it did not draw any conclusion on whether this language refers to the legality of investment.
47 Salini Costruttori S.pA and Italstrade S.pA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Juris-
diction of 31 July 2001, 42 ILM 609 (2003), 2001 at para 46 [Salini v Morocco]; Bayindir Insaat Turizm Ticaret

within the scope of ‘an investment’ as defined in the investment treaty. In ISA, the term
‘not an investment’ is mostly associated with jurisdictional issues, while determining
the character of an ‘illegal investment’ might be relevant in the merits phase.48
In addition to denying treaty protection in its entirety, the Slovakia-Iran BIT (2016)
adopts an approach of narrowing treaty protection to ‘a certain degree’. Art.4 (National
Treatment and Most Favoured Nation Treatment) provides that the elimination of
bribery and corruption is a legitimate public purpose, and states will not risk liabil-
ity for measures taken to eliminate corruption, even where those measures result in
treatment to investors that is less favourable than the prescribed ‘national treatment’
or ‘most-favoured-nation treatment’.49 In other words, a regulatory measure that aims
to eliminate bribery and prevent corruption might also prevent an investment from
enjoying the benefits of ‘national treatment and most-favoured-nation treatment’, two
significant benefits in a traditional investment agreement. However, in a dispute of
alleged ‘illegal expropriation without compensation’, for instance, the host state can-
not invoke Art.4 to contend that they are entitled to refuse to protect an investment
that is linked to corruption.
3. Precluding access to arbitration

The third sub-group of ‘carve-out’ ACPs are those provisions explicitly denying
investors the right to raise claims under the investor-state dispute settlement (ISDS)
mechanism, such as Art.8.18 of the Canada-EU Comprehensive Economic Trade
Agreement (CETA), Art.19 of the Belgium-Luxembourg Economic Union Model BIT
2019, Art.14 of the Norway Model BIT (draft) 2015, and Art.13 of the India Model
BIT 2015.50 Provisions falling within this sub-group of ACPs are normally drafted in
the following terms:
An investor may not submit a claim to arbitration under this Chapter (or this Article)
where the investment has been made through fraudulent misrepresentation, conceal-
ment, corruption, or conduct amounting to an abuse of process.
In the Netherlands Model BIT 2019, the state approaches this issue by limiting the
jurisdiction of arbitral tribunals with a directive provision, as follows:51
Ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction on 14 Novem-
ber 2005, 2005 at paras 109–110; LESI S.pA and ASTALDI S.pA v République Algérienne Démocratique et
Populaire, ICSID Case No ARB/05/3, Decision of 12 July 2006, 2006 at para 83 [LESI & ASTALDI v Algeria].
48 Michael Polkinghorne and Sven-Michael Volkmer, ‘The Legality Requirement in Investment Arbitration’,
34 (2) Journal of International Arbitration 149–168 (2017); Rahim Moloo and Alex Khachaturian, ‘The
Compliance with the Law Requirement in International Investment Law’, 34 (6) Fordham International
Law Journal 1473–1501 (2011); Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case
No ARB/07/24, Award of 18 June 2010, 2010 [Hamester v Ghana]; Fraport AG Frankfurt Airport Services
Worldwide v Republic of the Philippines, ICSID Case No ARB/03/25, Award of 16 August 2007, 2007 [Fraport
v Philippines (1), Award (2007)].
49 Agreement between the Slovak Republic and the Islamic Republic of Iran for the Promotion and Reciprocal
Protection of Investments, 2016.
50 See Annex.
51 Art.16 (Scope of Application), Section 5 Settlement of Disputes between an Investor of a Contracting
Party and the other Contracting Party, The Netherlands Model BIT 2019, 2019. Notably, the recently

