Payback for Kickbacks: the UK position on compensation of victim states in multinational bribery cases
21 min read
A recent paper from the Basel Institute has brought renewed attention onto the issue of the compensation of victim states in cross-border bribery cases. International arbitration may provide a quicker and more certain route for States, but tribunals' limited powers and the cost of proceedings pose barriers.
"Corruption of a state officer by bribery is synonymous with the most heinous crimes because it can cause huge economic damage; and its long-term victims can be legion…"1
Bribery is far from being a victimless crime. When bribes are paid to a State's public officials, the State loses out: lower prices are paid for valuable natural resources (for example, by way of licences or concessions), higher prices are paid for infrastructure projects or the wrong contractual counterparty wins the contract with adverse results. The State's loss has a trickledown effect on its people. There is an inverse correlation between those States where bribery is perceived as prevalent and economic growth. Stunted economic growth ultimately detrimentally impacts the quality of citizens' lives.2
When a State has been the victim of a bribery scheme, it has several options. Depending on the applicable rules under the legal system, it could seek legal redress and potentially obtain recission of the contract and damages, effectively putting it in the same position as if the contract had never been made, or resist enforcement of the contract where enforcement is sought against it. On the other hand, bribery schemes may be investigated by law enforcement in the relevant State or by foreign agencies, such as the U.S. Department of Justice ("DOJ") or the UK Serious Fraud Office ("SFO"). If a corporate enters into a settlement with overseas law enforcement, then the affected State may wish to consider whether it can obtain compensation from the relevant overseas agency. It may be that both options are pursued.
International arbitration
In contracts between States and companies from other States, parties commonly provide that any disputes in relation to those contracts will be settled by arbitration. Arbitration has significant potential advantages as compared to other dispute settlement mechanisms (particularly litigation), including that each party is typically entitled to appoint one arbitrator (such that its perspective will be represented in the tribunal's deliberations), enforceability of awards and that proceedings are generally private and confidential. Given its popularity as a form of dispute resolution for state contracts many arbitral tribunals have had to consider contracts allegedly and/or actually procured by bribery.
Contracts procured or tainted by bribery
In arbitral proceedings concerning jurisdiction, liability and/or quantum, a State may succeed in voiding a contract procured by bribery if that is what the applicable law allows. This is because in some jurisdictions (such as England and Wales), a contract procured by bribery is not void, it is voidable (at the election of the innocent party). If the innocent party elects to void the contract, it is entitled to be put in the position it would have been in had the contract never been entered into. In such cases, a tribunal may make a damages award ordering a contractor to repay any payments made by the State pursuant to the contract.
It is important to note that the tribunal's decision on issues of bribery will largely depend on the governing law of the contract, such that in the appropriate case where the applicable law so provides, the tribunal may also declare the contract unenforceable where it finds that it is procured or tainted by bribery.
Within the context of international investment arbitration, in the last two decades, arbitral tribunals have been increasingly willing both to find that, as a matter of fact, contracts were procured by bribery and to hold that, as a matter of law, those contracts are voidable. The decisions in World Duty Free v Kenya and Metal-Tech v Uzbekistan where the laws of Kenya and Uzbekistan applied respectively are illustrative.
In World Duty Free v Kenya,3 an International Centre for Settlement of Investment Disputes ("ICSID") arbitral tribunal found, as a matter of fact, that World Duty Free had procured the relevant contract by bribing a senior Kenyan public official.4 The arbitral tribunal also held that, as a matter of law, the contract was voidable at Kenya's election (and Kenya had made such an election).5
In a later ICSID case, Metal-Tech v Uzbekistan,6 the arbitral tribunal, applying Uzbeck law, found that, as a matter of fact, that Metal-Tech had procured approval of the relevant project by bribing Uzbek officials (under the guise of certain consultancy agreements). The arbitral tribunal identified that because the consultancy agreements breached Uzbek laws which criminalised bribery, Metal-Tech had not made its investments in Uzbekistan in accordance with host State law (as was required by the definition of "investment" in the relevant bilateral investment treaty). In light of that issue, the tribunal rejected jurisdiction in relation to Metal-Tech's claims against Uzbekistan. The arbitral tribunal was "sensitive to the ongoing debate that findings on corruption often come down heavily on claimants, while possibly exonerating defendants that may have themselves been involved in the corrupt acts. It is true that the outcome in cases of corruption often appears unsatisfactory because, at first sight at least, it seems to give an unfair advantage to the defendant party".7 However, the tribunal justified its approach on the basis that it is designed "… not to punish one party at the cost of the other, but rather to ensure the promotion of the rule of law, which entails that a court or tribunal cannot grant assistance to a party that has engaged in a corrupt act".8
For States, the fact that arbitral tribunals may not uphold corrupt contracts is clearly beneficial. For investors, that same willingness is a risk, albeit tribunals will need to be satisfied that there was corruption and that is challenging.
