The Burden of Persuasion and Weight of Proof for Claims of Corruption; the World Bank Group Sanctions Board Compared with International Arbitration
Mark Kantor, International Arbitrator and former member of the World Bank Sanctions Board, 28 November 2022
Allegations of corrupt conduct by business and government officials have unfortunately become common at dispute resolution forums. Active participants before those forums, and tribunal members, debate the proper weight of the evidence necessary to persuade the relevant tribunal members that the corrupt conduct occurred, as well as the appropriate allocation between claimant and subject of the burden of persuasion.
Let us first look at the World Bank Group Sanctions Board (the Sanctions Board). The Sanctions Board applies an unusual burden-shifting process to determine whether a reasonable belief exists that it is “more likely than not” a respondent contractor engaged in corrupt conduct.
Anticorruption efforts are, of course, essential to the development mission of the World Bank Group (WBG).
“The World Bank Group is firmly committed to placing governance, anticorruption, and transparency front and center in our work. A stable, respected rule of law is essential to good development outcomes. An important piece of our anticorruption efforts is the World Bank Group’s sanctions system.”
World Bank Group President David Malpass
As readers of the MIPA Blog are well aware, the Sanctions Board was established to be the final tier of that sanctions system. The Sanctions Board issues final decisions on appeals of determinations reached at the first tier regarding claims by the WBG that contractors funded by WBG monies engaged in corrupt conduct in connection with funded activities.
The Sanctions Board is an independent administrative tribunal bound in World Bank-related matters, like all other arms of the WBG sanctions system, by a World Bank policy document issued in 2016 entitled “World Bank Procedure: 'Bank Procedure: Sanctions Proceedings and Settlements in Bank Financed Projects” (the Sanctions Procedures). The Sanctions Procedures contain specific provisions addressing the burden of persuasion and weight of evidence for allegations of misconduct, including claims of corruption. As we shall see, the choices made by the WBG in the Sanctions Procedures are quite distinct from how the world of international commercial arbitration deals with allegations of corruption, even though the arbitration world has not yet settled on a consensus approach to that issue.
Most directly, Section III.A, sub-paragraph 8.02(b) of the Sanctions Procedures establishes a standard of proof and a burden of proof for Sanctionable Practices in Sanctions Board proceedings, including corruption. According to the Sanctions Proceedings, the evidence presented by Integrity Vice Presidency (INT), in its capacity as prosecutor before the Sanctions Board, must support the conclusion that it is more likely than not that the Respondent engaged in a Sanctionable Practice. Thus, INT has “the burden of proof to present evidence sufficient to establish” that, “upon consideration of all the relevant evidence, a preponderance of the evidence supports a finding that the Respondent engaged in a Sanctionable Practice.” If INT’s submissions satisfy that standard, then “ the burden of proof shall shift” to the contractor (the Respondent) “to demonstrate that it is more likely than not that the Respondent's conduct did not amount to a Sanctionable Practice.” That express burden-shifting process is unusual among international tribunals.
Sub-paragraph 8.02(b) provides as follows.
(b) Standard and Burden of Proof.
(i) Standard of Proof. The Sanctions Board shall determine whether the evidence presented by INT, as contested by the Respondent, supports the conclusion that it is more likely than not that the Respondent engaged in a Sanctionable Practice. "More likely than not" means that, upon consideration of all the relevant evidence, a preponderance of the evidence supports a finding that the Respondent engaged in a Sanctionable Practice.
(ii) Burden of Proof. INT shall have the burden of proof to present evidence sufficient to establish that it is more likely than not that the Respondent engaged in a Sanctionable Practice. Upon such a showing by INT, the burden of proof shall shift to the Respondent to demonstrate that it is more likely than not that the Respondent's conduct did not amount to a Sanctionable Practice.
That sub-paragraph is not the only provision of the Sanctions Procedures addressing evidentiary issues for corruption allegations. Section II.B.3 also sets out a “more likely than not” standard of proof for all arms of the WBG sanctions system, but without referencing the burden-switching process of Sanctions Board proceedings.
Standard of Proof. Sanctions are imposed through sanctions proceedings only if the SOD [Suspension and Debarment Officer], the relevant EO [Evaluation Officer] or the Sanctions Board, as the case may be, after considering the whole of the evidentiary record provided to them, determines that it is more likely than not that the sanctioned party has engaged in, or bears responsibility for, a Sanctionable Practice.