The Tribunal shall decline jurisdiction if the investment has been made through fraudu-
lent misrepresentation, concealment, corruption, or similar bad faith conduct amounting
to an abuse of process.
According to these clauses, investors should not conduct any corrupt acts in estab-
lishing investments. Otherwise, they are deprived of the protective ability to submit
claims in relation to the investment to arbitration; in other words, any claims raised
will be dismissed by the arbitral tribunal at the jurisdictional phase. States incorporating
these clauses clearly intend to exclude those investments obtained through corruption,
and therefore to avoid the definitional issue of ‘not an investment’ or ‘illegal investment’
as discussed above. Notably, these directive provisions only exclude investors’ access to
ISDS. This means that investors may still access other dispute settlement mechanisms
established in investment treaties: this constitutes the greatest difference between this
sub-group and the previous two sub-groups discussed above. In the Slovakia-Iran BIT
(2016),52 the state parties addressed the issue of tribunal’s adjudication in the context
of the ‘legal investment’:
For avoidance of doubt, an investor may not submit a claim under this Agreement where
the investor or the investment has violated the Host State law. The Tribunal shall dis-
miss such claim, if such violation is sufficiently serious or material. For avoidance of any
doubt, the following violations shall always be considered sufficiently serious or material
to require dismissal of the claim: a) Fraud; b) Tax evasion; c) Corruption and bribery;
or d) Investment has been made through fraudulent misrepresentation, concealment,
corruption, or conduct amounting to an abuse of process.
When applying the ‘in accordance with laws’ clause in practice, a consistent area of
uncertainty relates to the identification of the ‘illegality’ or ‘violation’. Arbitrators have
proposed that not every violation of domestic rules constitutes a breach of the legality
requirement, and that minor breaches of host state laws should not result in an appli-
cation of the legality clause to dismiss investors’ claims.53 These arguments were put
in Tokios Tokelés v Ukraine (2004),54 Desert Line v Yemen (2008),55 Quiborax v Bolivia
(2012),56 and Hochtief v Argentina (2016).57 There are also some who advocate that a
issued Revised Draft EU proposal for the Energy Charter Treaty (ECT) Modernisation includes a similar
‘carve-out’ ACP that ‘a claim …is inadmissible if the investment has been made through fraudulent misrep-
resentation, concealment, corruption, or conduct amounting to an abuse of process’. See ‘ECT Modernisa-
tion: Revised Draft EU Proposal’, https://www.euractiv.com/wp-content/uploads/sites/2/2020/04/EU-
Proposal-for-ECT-Modernisation-V2.pdf (visited 19 September 2020).
52 Art.14 (General Provisions), Section C Investor-State Dispute Settlement, Slovakia-Iran BIT (2016), supra
note 49.
53 Ursula Kriebaum, ‘Investment Arbitration - Illegal Investments’, in Christina Klausegger et al. (eds), Austrian
Yearbook on International Arbitration 2010 (Beck, Stämpfli & Manz, 2010), 307 at 319; C. Knahr, ‘Investments
“in Accordance with Host State Law”’, 4 (5) Transnational Dispute Management 1–28 (2007), at 24.
54 Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction of 29 April 2004, 2004 at paras
85–86 [Tokio Tokelés v Ukraine].
55 Desert Line Projects LLC v The Republic of Yemen, ICSID Case No ARB/05/17, Award of 06 February 2008,
2008 at paras 104–106 [Desert Line v Yemen].
56 Quiborax v Bolivia, supra note 37 at paras 263–266.
57 Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Award of 19 December 2016, 2016 at para
199 [Hochtief v Argentina].

dual approach of complying with both domestic law and fundamental principles of law
should be applied.58 In this regard, the Slovakia-Iran BIT (2016) avoids any uncertainty
about the seriousness of a corrupt act and instead requires a precise and full denial of
claims in cases where corruption and bribery are alleged.
However, corruption—another category of investor’s wrongdoings—generally cov-
ers the act of bribing public officials of host states by an investor(s), or by the inter-
mediary of the investor. This definition indicates that corruption always involves two
parties and that an act of corruption would not be created without either party being
present. This reflects the inherently bilateral nature of corruption. This bilateral ele-
ment is fundamentally different from other unilateral illegal conduct, such as fraud or
false presentation. Thus, a relevant question is whether these ‘carve-out’ ACPs would
capture investor’s corrupt acts but fail to capture public officials’ corruptive activities
in investment transactions? And, going one step further, would these ACPs function
well in terms of promoting the elimination of corruption and the progression of sus-
tainable development in international investment? These questions will be addressed
in the following part.
IV. ACPS MANDATING INVESTOR OBLIGATIONS: A FAIR WAY TO ACHIEVE

SUSTAINABLE DEVELOPMENT AND GREATER SYMMETRY BETWEEN
STATES AND INVESTORS?
As discussed above, the IIAs are now undergoing reforms to pursue objectives such as
the growth and protection of sustainable development, the preservation of states’ reg-
ulatory powers in relation to public interests, and more equitable balance of investor
rights and obligations. States are taking different pathways to effect these develop-
ments, including, inter alia, reasserting state regulatory rights within investment treaties
and/or imposing duties on investors to protect the environment and promote sus-
tainable development in investment making.59 Anti-corruption efforts, one of the
fundamental components of CSR,60 is becoming one of the policies preferred by states
to achieve a ‘symmetrical’ balance within investment treaties (in terms of balancing the
obligations of states and investors). These efforts at balancing interests can be seen in
the design of ‘carve-out’ ACPs that impose direct obligations on foreign investors and
narrow treaty protection for corruption-contaminated investments.
The preceding part provided an overview of the existing ACPs that are directed at
investors’ conduct, as well as exploring how ACPs might apply in ISA. This part assesses
58 J. Hepburn, ‘In Accordance with Which Host State Laws? Restoring the “Defence” of Investor Illegality in
Investment Arbitration’, 5 (3) Journal of International Dispute Settlement 531–559 (2014), at 533.
59 Prabhash Ranjan and Pushkar Anand, ‘The 2016 Model Indian Bilateral Investment Treaty: A Critical Decon-
struction’, 38 (1) Northwestern Journal of International Law & Business 55 (2017), at 6–7; Piero Bernardini,
‘Reforming Investor–State Dispute Settlement: The Need to Balance Both Parties’ Interests’, 32 (1) ICSID
Review 38–57 (2017), at 50–53.
60 See generally David Hess, ‘Enhancing the Effectiveness of the Foreign Corrupt Practices Act Through Corpo-
rate Social Responsibility’, 73 (5) Ohio State Law Journal 1121–1144 (2012); Joseph E. Stiglitz, ‘Regulating
Multinational Corporations: Towards Principles of Cross-Border Legal Frameworks in a Globalized World
Balancing Rights with Responsibilities’, 23 (3) American University International Law Review 451–558
(2007).

