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One of the most controversial issues in international investment law is how arbitral panels should deal with investments tainted by corruption at their inception. The current practice of investment arbitrators is to refuse to hear investors’ claims when bribery allegations are substantiated. A recent wave of scholarship has attacked this “corruption defense,” arguing that the practice unfairly harms investors and encourages governments to maintain corrupt practices. This Essay responds to that scholarship, arguing that the current approach is the best policy choice on balance. The Essay analyzes three core policy questions at the heart of the debate: Would eliminating the corruption defense lead governments to adopt meaningful anti-corruption reform? Does corrupt foreign investment improve economic and political conditions in the host states to a sufficient degree to warrant investment protection? Do the governments establishing investment treaties that set the contractual terms between states want investment protections for corrupt investment? In answering all three questions in the negative and placing the issue within the broader context of transnational anti-corruption law, this Essay provides the theoretical foundation necessary for supporting the current practice.

Library of Congress Subject Headings

Corruption, Investments--Law and legislation, International commercial arbitration