International Arbitration Isn't Living Up to Its Promise in Latin America

Despite international arbitration being increasingly seen as an effective way to settle disputes in Latin America, it's still not living up to expectations.

Many Latin American countries have adopted modern arbitration laws, yet the outcomes remain disappointing.

Take Chile's ongoing tensions with Peru and Bolivia over exclusive economic zones and Pacific Ocean access. Despite International Court of Justice rulings confirming Chile's sovereignty over most of the territories, Bolivia and Peru keep pressing their claims.

These tensions have only worsened with the influx of Venezuelan migrants into the Altiplano plateau, with each country blaming the other for their mishandling of the situation.

Similarly, the UN has advised Haiti and the Dominican Republic to let courts decide who's right in a dispute over an irrigation canal on the shared Massacre River. Haiti sees it as vital for food sovereignty, while the Dominican authorities argue it tramples a formal agreement, diverting water from their land.

This dispute has sparked heavy border militarization, making a peaceful resolution through arbitration unlikely.

Latin America's dismal arbitration track record reflects its inability to defuse conflicts and ensure lasting peace. Rather than resolving issues, this flawed process frequently intensifies them.

But without significant reforms, arbitration risks becoming a playground for predatory, profit-driven entities and malign parties chasing favorable outcomes to shield their unjust claims by a façade of legality.

These challenges are not limited to Latin America alone; they also resonate in Asia, particularly amidst the tumult surrounding the contested South China Sea. Recently, a prominent former Filipino judge urged his government to join Vietnam in confronting China's hindrance of fishing rights through arbitration.

But the odds of settling the South China Sea ownership dispute through arbitration are slim, given the mounting yet underreported case in Malaysia, where a group claiming to be heirs of the long-forgotten Sultanate of Sulu, have sued over resource rights in Sabah, its easternmost province.

The Malaysia-Sulu case revolves around a colonial-era treaty with Britain that leased Sabah for a fee. Even though experts doubt the validity of the treaty, the case has since spiraled out of control: thanks to third-party funding laws, the Sulu heirs secured $20 million from the opportunistic litigation funder Therium to pursue their dubious claims in courts across Europe.

Therium's undisclosed stake raises serious concerns, shifting the focus from justice to ruthless profiteering from Malaysia's assets. Even Gonzalo Stampa, the presiding judge who awarded $15 billion to the plaintiffs, received a staggering $2 million payout—which experts claim is an "unusually high" sum for his role.

Therium, unsurprisingly, refused to comment on this troubling matter.

Stampa's 'final award' verdict—which saw Malaysia's state assets frozen in a Luxembourg bank—is now clouded with doubt after Stampa received a criminal conviction for flouting court orders.

In the face of such stark avenues of potential corruption, Petronas, the state-owned energy company that represents Malaysia's case, has now taken Therium to court in Manhattan, where they hope to unveil critical documents pertinent to the case and their relationship with Stampa.

As this pivotal struggle unfolds, Malaysia is reeling from losses, with $15 billion of its national assets unjustly frozen—a critical blow to its visionary economic growth plans. This crisis not only undermined Malaysia's historic sovereignty over Sabah but also emboldened the neighboring Philippines to stake its claim with the UN brazenly.

Latin American countries contemplating international arbitration to resolve disputes must take careful note of this legal showdown. Numerous nations grapple with financial limitations, making them susceptible to predatory third-party litigation financiers driven more by profit than justice. Furthermore, Latin America's regulatory environment frequently lacks robustness and consistency, resulting in unpredictable legal conclusions as regulations evolve.

Arbitration may hold promise for Latin America's future, but it demands immediate reforms. These reforms must include imposing constraints on the portions of awards granted to third-party entities, requiring public disclosure of funding arrangements, and ensuring transparency regarding potential conflicts of interest among arbitrators.

Until these reforms are earnestly implemented, it's little wonder why Latin American nations prioritize military strength and alliances with powerful countries to safeguard sovereignty over embracing international arbitration.