whether, to what extent, and how these ACPs impact the emphasis on sustainable
development in the current iteration of IIAs reforms, and evaluates the success of pro-
gressive efforts to strike a balance between investment protection and the state’s right
to regulate.
A. CSR-based ACPs—general weaknesses

In investment treaties, CSR clauses are generally phrased in the language of volun-
tary compliance and apply to a wide range of social responsibilities held by foreign
investors, including human rights, labour rights, environmental protection and anti-
corruption. In spite of the characteristics of voluntariness and self-regulation, these
rules should, at least, constitute a valuable step towards promoting the sustainability
of foreign investments. Yet, it is difficult to ignore the limitations and weaknesses of
CSR-based ACPs.
First, the anti-corruption efforts that are expected to manifest in the CSR con-
text are largely confined to the domestic jurisdiction. Domestic administrative and
judicial proceedings are the major channels that host states rely on to deal with cor-
ruption issues that occur in private enterprises. Accordingly, this method of corrup-
tion deterrence requires a robust and comprehensive anti-corruption legal framework:
otherwise, such CSR clauses will be of little use. To address this type of scenario,
CSR-based ACPs should be relied on in combination with other types of ACPs, like
those establishing cooperation and improving standards. ACPs that refer to the inter-
national anti-corruption norms (such as the UNCAC and the OCED Anti-Bribery
Convention) not only require states to establish competent anti-corruption institu-
tions and legalization requirements, but also encourage them to combat corruption
cooperatively. These are vital requirements in a context where transnational corruption
is widespread and increasingly difficult to prove. Any breaches of investor obliga-
tions under these strengthened CSR clauses should result in adequate sanctions being
applied in accordance with domestic anti-corruption laws and regulations.
In addition to evaluating CSR-based ACPs from the perspective of investor obli-
gations, it is important to consider how these provisions operate from the other side
of the scale: not only the state’s right to regulate, but also how and when obligations
are owed by states to foreign investors. Currently, CSR clauses in most cases have a
provision to the effect that ‘state parties should encourage enterprises operating within
their territory or subject to their jurisdiction to voluntarily incorporate internationally recog-
nized standards of corporate social responsibility in their internal policies…. This language
creates an obligation for host states to encourage enterprises to self-regulate accord-
ing to internationally recognized standards of CSR. However, a state may not devote
sufficient efforts to implementing this obligation or may be reluctant to spend time,
money and other resources on promoting effective CSR awareness in private enter-
prises. Further, CSR-based ACPs do not encompass cases where the public officials
initiate corrupt actions favouring enterprises within their territory: a relatively common
and unsurprising phenomenon.
Attention needs to be paid to the ‘to encourage’ obligation of host states under this
provision, as well as its application in ISA. One might ask: should a foreign investor be

entitled to bring a case before an investor-state tribunal and ask for relief when a host
state allegedly fails to implement its obligations under the CSR clause? Theoretically
speaking, the answer should be yes. However, there are difficulties with these types of
claims.
First, it might be hard to convince an investment arbitral tribunal that the host
state has not fully complied with its ‘to encourage’ obligations within the relevant CSR
clause, given that this obligation ‘may easily be discharged by the state by way of noti-
fications, investment guidelines and state-sponsored CSR brief materials’.61 It is one
matter for public officials to solicit bribes from private enterprises; however, it is quite
another to prove that states have failed to fulfil their obligations of encouraging CSR.
Having sufficient evidence that a public official of the host state is involved in corrupt
activities does not necessarily mean that there is a breach of the CSR clause by the host
state. Moreover, among the identified 20 IIAs and one model BIT incorporating CSR-
based ACPs examined in this study, a vast majority of the state parties have explicitly
barred foreign investors from bringing claims of a breach of the CSR clause under the
ISDS regime.
In short, it seems that CSR clauses present a misleading image of a balanced scale
between investors and state interests, when this is not the fact. In reality, the powers to
enforce investor obligations are rather weak, while on the other side, a state’s obligations
are mostly excluded from arbitration. In terms of advancing effective state and enter-
prise involvement in curbing and eliminating corruption in international investment,
greater efforts are necessary.
B. ‘Carve-out’ ACPs—tilting the balance towards host states

The ‘carve-out’ ACPs, either in terms of imposing direct obligations against corruption,
denying treaty protection, or precluding access to arbitration, aim to deprive investors’
right to arbitration if the investments are obtained through corruption. Compared with
other types of ACPs, the incorporation of ‘carve-out’ ACPs in investment treaties is a
more recent development in IIA-making practice.62 ‘Carve-out’ ACPs are strongly pre-
ferred in model IIAs which are seen as more balanced investment treaties, such as the
Brazil Model BIT 2015,63 the India Model BIT 2015,64 and the Pan-African Investment
Code 2015 (PAIC).65
61 Brower and Ahmad, supra note 9 at 479.

