International Seminar developed issues of corruption in arbitration and approach to solutions
June 26 , 2017

​The international seminar “El Lado Oscuro del Arbitraje” ("The Dark Side of Arbitration") highlighted the importance of arbitration and the possible solutions to its link with corruption. It also presented an innovative tool called Arbitrator Intelligence, which seeks to provide transparency in this process.

Universidad del Pacífico School of Law and Bullard Falla Ezcurra + law firm held the International Seminar “El Lado Oscuro del Arbitraje” ("The Dark Side of Arbitration"), which was attended by renowned national and international experts, such as Catherine Rogers and Christopher Drahozal, directors of Arbitrator Intelligence. This event was held on June 21 at the university premises. 

Huáscar Ezcurra, Partner of Bullard Falla Ezcurra +, spoke about the attractiveness of arbitration for businessmen, "they can choose the suitable authority to impart justice, the most specialized who are available to make a decision, they choose the best arbitrators," they opt for stateless justice, "which is slow, unspecialized and corrupt," but he also ensured that there are bad products in every market. 

Likewise, Fernando Cantuarias, Dean of the School of Law, highlighted the great work that was done, where they exchanged and generated innovative and relevant ideas for the fight against corruption within the Peruvian arbitration market. In addition, he urged to observe the real problem, since he considers that arbitration is an instrument of distraction, but not the cause of malpractice at the state level, where the State, through public officials, plays an important role. 

El Lado Oscuro del Arbitraje
Andrés Talavera, R​oberto Abusada, Ana Teresa Revilla and Fernando Cantuarias

Corruption and arbitration in Peru 

Arbitration in Peru has grown exponentially since the 1970s, but it was during the 1990s that it got its greatest reach, people even talked about a 300% growth in that period. 

A context that, from the economic point of view, "undermines the business environment and drives healthy investments away," explained Roberto Abusada, president of the Peruvian Institute of Economics, in addition to increasing the cost of doing business and reducing the growth of private investment. 

Corruption is now perceived as one of the main problems of the country and is present in the justice administration system preferred by the private sphere, arbitration, which has been brought to the state level without further changes. "Arbitration is not voluntary, but mandatory, which is killing it," said Ana Teresa Revilla, president of the Supervisory Organ of State Procurement (OSCE). 

The reality of the country allows the risks of fraud and corruption to be greater. One of the indicators is the repetitive and constant designation of arbitrators, which results in targeted arbitration awards, said Ana Teresa Revilla; in addition, "in order to be a good arbitrator you should deal with a maximum of 7 cases per year", which is not done and delays decision-making. 

Andrés Talavera, Partner of Bullard Falla Ezcurra +, explained that the Orellana case and the controversial arbitration award in 2014, "gave birth to corruption in our country or, rather, unveiled it in all its expression." 

The controversy in the case is that the property of the Municipality of San Borja had been registered in public records since 2000. Moreover, the Arbitration Tribunal, based in Iquitos, which ordered to deliver this property, had no knowledge of the people involved in the false arbitration award. 

This case set a precedent in Peru by declaring the arbitration award invalid. "Yes, corruption can be detected and eliminated," said Talavera and added that "the award is the key that allows to find corruption, but all the corrupt apparatus that comes from the past allows these cases to take place and to generate cleanliness when detecting them. Nevertheless, the State must also do something." 

El Lado Oscuro del Arbitraje
Bruno Doig, Caterina Miró Quesada, Lucía Olavarría, María del Carmen Tovar Gil, Alfredo Bullard

Lawyers and arbitrators against corruption in the arbitration market 

The questions that arise are: How to identify a fraud and the role of lawyers to deal with it.

Carolina Arroyo, Senior Associate of Andrade Veloz in Ecuador, said that among the indicators that allow to distinguish the slight line that separates the legitimate from the non-legitimate, are the arbitration clauses with suppliers, dubious mechanisms, appointment of arbitrators, one-sidedness of the dispute, among others. 

The experienced lawyer exhorts to investigate the client and the counterpart; conduct an exhaustive study of the evidence presented; and develop a kind of radar to detect fraud. Catherine Rogers, Director of Arbitrator Intelligence, pointed out that "we must look closely at all the documents" since "arbitration is being used by specialized criminals" and lawyers have the obligation to combat these practices. 