Moreover, the term “sufficient evidence” that is used in sub-paragraph 8.02(b) of the Sanctions Procedures is defined in sub-paragraph “u” of Section II of the Sanctions Procedures to again encompass the “more likely than not” standard, appended to a “reasonable belief” test.
u. Sufficient evidence: evidence sufficient to support a reasonable belief, taking into consideration all relevant factors and circumstances, that it is more likely than not that the Respondent has engaged in a Sanctionable Practice.
Any knowledgeable advocate or decision-maker recognizes that the application of these standards is heavily influenced by the evidence-gathering process for a dispute resolution forum. Here, sub-paragraph 7.01 of Section II.A of the Sanctions Procedures authorizes “any form of evidence,” and entitles the Sanctions Board to employ its “discretion to determine the relevance, materiality, weight, and sufficiency of all evidence offered.” Moreover, the Sanctions Board also has discretion to “infer purpose, intent and/or knowledge on the part of the Respondent, or any other party, from circumstantial evidence.” Further, sub-paragraph 7.01 states that formal rules of evidence shall not apply.
7.01. Forms of Evidence
Any kind of evidence may form the basis of arguments presented in a sanctions proceeding and conclusions reached by the SDO or the Sanctions Board. The SDO and the Sanctions Board shall have discretion to determine the relevance, materiality, weight, and sufficiency of all evidence offered. Hearsay evidence or documentary evidence shall be given the weight deemed appropriate by the SDO or the Sanctions Board. Without limiting the generality of the foregoing, the SDO and the Sanctions Board shall have the discretion to infer purpose, intent and/or knowledge on the part of the Respondent, or any other party, from circumstantial evidence. Formal rules of evidence shall not apply.
INT will regularly rely on the World Bank’s audit rights found in various Procurement Guidelines to search the records of a contractor for relevant evidence. However, Respondents in a sanctions proceeding, in contrast, are unable to employ the type of “discovery” tools found in common law jurisdictions to develop evidence from the records of the World Bank Group. Sub-paragraph 7.03 makes that clear.
7.03 No Discovery
Except as expressly provided for in this Procedure, the Respondent shall have no right to review or obtain any information or documents in the Bank's possession.
Unlike national law enforcement authorities or proceedings in national courts, neither INT nor any other arm of the WBG has “subpoena” power to compel a third party to provide documents or testimony in a sanctions proceeding. The lack of subpoena authority is a significant constraint on the ability of INT to prove corrupt conduct, since evidence of that kind of conduct is only rarely put on paper by parties engaging in corrupt acts. Rather, many national proceedings benefit from evidence from third parties such as competitors, disgruntled former employees and whistleblowers.
Importantly, the Sanctions Board proceedings are an administrative process, not a juridical process. The World Bank, under its Articles of Agreement, has a fiduciary duty to make arrangements to ensure that funds provided by the Bank on behalf of its Member States are used only for their intended purposes. The primary remedy for contractor misconduct in the WBG sanctions system is debarment or suspension from further WBG financings, thus protecting those funds from improper conduct. The sanctions system is accordingly a process for determining whether the WBG will provide its funds in the future to a Respondent accused of corruption. That objective is far different from the objectives of civil proceedings in national courts or before arbitral tribunals, let alone national criminal law proceedings.
But, unless the sanction for a Sanctionable Practice focuses only the individuals who engineered the corrupt actions, the principal sanction of corporate disbarment or suspension will affect all employees of a sanctioned enterprise, not just the individual(s) engaged in the corrupt conduct. Where the corporate disbarment sanction undermines the principal line of business for a company or one of its divisions, that sanction can result in innocent individuals losing their jobs too.
Notably, the WBG sanctions proceeding address only misconduct by contractors funded by WBG monies. Corruption “takes two to dance.” Corrupt conduct by a counterpart official of a Member State is not resolved in the WBG sanctions system. Rather, official misconduct is addressed elsewhere in the WBG, often by means of financing decisions.
At bottom, the WBG Sanctions Procedures set out a fairly clear set of standards and burdens of proof regarding whether a Respondent contractor has engaged in the Sanctionable Practice of corrupt conduct. If INT presents sufficient evidence that it is more likely than not the Respondent committed corruption, and the Respondent does not then demonstrate that it is more likely than not that it did not engage in corrupt conduct, the Sanctions Board will be satisfied that a reasonable belief exists that sufficient evidence of the corrupt conduct by the Respondent exists.