62 Andrea Bjorklund, Yarik Kryvoi and Jean-Michel Marcoux, Investment Promotion and Protection in the
Canada-UK Trade Relationship (2018), at 31–32, available at https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3312617.
63 See, e.g. Nitish Monebhurrun, ‘Novelty in International Investment Law: The Brazilian Agreement on Coop-
eration and Facilitation of Investments as a Different International Investment Agreement Model’, 8 (1)
Journal of International Dispute Settlement 79–100 (2017); Joaquim P. Muniz, Kabir A. N. Duggal and Luis
A. S. Peretti, ‘The New Brazilian BIT on Cooperation and Facilitation of Investments: A New Approach in
Times of Change’, 32 (2) ICSID Review (2017) 404–417.
64 See generally Ranjan and Anand, supra note 59; Hanessian and Duggal, supra note 30.
65 Makane Moïse Mbengue and Stefanie Schacherer, ‘The “Africanization” of International Investment Law:
The Pan-African Investment Code and the Reform of the International Investment Regime’, 18 The Journal
of World Investment & Trade (2017) 414–448.

On the surface, the ‘carve-out’ ACPs seem to be a natural way to advance sustainable
development in foreign investments, to better balance investors’ rights and obliga-
tions, and to safeguard the right to regulate in the public interest. However, ‘carve-out’
ACPs generate numerous concerns and uncertainties from the broad viewpoints of
corruption deterrence, the principle of proportionality, and theories of attracting for-
eign direct investment (FDI). More precisely, ‘carve-out’ ACPs might have a significant
deterrent effect on potential foreign investors who do not want to risk initiating corrupt
acts with public officials of host states. However, these provisions—as demonstrated by
case law in investment arbitration—have had little success in discouraging acts of solic-
itation of host states, regardless of whether the action was motivated by conspiracy,
impulsion or imprudence.
Before the introduction of ‘carve-out’ ACPs, the tribunals in ISA adopted the
approach of completely dismissing investors’ claims in cases where investors were
found to have conducted corrupt acts with public officials of host states. This approach
was taken in the cases of World Duty Free v Kenya (2006), Metal-Tech v Uzbekistan
(2013) and Spentex Netherlands v Uzbekistan (2016). For example, in World Duty Free v
Kenya (2006), the investor launched arbitration proceedings under the Convention on
the Settlement of Investment Disputes between States and Nationals of Other States
(ICSID Convention), seeking an order of full compensation for an illegal expropria-
tion conducted by the government of Kenya.66 An allegation of corruption was then
raised by Kenya, which then sought an entire dismissal of the claims of the investor
whose investment was procured through payment of a bribe of US $2 million paid by
the investor’s CEO to the president of the host state.67 The tribunal found for the gov-
ernment of Kenya and denied all claims of the investor.68 Thus, lodging allegations of
corruption has become a strategy of host states who wish to defend themselves against
investors in ISA.69 One can observe this trend in an increasing number of investment
cases, although for the most part, such claims remain unproven, as in the following
cases: Glencore v Colombia (2019),70 Lao Holdings v Laos (2019),71 Sanum v Laos
(2019),72 Tethyan Copper v Pakistan (2019),73 Karkey v Pakistan (2017),74 Vladislav
Kim v Uzbekistan (2017),75 and Niko Resources v Bangladesh (2013).76
66 World Duty Free v Kenya, supra note 20 at paras 74–76.

67 Ibid, at para 108.
68 Ibid, at para 179.
69 See, e.g. Stephan Wilske and Willa Obel, ‘The “Corruption Objection” to Jurisdiction in Investment Arbitra-
tion’, in Krista Nadakavukaren Schefer (ed.), Poverty and the International Economic Legal System (Cambridge:
Cambridge University Press, 2013), 177; Jason Webb Yackee, ‘Investment Treaties and Investor Corruption:
An Emerging Defense for Host States’, 3 Virginia Journal of International Law 723–746 (2012).
70 Glencore International AG and CI Prodeco SA v Republic of Colombia, ICSID Case No ARB/16/6, Award of 27
August 2019, 2019 [Glencore v Colombia (1)].
71 Lao Holdings NV v Lao People’s Democratic Republic, ICSID Case No ARB (AF)/12/6, Award of 6 August 2019,
2019 [Lao Holdings v Laos (1), Award (2019)].
72 Sanum Investments Limited v Lao People’s Democratic Republic, UNCITRAL, PCA Case No 2013–13, Award of
6 August 2019, 2019 [Sanum v Laos (1), Award (2019)].
73 Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/1, Award of 12
July 2019, 2019 [Tethyan Copper v Pakistan, Award (2019)].
74 Karkey Karadeniz Elektrik Uretim AS v Islamic Republic of Pakistan, ICSID Case No ARB/13/1, Award of 22
August 2017, 2017 [Karkey v Pakistan, Award (2017)].
75 Kim v Uzbekistan, supra note 43.
76 Kriebaum, supra note 53.

