Corruption in Pakistan is frequently framed as a moral or criminal aberration, but its most damaging effects are structural and economic.
Comparative research on public investment has proved that corruption does not merely divert funds. It inflates costs, distorts procurement decisions and weakens project viability. Such vulnerabilities are intensified in mega-projects, where vast capital flows, complex contractual agreements and decision-making power lodged within narrow institutional networks that are poorly situated to sustain oversight are involved. In such contexts, corruption is not an episodic failure of enforcement but a predictable outcome of institutional and contractual design.
The persistence of corruption in mega-projects is not primarily a deficit of law: it is a structural mismatch between formal accountability mechanisms and the political realities governing large-scale infrastructure. Procurement rules, audit processes and accountability bodies to regulate public spending in Pakistan operate within a political economy characterised by elite bargaining and uneven or selective enforcement. In such an atmosphere, enforcement is rarely neutral – accountability becomes selective and is often contingent on political alignment rather than legal breach.
This insight aligns with the broader analysis advanced by Acemoglu and Robinson, who assert that the existence of extractive institutions is not due to the absence of law but due to the coexistence of formal rules with informal power structures that shield entrenched interests. The scale, strategic importance and rent-generating potential of mega-projects make them susceptible to institutional capture. While oversight bodies struggle to scrutinise complex contracts or challenge decisions embedded in elite coordination, disputes are frequently managed through informal renegotiations and administrative discretion rather than transparent legal processes – the outcome being: a governance environment in which rules exist but fail to consistently constrain corruption in high-value infrastructure.
Due to this gap between formal legality and informal power, contract design, particularly international arbitration, derives its structural significance. Arbitration does not punish the wrongdoer; it reshapes incentives before disputes even arise – by externalising adjudication beyond domestic institutions embedded in local political settlements, the risk is altered for both public officials and private contractors, since the decisions are subject to scrutiny by independent tribunals applying internationally recognised standards. Scholarship on international investment law also shows that there has been an increase in anti-corruption provisions within international agreements and investment contracts, effectively shaping the duties of states and investors at the time of drafting.
This matters, since arbitral practice demonstrates that contracts tainted in corruption are not just unenforceable – they are actively penalised. In several high-profile cases, arbitral tribunals have refused to extend legal protections where bribery (World Duty Free v Kenya) or illicit payments were established (Metal-Tech v Uzbekistan), signaling that corruption carries tangible financial and reputational consequences. Tribunals increasingly rely on procedural tools such as ‘red flags’, heightened due diligence expectations and evidentiary scrutiny to assess corrupt conduct – developments that enhance legal certainty while raising the costs of informality.
The ICC’s Practice Notes on corruption and compliance also explicitly remind tribunals and parties that allegations of bribery or unethical conduct must be scrutinised and, where proven, can affect the validity and enforceability of claims. Similarly, UNCITRAL has increasingly emphasised integrity in arbitral proceedings, advocating transparency measures and anti-corruption safeguards in contracts and dispute-resolution clauses. Together, these frameworks signal to both domestic and international actors that informal deals carry legally cognizable consequences, reinforcing arbitration’s capacity to shape behaviour ex ante.
Scholars argue that arbitration is a form of transnational adjudication which derives legitimacy not from state authority alone but from its capacity to apply consistent norms across jurisdictions. This effectively portrays arbitration as a mechanism of private governance; one that does not replace domestic accountability, but constraints elite bargaining by introducing an eternal forum where informal deals can unravel under legal scrutiny.
The implications of corruption and weak accountability are most visible in how mega-projects are perceived and priced by investors and creditors; in some mega-projects in Pakistan, these concerns have become increasingly salient. While these initiatives have delivered critical energy and transport infrastructure, frequent reports of cost escalation, project delays and contractual revisions have affected confidence in the stability of the underlying legal framework, with multilateral lenders cautioning that such uncertainty translates into contingent liabilities for the state, raising questions about fiscal sustainability rather than the merits of any single project.
For Pakistan, a country navigating repeated balance-of-payments crises and IMF-supported stabilisation, legal uncertainty raises borrowing costs and constrains future investment. The higher costs ultimately fall on the public, constraining fiscal space and diverting resources from social development, where informality displaces predictable, rules-based governance, infrastructure ceases to function as a shared economic asset and becomes a source of sustained vulnerability. Also, the harm is not unilateral; foreign partners also face sunk costs, project uncertainty and enforcement risk, reducing incentives for sustained engagement.
Pakistan’s development strategy ultimately depends on how its contracts allocate risk and enforce integrity. To address corruption in mega-projects we would, therefore, require a move beyond retrospective enforcement and towards a contractual design internalising integrity from the outset. Anti-corruption must be engraved into the legal architecture governing public contracts, and this is where international arbitration clauses step in to provide an entry point for such reform.
First, public infrastructure contracts must include explicit anti-corruption warranties, affirming that no bribes or illicit payments have been made. Arbitral jurisprudence shows that where corruption is established, these warranties can deprive parties of contractual protection altogether. By embedding these clauses, the stakes of informal payments would increase, as they would be treated as material breaches with enforceable consequences.
Second, choosing a neutral seat of arbitration is critical; seats in London, Singapore or Paris offer independent judiciaries and a consistent record of enforcing arbitral awards under the New York Conventions. For investors, this means legal predictability, whereas for the state, it provides credibility that disputes will be resolved through rules rather than influence. For Pakistan, such a move represents a meaningful reduction in perceived political risk.
The choice of governing law is also important; selecting English or Singapore law would mean that, where corruption is established, it would constitute a material breach of contract, allowing tribunals to deny claims or enforce remedies. Aligning governing law with anti-corruption norms thus, ensures that integrity is not an afterthought rather it is a core contractual obligation.
Fourth, confidentiality in arbitration must be recalibrated for public-interest projects; this is reflected in the UNCITRAL Rules on Transparency, which recognise that accountability and legitimacy require disclosure where public resources are at stake. In Pakistan, where public trust is already eroded and fears of corruption, both nationally and internationally, persist, even modest transparency could enhance public trust without undermining arbitral efficiency.
Finally, contracts should incorporate compliance mechanisms that extend beyond dispute resolution – such as third-party audits, due diligence obligations, and ESG-linked compliance clauses – which can function as early-warning systems rather than post-crisis remedies. These do not criminalise conduct; they structure incentives, making corruption detectable, contestable, and legally costly. Ultimately, these measures do not eliminate corruption altogether; however, they narrow the space in which it can operate without consequences. For Pakistan’s development strategy, this shift would offer a credible path towards restoring confidence in large-scale infrastructure governance.
In Pakistan, where oversight bodies are weak, politicised or unevenly enforced, the legal architecture can still shape behaviour by reallocating risk and disciplining discretion ex ante. In this way, public investment contracts become more commercial instruments; operating as surrogate rule-of-law mechanisms within imperfect environments. Seen through this lens, arbitration is not anti-democratic. Legal pluralism reminds us that authority today is exercised through overlapping legal orders, including transnational adjudication and arbitration, thus functioning as a form of global governance without a demos: imperfect, technocratic, yet capable of constraining power when domestic mechanisms fail.
When public contracts incorporate integrity obligations, transparency thresholds and neutral adjudication, they effectively constitutionalise aspects of public authority through private law – this offers a way to discipline discretion, stabilise expectations, and signal seriousness to both citizens and investors without waiting for wholesale institutional transformation. Rule of law, thus, need not arrive as a grand rupture; it can be assembled clause by clause, obligation by obligation. Sometimes, the quiet discipline of law does more than loud accountability drives.
The writer is a lawyer and an associate at Arif n Arif.