Bribery is clandestine. Arbitral tribunals' capacity to find bribery and refuse to enforce contracts is significantly constrained in at least two ways. First, arbitrators have neither the investigative powers of prosecutors nor the coercive powers of judges. In the absence of such powers, establishing bribery is not straightforward. Second, tribunals (typically consisting of a party appointed arbitrator from either side) may be more reluctant than judges to make findings of bribery even on the same facts. Although these constraints may be overcome (and there is a trend towards a greater acceptance of circumstantial evidence or "red flags" of bribery),9 the jurisprudence shows that tribunals do not often find bribery under English law.
Avoiding enforcement of contracts procured by bribery
Even if, in initial arbitral proceedings concerning jurisdiction, liability and/or quantum, a State is initially unsuccessful, a State may succeed in avoiding the enforcement of that contract by challenging the award of the arbitral institution. In that sense, enforcement proceedings can be seen as a second potential line of defence against contracts procured by bribery albeit that the position is more nuanced than that.
That is because the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("NY Convention") provides that the courts of any country in which the recognition or enforcement of an arbitral award is sought may be refused because "[t]he recognition or enforcement of the award would be contrary to the public policy of that country".10 The NY Convention is one of the world's most widely ratified conventions, with 172 Contracting States (including the United Kingdom). As a consequence, the public policy exception is highly significant.
English statute law
The English Arbitration Act 1996 (the "Act") section 68 concerns challenges to arbitral awards based on serious irregularity. Subsection 68(1) of the Act entitles a party to arbitral proceedings to apply to the court challenging an award in those proceedings based on "serious irregularity" affecting the arbitral tribunal, proceedings or award.11 Subsection 68(2)(g) of the Act provides that "serious irregularity" includes either an arbitral award, or the way in which that award was procured, "being contrary to public policy" (although only if the court also considers that this irregularity has caused, or will cause, substantial injustice to the applicant).12 The emphasis on the award and not the underlying contract is significant.
English case law
As a consequence of those subsections of the Act, English courts may be called on to consider whether enforcement of awards procured by bribery contravenes public policy. The courts have consistently confirmed that bribery itself is "clearly contrary to public policy".13 However, at the enforcement and/or annulment stage, the English court is primarily concerned with whether the bribery or fraud has affected the arbitral process or how the award was procured.
Nigeria v P&ID14 illustrates the English courts' contemporary approach. In that case, Nigeria challenged arbitral awards on the basis of subsection 68(2)(g) of the Act. The High Court upheld Nigeria's challenge. Although the court found, as a matter of fact, that P&ID had procured the relevant contract by bribing a certain Nigerian public official, it did not uphold Nigeria's challenge on that basis because that was not sufficient to set aside the award. Instead, the court did so on three other bases: that P&ID had knowingly submitted false evidence to the arbitral, that it had continued to bribe the same public official during the arbitral proceedings, and that it had improperly retained Nigeria's internal legal documents.15 In other words, the court relied on corruption that had a bearing on the arbitral process and subsequent award. The Court characterised that conduct as constituting "the most severe abuses of the arbitral processes".16
UK Enforcement Action
The UK recognises the need to adequately compensate countries that are victims of overseas bribery, and has made explicit commitments to do so. However, the UK's compensation scheme has, to date, been under-utilised and narrowly implemented. While significant fines have been levied against corporates for bribery and corruption offences in recent years, there has been comparatively little compensation granted to victim States. This imbalance has led to criticism of the current regime and resulting calls for reform.
The UK is a State party to the United Nations Convention Against Corruption ("UNCAC"), meaning that it is required, among other obligations, to give "priority consideration" to returning the confiscated proceeds of corruption to a State that requests it, or to otherwise compensating the victims of the crime.17
At the London Anti-Corruption Summit in 2016, the UK committed to introducing documented principles governing compensation payments to overseas victims.18 Before this, UK law enforcement's approach operated on an informal basis. The UK Anti-Corruption Strategy 2017-2022 built upon this stance and committed to reducing the impact of corruption where it takes place, including redress from injustice caused by corruption, and supporting international processes for asset return and compensation.19 This led to various UK law enforcement agencies adopting the 'General Principles to compensate overseas victims' ("General Principles") in June 2018.