Notably, the outcome of dismissing investor’s claims in their entirety and ‘overlook-
ing’ host states’ involvement in corruption has prompted many critics to consider issues
of ‘unfairness, unjust enrichment, possible distortions of the arbitration process’,77
‘asymmetric liabilities on both parties’,78 ‘unjust enrichment of an equally culpable
part’79 and whether this outcome is ‘inconsistent with the principles of state respon-
sibilities’.80 This approach also sends dangerous messages to host states that allegations
of corruption are a ‘viable state defence’ against claims of investors.81 More concern-
ing perhaps is the fact that states are able to ‘receive the benefit of the investment, have
the opportunity to sell the concession a second time and double that benefit, and walk
away with the bribe’.82 Even worse, this might incentivize states to solicit bribes from
investors, something which occurred in the case of World Duty Free v Kenya (2006).
However, there are no remedies available for investors to seek in cases of solicitation,83
as Prof. Riesman comments:
Now, it does not seem to me that this is a model that provides a proper incentive for host
State officials who participate in the bribery process to comply with the general policy. If
you are willing to contemplate this dimension, then a series of very awkward questions are
presented of the international arbitrators who decide these cases. Article 3 of the OCED
[Anti-Bribery] Convention says…that sanctions, among other things, should be propor-
tionate. One of the questions…will be: How do arbitration tribunals encountering these
complex issues accommodate the general policy expressed in the OECD and many of the
other anti-bribery conventions with the need for proportionality so that this problematic
behaviour is disincentivized and not incentivized?
……
When we talk about sanctions, we ought to make a distinction between sanctions that
are effective and actually tend to disincentivize subsequent behaviour and sanctions that
are ceremonial taps on the wrist.
In the same vein, ‘carve-out’ ACPs that exclude corrupt investors from accessing
arbitration by focusing solely on investor behaviour—without any consideration of rel-
evant state conduct—also constitute another de facto ‘corruption allegation defence’.
This issue with ‘carve-out’ ACPs highlights the imperative to confront these chal-
lenges stemming from the problems of ‘incentivization or disincentivization’ and from
the pursuit of ‘symmetric sanctions’ to achieve proportionality between investors and
states.
77 See generally John R. Crook, ‘Remedies for Corruption’, 9 (3) World Arbitration & Mediation Review
303–316 (2015).
78 Aloysius Llamzon, Corruption in International Investment Arbitration (Oxford: Oxford University Press,
2014), at 277.
79 R. Zachary Torres-Fowler, ‘Undermining ICSID: How the Global Antibribery Regime Impairs Investor-State
Arbitration’, 52 (4) Virginia Journal of International Law 995–1040 (2012), at 1017.
80 Isuru C. Devendra, ‘State Responsibility for Corruption in International Investment Arbitration’, 10 (2)
Journal of International Dispute Settlement 248–287 (2019).
81 Yackee, supra note 69 at 742.
82 ‘Key Note Presentation: Everything You Always Wanted to Know About Foreign Bribery and Corruption but
Were Afraid to Ask, by Nicola Bonucci, with Commentary by Professor W. Michael Reisman’, 9 (3) World
Arbitration & Mediation Review 239–247 (2015), at 245.
83 Yan, supra note 11 at 230.

