Potential Opportunities in Arbitration for Specialists in Criminal Work

01 March 2007

Fraud and other criminal misdemeanours are not only dealt with in the criminal courts. Issues such as fraud, money laundering and corruption are regularly considered in arbitration proceedings. There may be opportunities for lawyers who specialise in crime to become more active in arbitration work, where their experience and familiarity with working to a high level of proof could, on appropriate occasions, assist parties in dispute with the presentation of their cases and the arbitral tribunals that determine the disputes. 

Claimants in an arbitration do not seek a criminal conviction through the arbitration process and the arbitrators have no power to make such a decision. Claimants desire a commercial resolution of the dispute. The party that claims that the other side owes it money wants the arbitrators to determine, in an enforceable award, that the other side has a liability to pay it a specified sum by a particular date. The arbitrators’ deliberations leading to the decision sometimes involve the assessment of allegations of criminal transactions and activities. 

A random selection of newspaper clippings examined at the time of writing reveals the global reach of fraud or other types of crime in the commercial world. These include: allegations about the payment of bribes to secure energy and other contracts; secret payments behind transfer deals involving highly paid sportsmen; graft and corruption; criminal negligence regarding environmental disasters; commercial fraud; misdemeanours relating to stock options; fraudulent tax shelters; and value added tax evasion. Some of these cases could well attract the attention of prosecuting authorities. Others could lead to civil actions to recover the financial loss caused by the alleged wrongdoing. Arbitration may be the selected route for determining liability and the quantum of that liability. 

A relatively small band of commercial litigation lawyers drawn from different countries usually act as advocates to the parties in large international arbitration cases. This specialist group comprises individuals of outstanding calibre, but they do not all necessarily approach issues of a criminal nature with the same degree of familiarity as do lawyers who specialise in crime. The question of how to deal with criminal matters in an arbitration is frequently debated by advocates and arbitrators at international arbitration conferences and gatherings. 

Four years ago the ICC Institute of World Business Law organised a conference for the arbitral community on the subject of crime in arbitration, subsequently published in book form under the title Arbitration, money laundering, corruption and fraud (eds Kristin Karsten and Andrew Berkeley.) Topics covered, in addition to those named in the title, include effective monitoring of the 1997 OECD Convention against transnational bribery; transnational public policy in international arbitral decision-making, issues of arbitrability, contract validity, merits and evidence; and the role of the arbitral tribunal. 

Lawyers who specialise in crime might wish to explore whether they can participate in an advocacy or other supportive role in arbitrations where alleged criminal misdemeanours play some part in the proceedings. It is not difficult to research the field. There are many conferences on arbitration topics throughout the year in different parts of the world, most organised by the main international arbitration administering bodies. These include the London Court of International Arbitration; the Hong Kong International Arbitration Centre; the American Arbitration Association; the Court of the ICC in Paris; and many others (eg, those located in Stockholm, Geneva, Vienna, Beijing and Singapore). 

Another source of relevant information is the professional body for those engaged in arbitration in any capacity, namely the Chartered Institute of Arbitrators, which is headquartered in London. For those interested in obtaining a professional qualification in arbitration, the Institute runs courses leading to the Fellowship of the Chartered Institute of Arbitrators (FCIArb), which is the only fully professional qualification in arbitration in the world. Litigation lawyers with a minimum of 10 years’ litigation experience are able to follow a fast-track accelerated route to Fellowship, under which they are entitled to exemption from many of the Fellowship examinations. 

As with litigation in the courts, the parties in a significant arbitration are likely to instruct experts to assist in the preparation of their cases. In fraud and other criminal matters, a frequent area of required expertise is accountancy. Where crime is concerned the appointed expert accountant has to demonstrate an ability to undertake investigations of a detailed and exacting nature in order to meet the higher standard of proof – beyond reasonable doubt. It is insufficient for the accountant to approach his or her task working to the normal professional auditing standard, where the requirement, in some jurisdictions, is to present an opinion on whether the financial statements give a true and fair view. If that auditing standard is adopted, material items that may be critically relevant to a consideration of fraud or other criminal activity might escape adequate investigation because they might not be considered sufficiently material in an audit context. Accountancy fraud investigations need to be undertaken to a more detailed level. 

Other attributes of an effective expert accountant include the ability to marshal a huge number of facts and figures into coherent summaries in a report, and to present in oral cross-examination a simple but clear story that can be understood by the tribunal, to which the expert’s prime duty is directed.

Because of the international nature of criminal activity, the expert accountant must be familiar with accounting and auditing routines across many jurisdictions, so that he or she can deal appropriately with data and information wherever it arises. There are two main accounting standards approaches, one is US-based and the other is the international financial reporting standards in use in Europe and elsewhere in the world. Efforts are in hand to combine the two systems so that public companies anywhere around the globe can produce just one set of financial statements that will be acceptable to any stock market where the companies’ shares are listed. However, progress has been slow and there are many difficulties in reconciling the rules-based approach of the US with the broader principles based view of international standards. 

Many of the numbers in a set of accounts are not as definite and objective as one might suppose, because many judgments are brought to bear on some of the important figures. When acting as an expert accountant in a fraud trial some years ago, we were able to demonstrate that a smart business suit worn by someone professionally involved in the case could be treated in many different ways in accounting terms – had that suit been a business asset. If a suit is capable of being represented in financial statements in a variety of ways it is no wonder that wrongful activities in complex commercial transactions can be cleverly masked by seemingly appropriate accounting treatments. In order to unravel them, careful and detailed analysis is required.

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