Under the General Principles, UK agencies are required to engage with various UK Government departments in order to identify potential overseas victims and assess the case for compensation, as well as engage proactively with the relevant law enforcement or government officials in affected States.20 The General Principles also require the agencies to consider the means of paying compensation to avoid the risk of further corruption. The SFO has published guidance on its implementation of the General Principles on its website, which states that its role is "to ensure that the question of compensation or asset repatriation is considered in every case and use all available legal mechanisms to secure it whenever appropriate."21 However, the SFO has not updated its guidance on overseas compensation since April 2019.
The General Principles apply equally to cases resulting in a conviction, Deferred Prosecution Agreements ("DPAs"), and non-conviction-based asset recovery.
Despite these commitments, the practical effect of the UK's General Principles has been called into question by a number of organisations including the non-profit organisation Spotlight on Corruption, which has stated that the General Principles have failed to ensure victims of corruption are compensated, and that their introduction in 2018 has led to "no discernible change" to the previous informal approach.22
The good old days?
In fact, by some measures, the previous approach may be seen as more effectively meeting the UK's obligations under the UNCAC. This is highlighted in the Basel Institute for Governance's Working Paper exploring the UK's compensation policy and its efficacy (the "Working Paper"), published in February 2025.23 The Working Paper notes that the settlement reached in the BAE Systems plc case in 2010 included a £30 million ex gratia payment made by BAE "for the benefit of the people of Tanzania", and distributed by the then Department for International Development. The Basel Institute's view is that the agencies involved in this settlement "displayed the will and aptitude to negotiate an out-of-court resolution that bettered the situations of those who typically bear the brunt of corruption."
The case of R v Smith & Ouzman Ltd went further, and, according to the Basel Institute, "established the UK as a pioneer in using the proceeds of foreign corruption enforcement actions to compensate affected populaces". At that time, it seemed the SFO understood "that corruption causes economic and institutional decay in affected countries, and accordingly, where corruption has occurred, some degree of compensation ought to be paid, even if only measured approximately".
Compensation now
The limitations of the UK's current compensation scheme can perhaps be most clearly seen in the DPAs entered into with organisations alleged to have been involved in complex, foreign bribery. DPAs are court-approved agreements between a prosecutor and an organisation which could be prosecuted for serious economic crime. Notably, a court must be satisfied that the terms of the DPA – including its financial terms – are fair, reasonable and proportionate before it gives judicial approval.
Since their introduction in 2014, DPAs have become a significant feature of the UK authorities' bribery enforcement action. Their use has led to the imposition of more than GBP 2.1 billion in fines and other financial penalties. 0.23% of this sum has reached victim States in the form of compensation.24 While the financial terms of a DPA may include compensation for victims – and reasons must be given in the DPA application where compensation is not possible – there remains a significant asymmetry between the amounts realised through DPAs and those returned to victim States.25 Compensation has only been a feature of two of the 10 bribery-related DPAs entered into by UK law enforcement (nine by the SFO and one by the CPS following an HMRC investigation), and amounts returned to the country of origin have been comparatively low.26 The disparity between the funds recouped by countries with the resources to pursue complex bribery cases (and impose large financial penalties) and the funds these countries award in compensation to the overseas victims of bribery has led to public criticism, not least from victim States themselves. In September 2023, Indonesia went so far as to threaten to sue the UK for a share of the record EUR 991 million settlement obtained by the SFO in its DPA with Airbus, after the aerospace group admitted to offences in multiple jurisdictions including the payment of bribes to executives at Indonesia's state-owned airline Garuda; despite Indonesian authorities claiming to have assisted the SFO with its investigation. Indonesia has not, to date, received any of the settlement as compensation.27
The criticisms raised by Spotlight for Corruption and Indonesia were echoed in Transparency International's Exporting Corruption 2022 Report, which assessed enforcement of the OECD Anti-Bribery Convention. In the report, the UK's enforcement efforts were downgraded from 'active' to 'moderate' – with particular attention drawn to the compensation of overseas victims as an area for improvement.28
As noted earlier, since the time that report was written, the UK has made little progress on formulating a clear anti-corruption strategy – and the UK's rank on the Transparency International Corruption Perception Index has dropped from 18th to 20th.
The Basel Institute's Working Paper analysed DPA cases both before and after the introduction of the General Principles, concluding that "the introduction of the Compensation Principles in 2018 did not lead to improved outcomes". Given the UK's vocal commitments to compensating victims of bribery, including foreign States, it may seem surprising that compensation has not been provided in more cases.