Moreover, the concept of ‘sustainable development’ was originally introduced in
investment treaties to preserve the state’s regulatory autonomy in matters affecting
the public interest and to eliminate ‘the likelihood of successful challenges of non-
discriminatory public welfare measures’.84 Expropriating an investment where the
major business activities involve corruption is unlikely to be criticized because such
expropriation would mostly be perceived as corresponding to legitimate public policy
objectives. However, if an investment was not seriously corrupt—for example, where a
single bribe was given or was solicited to make a payment—expropriation measures
will be out of proportion to the legitimate aim of safeguarding public interests and
promoting sustainable development.
Lastly, viewed from a theoretical perspective (i.e. signalling theory and credible
commitment theory), ‘carve-out’ ACPs in BITs may not be an appropriate policy for
attracting investment flows. Investment treaties are generally concluded by sovereign
states—in particular, developing countries—in order to attract and increase invest-
ment flows. They ‘allow states that are hospitable to foreign capital to convince investors
that they are genuine’.85 The ‘signalling theory’ of BITs holds that states wishing to
attract FDI flows need to take ‘costly actions’86 which are capable of showing their will-
ingness to ‘create and maintain a stable and favourable investment climate’.87 At the
same time, under the ‘credible commitment theory’ of BITs, providing these generous
promises and guaranteeing access to ISDS are particularly important actions for those
states anxious to increase investment flows.88 In any event, determining whether (and
to what extent) investors can ascertain the risk environment and depth of commitment
of the host state are vital factors to consider when deciding whether and where to make
investments. Thus, where a state is notorious for soliciting bribes but insists on the pol-
icy of incorporating ‘carve-out’ ACPs in investment treaties, a reasonable investor is less
likely to select this state for his investments. These ‘carve-out’ ACPs are strong signals
to investors of a state context of heightened risk and a potentially unfavourable envi-
ronment for investment. ‘Carve-out’ ACPs therefore have the potential to undermine
the ability of BITs to increase international investment flows.
The above discussion on the potential negative impacts of ‘carve-out’ ACPs confirms
that ‘carve-out’ ACPs are not satisfactory approaches in terms of promoting sustain-
able development, achieving a balance of interests in an IIA, discouraging corruption
in investment activities, and in terms of attracting FDI flows. On the contrary, they ‘tilt
the balance’ in favour of host states and will continue to do so until the consequences
of host state acts of corruption are resolved proportionately and fairly.
84 Caroline Henckels, ‘Protecting Regulatory Autonomy through Greater Precision in Investment Treaties: The
TPP, CETA, and TTIP’, 19 (1) Journal of International Economic Law 27–50 (2016), at 28.
85 Yoram Z. Haftel, ‘Ratification Counts: US Investment Treaties and FDI Flows into Developing Countries’,
17 (2) Review of International Political Economy 348–377 (2010), at 349.
86 Ibid, at 351.
87 Rodrigo Polanco Lazo, Valentino Desilvestro, and Azernoosh Bazrafkan, ‘Missing Investment Treaties’, 21
(3) Journal of International Economic Law 703–731 (2018), at 703.
88 Jason Webb Yackee, ‘Do Investment Promotion Agencies Promote Bilateral Investment Treaties?’, in Andrea
K. Bjorklund (ed.), Yearbook on International Investment Law and Policy 2013–2014 (Oxford: Oxford Univer-
sity Press, 2015), 529 at 531–532; Polanco Lazo, Desilvestro and Bazrafkan, supra note 87 at 703–704.

A viable solution is requiring states to prosecute those public officials accused of cor-
ruption as a pre-condition before being permitted to raise allegations of corruption in
international arbitration.89 As set out in the Morocco-Nigeria BIT (2016),90 the IISD
Model BIT 2005,91 and the SADC Model BIT 2012,92 state parties are required to
‘prosecute and where convicted penalize persons that have breached the applicable law
implementing this obligation [investor’s anti-corruption obligation]’. Such provisions
contribute to a more level playing field in terms of allocating liability for investors and
host states who participate in corrupt acts.93 Moreover, in addition to ‘carve-out’ ACPs,
states should clarify the legal consequences for states who have engaged in corrupt acts,
like Art.9 of the Netherlands Model BIT 2019, which provides that:94
2. A Contracting Party breaches the aforementioned obligation of fair and equitable
treatment where a measure or series of measures constitutes:
…
e) Abusive treatment of investors such as harassment, coercion, abuse of power,
corrupt practices or similar bad faith conduct;
Although it is not yet clear how Art.9 of the Netherlands Model BIT 2019 will
be applied and interpreted coherently with ‘carve-out’ ACPs, it is significant that
this model BIT—for the very first time—explicitly provides that states violate treaty
obligations when they adopt corrupt practices.
Another potential solution could be preserving sufficient remedial measures, at
national or international levels or both, for foreign investors who are confronted by cor-
rupt solicitation and specifying these remedies in investment treaties.95 Such a clause
will then enable investors to challenge acts of solicitation and to obtain reasonable
compensation if investors have incurred loss or damage by reason of such acts. More
importantly, states should make every effort to promote and enhance the integrity of
public officials, which can be realized by inserting concrete obligations, especially those
well-established under the UNCAC, on states in investment treaties. Alternatively,
the state commitments to adhering to international/regional conventions prohibiting
corruption or to improving anti-corruption standards should be included.
89 In recent arbitration cases, whether the host states have initiated domestic investigation and prosecution
against any public officials or other persons alleged to have conducted corrupt acts (such as accepting a bribe
or soliciting a bribe) with investors has been one of the important factors for arbitrators to consider in the
fact-finding process. For instance, in Lao Holdings v Laos (2019), the tribunal considered that a lack of such
proceedings is ‘relevant to the credibility of the Government’s allegations [of corruption]’. (Lao Holdings v
Laos (1), Award (2019), supra note 71 at para 112.) In Georg Gavrilovic v Croatia (2018), when examining the
evidence in relation to corruption allegations raised by the respondent state, the tribunal noted the absence
of domestic prosecutions on the alleged corrupt payments. (Georg Gavrilovic and Gavrilovic d.o.o v Republic
of Croatia, ICSID Case No ARB/12/39, Award of 25 July 2018, 2018 at para 345 [Georg Gavrilovic v Croatia,
Award (2018)].) It is also argued that ‘failure to prosecute corruption would … be a form of acquiescence
under the law on State responsibility…’ (See Llamzon, supra note 78 at 273–275.)
90 Art.17.5, Morocco-Nigeria BIT (2016), supra note 40.
91 Art.22 (Anti-Corruption), IISD Model IIA 2005, supra note 33.
92 Art.10.3, SADC Model BIT 2012, supra note 38.
93 Okechukwu Ejims, ‘The 2016 Morocco–Nigeria Bilateral Investment Treaty: More Practical Reality in
Providing a Balanced Investment Treaty?’ 34 (1) ICSID Review 62–84 (2019), at 74–75.
94 Art.9, The Netherlands Model BIT 2019, supra note 51.
95 Yan, supra note 11 at 240.

