Behind closed doors: how arbitration conceals corruption and what the UK should do about it

Several recent major court cases in the UK have shown how vulnerable arbitration can be to abuse by corrupt actors. As a major centre for international arbitration – settling disputes between companies and governments, and between companies themselves – the UK has a responsibility to tackle this vulnerability. 

Currently, arbitration proceedings are being used to place disputes of considerable public importance behind closed doors. Meanwhile, unscrupulous actors exploit confidentiality rules to use arbitration as an unwitting vehicle for corruption. 

What could the UK do about it?

Several parliamentarians backed potential amendments to the Arbitration Bill currently before Parliament which would have addressed these concerns about corruption. These amendments would have clarified when arbitrators in England and Wales should:

1. report corruption allegations or suspicions to law enforcement
2. 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.

But a letter we recently received from Ministry of Justice Minister Lord Ponsonby sets out the new government’s position that no amendment is required to the Bill. 

This is a missed opportunity to close a crucial gap that allows UK courts to be a vehicle for money laundering and cleaning dirty money. 

The letter notes that the arbitral institutions the government consulted all agree that no amendments are needed, and that the recent P&ID case which Peers drew attention to in debates, and which almost saw Nigeria on the hook for a sham $11.1 billion award obtained by a small offshore company, was “highly unusual”. With due respect, 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 judge who heard the P&ID case certainly didn’t think that the case was a one off. It’s worth quoting some of his hard-hitting remarks in full: 

“I hope the facts and circumstances of this case may provoke debate and reflection among the arbitration community, and also among state users of arbitration, and among other courts with responsibility to supervise or oversee arbitration. The facts and circumstances of this case, which are remarkable but very real, provide an opportunity to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved.

The risk is that arbitration as a process becomes less reliable, less able to find difficult but important new legal ground, and more vulnerable to fraud. The present case shows that having (as here) a tribunal of the greatest experience and expertise is not enough. Without reflection, then a case such as the present could happen again, and not reach the court.”

The government has committed to look at what is happening internationally and to “swift adoption of best practices as they are developed”, such as through the International Chamber of Commerce’s anti-corruption task force. That task force aims to finish a report and publish guidance by the end of 2025.  

But if the new government is serious about making the UK the anti-corruption capital of the world, it should be leading the charge internationally to tackle the risks of dirty money in arbitration. 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.