One reason for this is the narrow application of the General Principles. As highlighted in the Working Paper, compensation is ordered in cases only where the loss is straightforward to assess, with the courts holding that compensation is only intended for "clear and simple cases."29 This is a significant barrier to the compensation of victim States, particularly given the complex nature of many international bribery cases, which can involve widespread, multi-jurisdictional corruption, and payments obscured through extensive networks of intermediaries.
The narrow application of the General Principles can result in issues with identifying clear and direct loss, and those to whom compensation should be paid. The courts have held that compensation will not be awarded "where there are real issues as to whether those to benefit have suffered any, and if so, what loss".30
The Working Paper noted that in the DPA agreed between the SFO and Rolls-Royce before the General Principles were issued, the Court derived controlling principles from the law governing compensation orders, which "are typically made following a criminal conviction against an individual". These principles have been "transplanted into the field of corporate foreign bribery settlement agreements" leading to an approach which "has proven wholly inapposite for dealing with the victims of foreign bribery" in cases which are very unlikely to be "clear and simple".
A further potential hurdle is that victim States are reliant on the foreign prosecutor raising arguments in relation to compensation at a sentencing hearing – or as part of DPA negotiations – and demonstrating a straightforward link to the loss that the State has suffered. This can be particularly difficult given the barriers identified above. This limitation has been evidenced by recent SFO foreign bribery cases, in which the SFO has not asked the court to compensate a foreign State because there was not an "identifiable and quantifiable" loss to the country.31
The UK's compensation scheme does not recognise where foreign States have provided invaluable assistance to the SFO in their investigation, a blind spot which risks leading to reduced cooperation between States and thereby undermining the global enforcement of bribery on the whole; the Airbus case is a clear example, with Indonesia refusing to engage with the SFO's requests for assistance in a separate investigation into Canadian aircraft company Bombardier until the existing compensation dispute is resolved.
In light of the disparity between financial penalties imposed by UK authorities and the amounts paid in compensation to victim States, there have understandably been calls for reform of the UK's compensation scheme. Proposals range from broadening the definition of harm to recognising financial, economic, environmental, and social damage caused by foreign bribery, as well as implementing a process which enables the views of victims to be represented and considered.32
The Working Paper sets out six ambitious recommendations for reform: 1) define the responsibilities of relevant government agencies; 2) cease drawing on legal principles pertaining to compensation orders; 3) adopt a range of alternate methods for calculating the quantum of compensation; 4) adopt a formal procedure to request compensation; 5) clarify the concepts underlying compensatory practices; and 6) incentivise corporations to pay compensation, where possible.
Unfortunately, it is difficult to see how these recommendations could come to fruition within any reasonable timeframe, given the political willpower which would be required, along with the involvement of the courts in developing relevant jurisprudence through suitable cases.
The SFO itself clearly has a key role to play. However, its previous high-level guidance for corporates on DPAs made no specific mention of compensation to overseas victims.33 There was an opportunity to address the gap when updated guidance was published in April 2025 but, despite representations reportedly being made during the informal consultation process, the SFO did not add any information on overseas compensation.34
Conclusions
It is clear that the ability of States to obtain adequate – or indeed, any – compensation from foreign governments following law enforcement action in complex bribery cases is very limited under the current regimes. Furthermore, despite calls for reform in countries such as the UK, there is little sign of this changing in the near future. Any changes would require political backing as well as the ability for enforcement agencies to take appropriate steps.
Arbitration proceedings can provide redress and States entering into agreements with foreign corporates should consider providing for such an avenue at the very outset of contractual negotiations.
1 Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award dated 4 October 2013; at [173].
2 International Monetary Fund, "Fiscal Monitor: Curbing Corruption", April 2019, Chapter 2 (Fiscal Monitor: Curbing Corruption (imf.org)).
3 World Duty Free Company Limited v Republic of Kenya, ICSID Case No ARB/00/7, award dated 4 October 2006.
4 That arbitral tribunal's award was the first ICSID case in which a tribunal or the majority of a tribunal made a dispositive finding of corruption.