V. CONCLUSION
Adopting provisions addressing anti-corruption in investment agreements is a progres-
sive step in the global fight against corruption and is also an aspect of IIA reforms that
aims to better balance the interests of investors and states, especially through the intro-
duction of ACPs that are directed at investor conduct. The empirical study presented
in this paper suggests that imposing anti-corruption obligations on foreign investors is
not a widely-adopted practice in investment treaties to date. Such type of ACPs appears
in a total of only 35 IIAs and in 10 model BITs.
These ACPs can be divided into two groups. The first group is CSR-based ACPs that
address anti-corruption issues from within the CSR clause. So far, CSR-based ACPs
mostly approach the issue from a ‘state perspective’: where states encourage investors
to self-regulate and to voluntarily comply with environmental, human rights, anti-
corruption, and other social responsibilities. These anti-corruption efforts are largely
implemented at the domestic level. Domestic administrative and judicial proceedings
are the major avenues for host states to rely on when addressing corruption issues that
occurred in private enterprise. One improvement to this first group of ACPs could
be combining CSR-based ACPs with provisions that establish and require transna-
tional and international anti-corruption cooperation. Another improvement could be
to strengthen and update anti-corruption standards, to make sure that reliable and
comprehensive anti-corruption legal frameworks exist at the domestic level.
The second group is ‘carve-out’ ACPs that exclude investments incurred through
corruption from substantive treaty protection and access to ISDS. ‘Carve-out’ ACPs
usually coexist with the ‘in accordance with laws’ clause in IIAs, but there are nuances
in terms of their scope and the relative seriousness of ‘illegal acts’. On the face of it,
it seems that ‘carve-out’ ACPs contribute to a symmetric equilibrium between invest-
ment protection and a state’s right to regulate. However, in light of the principle
of proportionality, such clauses should be criticized as disproportionally favouring
states’ interests. This criticism will stand as for long as the liability of public officials
who conduct corrupt acts or solicit bribes from investors remains obscured or over-
looked by states. Moreover, a complete denial of protection is unlikely to be a pro-FDI
clause. Investors are not likely to invest in a country that includes such a clause, as
this is unlikely to be a low-risk environment for investment, and because they cannot
ascertain whether there is a credible commitment to anti-corruption measures by that
state. Proposals for change to these ACPs should recommend sufficient domestic and
international remedies for foreign investors who are confronted with solicitation from
public officials of host states.
In conclusion, the current groups of ACPs dealing with investor’s wrongdoings fail
to achieve their intended purpose of promoting sustainable development. The obli-
gations contained in international and regional anti-corruption conventions—such as
the UNCAC—should be fully and strictly implemented for the sake of ensuring lia-
bility and imposing sanctions on investors and any other parties who participate in
corrupt acts, as well as guaranteeing remedies where there is solicitation of bribery from
government officials.

VI ANNEX TABLES
TABLE 1. Anti-corruption provisions that foster compliance by foreign investors

in investment treaties
ACP type
Entered into
No. IIAs force ACPs CSR IDO DTP PAA
1 Canada-Colombia ∏ Art.816 ∏
FTA (2008)
2 Canada-Peru FTA ∏ Art.810 ∏
(2008)
3 Canada-Panama ∏ Art.9.17 ∏
FTA (2010)
4 Canada-Benin BIT ∏ Art.16 ∏
(2013)
5 Canada-Honduras ∏ Art.10.1 ∏
FTA (2013) Art.10.16 ∏
6 Canada-Korea FTA ∏ Art.8.16 ∏
(2014)
7 Canada-Côte ∏ Art.15(2) ∏
d’Ivoire (2014)
8 Canada-Mali BIT ∏ Art.15(3) ∏
(2014)
9 Canada-Senegal BIT ∏ Art.16 ∏
(2014)
10 Canada-Serbia BIT ∏ Art.16 ∏
(2014)
11 Canada-Nigeria BIT Art.16 ∏
(2014)
12 Canada-Cameroon ∏ Art.15(2) ∏
BIT (2014)
13 Canada-Burkina ∏ Art.16 ∏
Faso BIT (2015)
14 Canada-Guinea BIT ∏ Art.16 ∏
(2015)
15 Canada-Mongolia ∏ Art.14 ∏
BIT (2016)
16 Canada-European Art.8.18(3)(5) ∏
Union CETA
(2016)
17 USMCA (2019) ∏ Art.14.17 ∏

