Introduction
Analysis
Practical considerations


Introduction

Companies that operate globally must constantly assess the corruption risks that they face in the countries in which they operate. Transparency International, a global organisation dedicated to fighting corruption, provides an annual snapshot of the perceived corruption level of almost every country in the world. On December 5 2012 Transparency International released its 2012 Corruption Perceptions Index.(1)

The Corruption Perceptions Index is a composite index, combining a number of corruption-related polls and surveys collected by a variety of independent institutions, such as the World Bank, the World Economic Forum and the African Development Bank, which specialise in governance and business climate analysis.(2) The index ranks countries in relation to one another based on the perceived level of corruption in each country's public sector. This year, the organisation modified its methodology to allow the comparison of scores across years going forward and changed the scoring scale from 0 to 10 to 0 to 100. A score of 0 means that a country is perceived as 'highly corrupt' and 100 means it is perceived as 'very clean'. Global companies, anti-corruption practitioners and officials that enforce anti-corruption laws, such as the US Foreign Corrupt Practices Act, use these rankings as a shorthand method of evaluating the general corruption risk in a given country. When conducting a more in-depth analysis of the specific risks facing a company in a given country, the index ranking is often used as a factor in that analysis. In addition, the index can and should be used to determine risk levels when conducting the type of risk-based third-party due diligence and transactional analysis recommended by the US Department of Justice and the Securities and Exchange Commission in the recently released FCPA: A Resource Guide to the US Foreign Corrupt Practices Act.(3)

Analysis

The 2012 index includes 176 countries and territories, which is a reduction from 183 countries and territories in 2011, and scores 70% of those countries below 50. Transparency International accompanies this statistic with the comment that it "show[s] that public institutions need to be more transparent, and powerful officials more accountable". For the second year in a row, Denmark, Finland and New Zealand tied for first place with scores of 90, which Transparency International attributes to "strong access to information systems and rules governing the behavior of those in public positions". Afghanistan, North Korea and Somalia tied for last place with scores of 8, which Transparency International attributes to "the lack of accountable leadership and effective public institutions" and a "need to take a much stronger stance against corruption".

Some of the following regional results, especially those for Eastern Europe and Central Asia, may be a bit unexpected.

RegionPercentage of countries
scoring below 50
Eastern Europe and Central Asia95%
Sub-Saharan Africa90%
Middle East and North Africa78%
Asia-Pacific68%
Americas66%
Europe and Western Europe23%


Transparency International refers to the Eurozone countries most affected by the financial and economic crisis as "underperformers", and states that it "has consistently warned Europe to address corruption risks in the public sector to tackle the financial crisis, calling for strengthened efforts to corruption-proof public institutions".

Practical considerations

While corruption can occur in any country, global companies should be aware of where their international areas of operation fall on the index and take steps to minimise the risks inherent in operating in countries that are perceived as more corrupt. The following are some of the index's practical areas of application:

  • using the index as one critical element among many when assessing the level of review required in a risk-based determination of third-party and transactional due diligence;
  • assessing the corruption risk of current and planned geographic areas of operation through use of the index, among other factors, when drafting or upgrading, implementing and enforcing the company's anti-corruption compliance programme;
  • considering the index profile of areas of international operations when conducting routine reviews for potential compliance weaknesses; and
  • as part of global business planning, weighing the corruption risk of countries being considered for expansion against the potential benefit and the company's ability to guard against corruption exposure.

For further information on this topic please contact Richard Craig Smith, Marsha Gerber, Guy Singer or Kelly Garrett Thorman at Fulbright & Jaworski LLP by telephone (+1 202 662 0200), fax (+1 202 662 4643) or email ([email protected], [email protected], [email protected] or [email protected]).

Endnotes

(1) Available at www.transparency.org/cpi2012/.

(2) Transparency International used data from the following sources to generate the 2012 index:

  • African Development Bank Governance Ratings 2011;
  • Bertelsmann Foundation Sustainable Governance Indicators 2011;
  • Bertelsmann Foundation Transformation Index 2012; Economist Intelligence Unit Country Risk Ratings;
  • Freedom House Nations in Transit 2012;
  • Global Insight Country Risk Ratings;
  • IMD World Competitiveness Yearbook 2012;
  • Political and Economic Risk Consultancy Asian Intelligence 2012;
  • Political Risk Services International Country Risk Guide;
  • Transparency International Bribe Payers Survey 2011;
  • World Bank – Country Policy and Institutional Assessment 2011;
  • World Economic Forum Executive Opinion Survey (EOS) 2012; and
  • World Justice Project Rule of Law Index 2012.

(3) For further details please see "Much-anticipated Foreign Corrupt Practices Act guidance issued".