Those clear standards and burdens, whether one likes them or not, stand in contrast with the uncertainty in international commercial arbitration regarding how to treat corruption allegations. For simplicity, this post will not address the similar state of uncertainty in Investor-State disputes (ISDS) under international investment agreements. But both commercial arbitrations and ISDS proceedings sit under a common typology; jurisdiction decisions, merits decisions and remedies. We turn first to jurisdiction in international commercial arbitration.
Arbitral jurisdiction in contract-based international commercial arbitrations starts with the arbitration agreement (party autonomy), the applicable national arbitration law (in the US, the Federal Arbitration Act), international conventions such as the New York Convention, and the applicable arbitration rules. Arbitration agreements generally do not speak expressly to corruption. Rather, contract law rules under the chosen governing law may render unenforceable contracts, including arbitration agreements, procured through fraud, and corruption may be treated under national law as a species of fraud.
Similarly, an international conventions such as the New York Convention may contain provisions that can be employed to revert to national law to determine if the arbitration agreement is unenforceable by reason of corruption. Thus, the New York Convention provides in Article II.1 that “[e]ach Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration … differences … concerning a subject matter capable of settlement by arbitration,” a determination under applicable national law. So too Article II.3 provides that courts of a Contracting State, if presented with a dispute covered by an arbitration agreement, shall refer the parties to arbitration unless the court “finds that the said agreement is null and void, inoperative or incapable of being performed.” That latter finding is, of course, determined by the applicable national law.
These principles offer a path to deny arbitral jurisdiction in international commercial arbitrations where, under applicable national law, questions of corruption are not capable of settlement in arbitration or such conduct renders the arbitration agreement null and void, inoperative or incapable of being performed. Each Contracting State under the New York Convention has its own regulatory framework or judicial precedents for how to address allegations of corruption. So, it is not feasible to accurate generalize treatment for jurisdictional purposes among States. That situation differs from the situation under the WBG’s Sanctions Procedures, where the presence of a World Bank-financed contract and related Procurement Guidelines operate to confer jurisdiction on the WBG sanctions system and thus eventually the Sanctions Board.
Notably, a finding by an arbitral tribunal that it lacks arbitral jurisdiction operates de facto to benefit the respondent in the proceeding, who is thereby no longer exposed to the risk of an adverse arbitral award. Whether a national court may replace the arbitral tribunal as the dispute resolution forum, and whether that national court’s decisions are internationally enforceable, are of course fraught questions best left for a thoughtful law review article exploring those uncertainties on a case-by-case basis. So too, the question in ISDS proceedings of whether an ISDS tribunal, under international conventional or customary law, should decline arbitral jurisdiction if satisfied that corrupt conduct by the claimant occurred.
If corruption allegations can derail an arbitration at the jurisdictional phase, then the tribunal will be unable to consider if corruption occurring on both sides might lead to an equitable allocation of the remedial consequences, such as a remedy of restitution that denies profits to the claimant but also prevents the respondent from retaining the benefits of its own misconduct.
Corruption allegations in the merits phase of an international commercial arbitration present different issues. Often, claims of corrupt conduct are brought by a respondent in an effort to find a persuasive defense to a claimant’s complaints. International commercial arbitral tribunals are not generally bound by the rules of evidence or codes of procedure applicable in national courts, even those of the jurisdiction in which the arbitration is seated. Thus, national law regarding burdens of proof and standards of evidence, if found in evidence law or procedural law, may simply not be binding. National approaches towards corruption allegations may still be influential in resolving those allegations. More importantly, if treated as a matter of substance rather than evidence or procedure under the applicable governing law, a national approach may be binding on the tribunal under the law governing the rights and obligations of the parties to the underlying commercial transaction. Some contractual governing laws treat burdens and standards of proof as substantive law, not evidence or procedure law. For a review of the law of U.S. States in this regard, see Nance, Choice of Law for Burdens of Proof, 41 N. Car. J. Int. L. 235 (2021).