TABLE 1. Continued
ACP type
Entered into
18 Brazil-Chile CFIA Art.16(4) ∏

(2015)
19 Brazil-Colombia Art.14(2) ∏
CFIA (2015)
20 Brazil-Peru ETEA Art.2.14(2) ∏
(2016)
21 Intra-MERCOSUR ∏ Art.13(1) ∏
CFIA (2017) Art.15(2) ∏
22 Brazil-Chile FTA Art.8.16(2) ∏
(2018)
23 Brazil-Guyana CFIA Art.16(2) ∏
(2018)
24 Brazil-Suriname Art.16(2) ∏
CFIA (2018)
25 Brazil-Ethiopia CFIA Art.15(2) ∏
(2018)
26 Brazil-United Arab Art.16(2)- ∏
Emirates CFIA (3)
(2019)
27 Brazil-Morocco Art.13(2) ∏
CFIA (2019)
28 Brazil-Ecuador Art.15(2)(c) ∏
CFIA (2019) Art.16(2) ∏
29 Brazil-India CFIA Art.10 ∏
(2020)
30 Colombia-Costa ∏ Art.12.9 ∏
Rica FTA (2013)
31 Additional Protocol ∏ Art.10.30(2) ∏
to the Framework
Agreement of the
Pacific Alliance
between Colombia,
Peru, Mexico and
Chile (2014)
32 Slovakia-Islamic ∏ Art.4(4) ∏
Republic of Iran Art.14(2) ∏
BIT (2016)
33 Morocco-Nigeria Art.17(2)- ∏
BIT (2016) (4)

TABLE 1. Continued
ACP type
Entered into
34 Nigeria-Singapore Art.11 ∏
BIT (2016)
35 European Union- Art.3.27(2) ∏
Viet Nam IPA
(2019)
CSR: Within CSR Clause, DTP: Denying Treaty Protection, ETEA: Economic and Trade Expansion Agreement,
IDO: Imposing Direct Obligation, IPA: Investment Protection Agreement, PAA: Precluding Access to Arbitration.
TABLE 2. Anti-corruption provisions that foster compliance by foreign investors

in model treaties
ACP type
No. Model IIAs ACPs
CSR IDO DTP PAA
1 Morocco Model BIT 2019 Art.19 ∏

Art.32(1) ∏
2 Belgium-Luxembourg Art.19(2) ∏
Economic Union Model
BIT 2019
3 The Netherlands Model Art.16(2) ∏
BIT 2019
4 Draft Pan-African Art.21 ∏
Investment Code 2016
5 Brazil Model BIT 2015 Art.15(2) ∏
6 Norway Model BIT Art.14(5) ∏
(draft) 2015
7 India Model BIT 2015 Art.11(2) ∏
Art.12 ∏
Art.13(4) ∏
8 Canada Model FIPA 2014 Art.16 ∏
9 SADC Model BIT 2012 Art.10(1)-(3) ∏
10 IISD Model Agreement Art.13 ∏
on Investment for Sus-
tainable Development
2005

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State Commitments Concrete Legislative Measures

Establishing Cooperation and

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III. ANTI-CORRUPTION PROVISIONS DIRECTED AT INVESTOR CONDUCT

Imposing Direct Investor Obligations

‘Carve-Out’ ACPs Denying Treaty Protection

Clauses in an investment agreement have a significant impact on arbitrators hear-

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These CSR clauses generally rely on voluntary self-regulation by investors’ on issues

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1. Imposing direct investor obligations

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2. Denying treaty protection

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45 Chapter 10 (Investment), Canada-Honduras Free Trade Agreement, 2013.

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3. Precluding access to arbitration

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IV. ACPS MANDATING INVESTOR OBLIGATIONS: A FAIR WAY TO ACHIEVE

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A. CSR-based ACPs—general weaknesses

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B. ‘Carve-out’ ACPs—tilting the balance towards host states

61 Brower and Ahmad, supra note 9 at 479.

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66 World Duty Free v Kenya, supra note 20 at paras 74–76.

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TABLE 1. Anti-corruption provisions that foster compliance by foreign investors

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18 Brazil-Chile CFIA Art.16(4) ∏

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TABLE 2. Anti-corruption provisions that foster compliance by foreign investors

1 Morocco Model BIT 2019 Art.19 ∏

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