5 At [157].
6 Metal-Tech Ltd v Republic of Uzbekistan, ICSID Case No ARB/10/3, award dated 4 October 2013.
7 At [389].
8 Ibid.
9 ICC Commission Document on Red Flags or Other Indicators of Corruption in International Arbitration, Issue 2024-2.
10 Article V.2(b).
11 Arbitration Act 1996, section 68(1): "A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award."
12 Arbitration Act 1996, section 68(2)(g): "Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant: [...] the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy […]".`
13 Honeywell International Middle East Ltd v. Meydan Group LLC [2014] EWHC 1344 (TCC).
14 Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm) and 3320 (Comm).
15 At [493]-[497] (per Knowles J).
16 At [516] (per Knowles J).
17 Article 57(3c) of the United Nations Convention Against Corruption ("UNCAC"), see also https://committees.parliament.uk/writtenevidence/109307/pdf/ The UNCAC entered into force in the UK on 11 March 2006.
18 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/522791/FINAL_-_AC_Summit_Communique_-_May_2016.pdf.
19 https://www.gov.uk/government/publications/uk-anti-corruption-strategy-2017-to-2022; although the Anti-Corruption Strategy expired in 2022, no replacement has yet emerged – the most recent reference to an updated strategy was made by the previous government in the Integrated Review Refresh 2023, although the appointment of Baroness Hodge as the Prime Minister's Anti-Corruption Champion at the end of 2024 may be an indication that more action is imminent.
20 https://www.gov.uk/government/publications/general-principles-to-compensate-overseas-victims/general-principles-to-compensate-overseas-victims.
21 https://webarchive.nationalarchives.gov.uk/ukgwa/20241119161556/https:/www.sfo.gov.uk/publications/information-victims-witnesses-whistleblowers/compensation-principles-to-victims-outside-the-uk/.
22 https://committees.parliament.uk/writtenevidence/109307/pdf/.
23 https://baselgovernance.org/publications/wp-55.
24 Due to the limited information available as to the exact financial breakdown of some DPAs, and the various currencies in which financial penalties are levied, this percentage has been calculated based on headline figures released by the SFO and CPS for DPAs involving bribery offences. This figure was calculated using a conversion rate of USD 1 to GBP 0.6641, which makes the USD 7,046,196.58 compensation paid to Tanzania equal to GBP 4,679,379.15 as at 30 November 2015, being the date of the DPA.
25 https://www.unodc.org/documents/treaties/UNCAC/WorkingGroups/workinggroup2/2021-September-6-10/CAC-COSP-WG.2-2021-CRP.1.pdf.
26 The SFO has entered into nine DPAs regarding bribery offences to date and the Crown Prosecution Service has entered into one. The first DPA agreed with Standard Bank in 2015 included a USD 7 million compensation payment to the Government of Tanzania as part of overall financial orders of USD 25.2 million (Serious Fraud Office v Standard Bank plc (now known as ICBC Standard Bank plc) [2015] 11 WLUK 804).
In 2021, a DPA agreed with Amec Foster Wheeler Limited included GBP 103 million in financial orders, including compensation of GBP 210,610 to "recompense the citizens of the Federal Republic of Nigeria" (Serious Fraud Office v Amec Foster Wheeler Energy Limited (previously known as Foster Wheeler Energy Limited) [2021] 6 WLUK 664). See also https://committees.parliament.uk/writtenevidence/109307/pdf/.
Separately, Tanzania has previously received a GBP 29.5 million (plus accrued interest) reparation payment as part of a 2010 global settlement concluded with the UK and US authorities. This was prior to the introduction of the current DPA regime and outside the compensation regime examined in this article.
27 https://www.ft.com/content/dc0720ec-b381-4f5b-8bba-44fb09408522.
28 https://images.transparencycdn.org/images/2022_Report-Full_Exporting-Corruption_English.pdf.
29 R v Michael Brian Kneeshaw (1974) 58 Cr App R 439; R v Kenneth Donovan (1981) 3 Cr App R (S) 192.
30 R v Ben Stapylton [2012] EWCA Crim 728.
31 Nigeria v Serious Fraud Office [2022] 10 WLUK 424.
32 See, for example: Exporting Corruption 2022, Transparency International; Letter to Justice Secretary Dominic Raab, Spotlight on Corruption, 7 December 2022; Home Office response to Spotlight on Corruption, 28 February 2023; Law Commission review of Confiscation under Part 2 of the Proceeds of Crime Act 2002.
33 https://webarchive.nationalarchives.gov.uk/ukgwa/20241119162052/https:/www.sfo.gov.uk/publications/guidance-policy-and-protocols/guidance-for-corporates/deferred-prosecution-agreements/.
34 https://www.gov.uk/government/publications/sfo-corporate-guidance/sfo-corporate-guidance.
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