The issue of burden of proof divides among other matters into both questions of allocation and weight. In recent times, some scholars and commentators have argued that, if an international tribunal is persuaded that allegations of corruption are prima facie credible, then the allocation of the burden of proof should switch from the party making the allegation to the party whose conduct is alleged to be corrupt. Readers will recall the burden-switching provisions of the Sanctions Board’s Procedures, although the approach is different in that the burden switches to the Respondent only after INT has presented sufficient evidence that corrupt conduct is more likely than not.
A burden-shifting suggestion in international proceedings is most often made in the context of an ISDS proceeding, but international commercial arbitrations are implicated as well. Those arguments have not, to the author’s knowledge, yet found acceptance by an arbitral tribunal. However, the debate is not limited to arbitral proceedings. Instead, the same debate arises in the context of proposals for international agreements or national laws intended to impose mandatory rules on international tribunals faced with corruption allegations. Whether change will come at all and, if so, through arbitral decision-making or regulatory measures, it worth speculation over beers at the local tavern but beyond the scope of this blog post.
However, as stated above, the question of the weight of the evidence sufficient to prove corrupt conduct must also be considered. Common law jurisdictions often have a typology of standards for the weight of the evidence, ranging in the case of the United States through prima facie evidence, preponderance of the evidence (more likely than not), clear and convincing evidence to evidence beyond a reasonable doubt. In many common law jurisdictions, proof of fraud requires evidence that is “clear and convincing,” a more rigorous standard that preponderance of the evidence (more likely than not). If corruption is seen as a form of fraud, then those jurisdictions will apply the “clear and convincing evidence” standard to determine if corruption has been proven.
Many international arbitral tribunals have found themselves choosing between a “preponderance of the evidence” standard and a “clear and convincing evidence” standard for the weight of evidence necessary to successfully support a claim of corrupt conduct. Consensus as to the proper standard simply does not yet exist in the international arbitration community.
Moreover, the international world is not strictly a common law world. The majority of States in the international community endorse systems of civil law, not common law. The rather concrete typology of standards found in common law jurisdictions is not found in civil law jurisdictions. Instead, judges in national courts in civil law jurisdictions may (at the risk of oversimplifying) only seek to determine which argument is more persuasive. Debate over such ideas as “preponderance of the evidence” versus “clear and convincing evidence” are replaced by the question of whether the juridical decision-maker “has been persuaded,” a more flexible standard that can accommodate differing circumstances. This is not solely a difference of governing law. It is also a difference among members of an arbitral tribunal who, in an international arbitration, may come from a mix of common law and civil law cultures.
Counsel may of course wonder whether the complex typology found in the common law is merely applied by some judges after the fact to confirm a decision the judge has already made based on more discretionary factors and circumstances.
Evidence in international commercial arbitration also operates under different principles than the Sanctions Board. Unlike the prohibition on Respondents in Sanctions Board proceedings from engaging in discovery, both sides are typically entitled to some form of document production. That information exchange is, however, far more limited in scope than under the U.S. litigation system and without recourse to the depositions, interrogatories and requests to admit that are also a staple of U.S. litigation. Additionally, again in contrast to INT’s limited powers in the WBG sanctions system, many countries may authorize international arbitrators seated in their jurisdiction to issue third-party subpoenas and summons for documents and testimony, but often with various limits.
The uncertainties found in merits decisions on corruption claims also plays a role in merits decisions. The central problem is, as noted above, that “corruption takes two,” the bribe payer and the bribe taker. Sometimes an entire entity, business or government, is infected with corruption – a kleptocracy. Other times, only some individuals or groups within an entity may have engaged in the misconduct – a rogue employee, for example. Arbitral tribunals struggle with the remedial distinctions that might apply if a bribe taker is, illustratively, a senior government official or a line officer. Similarly, arbitrators may struggle with remedies where the bribe payer is an official of a company but many other employees or third parties are innocent of the bribery and will suffer if the arbitral remedy is so severe that the life of the company or relevant division is itself threatened. The WBG sanctions system does not address these distinctions in a principled way – the sanction of corporate disbarment affects the entire Respondent enterprise.
As must be apparent by now, there is no consensus in international commercial arbitration as to allocation of the burden of proof or the standard for proof. National differences affect how corruption allegations play out in the jurisdictional, merits and remedies phases of an arbitration. But we do know that there are considerable differences between how the World Bank Group Sanctions Board and arbitration address those allegations. Each community can perhaps learn from the other community. And will do so as long as corruption dogs international transactions.