Research conducted by Jose Maria de la Jara, Partner of Bullard Falla Ezcurra +, which focused on the deliberation and perception of toxic arbitrators in Latin America, determined among the possible solutions presented to curb corruption and performance of toxic arbitrators: generating a deliberation schedule; establishing a deliberative process track; and creating evidence of possible exclusions within an arbitration tribunal. "We must actively fight against toxic environmental practices. The passive position before the virus generates its expansion," said De la Jara. 

However, what happens at the state level? Huáscar Ezcurra developed the subject of arbitration in public contracts by making a summary of what has happened in our country in recent years, putting emphasis on the Odebrecht case. 

The Brazilian company faced 19 arbitrations with the same arbitrator, winning 16 of them, which exemplifies that repeated designations can be a problem. The IBA rules are clear, "a conflict of interest is presumed to exist if an arbitrator does not disclose that one of the parties appointed him more than 3 times in the last 3 years," Ezcurra said. It is not known whether details about this case were revealed in this process. 

He even pointed out that in Peru there are cases where an arbitrator was elected for more than 70 times by the same party. "This does not show independence, this arbitrator becomes a fan and later on a player" who will tend to bet and work for his 'team'. 

In addition, he said that "the problem of arbitration is a market problem and requires market solutions." The lack of information is the heart of the matter, "people want to know more about arbitrators, how they conduct themselves in hearings or they want to know about their arbitration awards, but confidentiality does not allow access to that information" and this generates concern "for the lack of transparency in the arbitration market".

Christopher Drahozal, Huáscar Ezcurra, Maribel Aparicio, Cecilia O’Neill,Humberto Sáenz, Catherine Rogers

Arbitrator intelligence, a tool to increase transparency and fight corruption 

During this Seminar, it was envisaged, as a main measure against corruption in the arbitration market, to provide relevant information on arbitrators and developed cases; however, this would break one of the vital rules of arbitration, confidentiality. 

Given this need, Catherine Rogers and Christopher Drahazol, directors of Arbitrator Intelligence, a nonprofit organization that develops resources to increase transparency, impartiality and accountability in the selection process of the legal arbitrator, promote a tool that collects quality information by safeguarding confidentiality of the arbitrators. 

"Arbitration may become unfair if one of the parties has better information about possible arbitrators than the other", detailed Christopher Drahozal. "Arbitrator Intelligence seeks to match the information available to the parties that select arbitrators" disseminating information on their handling and decision making of cases. 

"At first I did not think it would be a way to fight corruption," said Rogers, who now sees there is chance to have the same information anywhere in the world through the tool and highlighted his organization's mission: "Transparency, accountability, and diversity to promote new arbitrators. Therefore more information about them is required". 

This tool is an anonymous questionnaire of objective questions where final ideas and the arbitration process of each case are asked for. "A set of questions that have gone through various tests and are formulated in a culturally neutral and confidential manner," said Penn State Law School professor and added that they use a fair questionnaire for the arbitrators that "seeks to overcome corruption in arbitration". 

Arbitrator Intelligence is divided into several phases, whose level of complexity increases as you progress through the use of the tool, namely the first phase can be filled by any qualified person who has access to the award; however, the next phase requires greater and deeper knowledge of the case. 

"There are a number of questions that address issues of corruption such as challenges presented in case management, document exchange, questions about arbitrators and about the award, how it was drafted and whether it presented errors," Rogers explained. 

On the other hand, Christopher Drahozal highlighted two main objectives: "to protect the confidentiality of arbitrators" thus keeping one of the primary rules of this service; and "to evaluate arbitrators regarding their behavior". In addition, he emphasized the focus of the reports on the selection of agents and the objectivity of the questions, since they do not take winning or losing as an indicator. 

Catherine Rogers said that if it were possible to discover fraud in this market, the arbitrators would oppose these practices. "The most important thing is that it does not only evaluate the arbitrator's behavior, but it helps shape their future behavior... how effectively they did their job, it will motivate them, avoid corruption and create a remedy against it". 

In addition, she stressed our country's commitment to overcome corruption in arbitration. "There are great arbitration challenges in Peru, but there are innovative solutions here. Concern, energy and commitment of a large group to generate great changes."
Huáscar Ez​curra, Jennifer Permesly, Catherine Rogers, José María de la Jara



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