Transparency International recently released its 2013 Corruption Perceptions Index (“CPI”), which ranks countries based on “perceived levels of public sector corruption.” Despite ongoing anticorruption enforcement efforts worldwide and growing attention to corruption risks, the CPI showed few significant year-overyear changes and little overall improvement in transparency. Once again, more than two-thirds of the 177 countries ranked in 2013 scored below 50 on a scale of 0 (“highly corrupt”) to 100 (“very clean”).1
The CPI remains a “ubiquitous” benchmark for anti-bribery compliance professionals and is “cited widely by both the private and public sectors to assess corruption risks across the globe.”2 It measures the perception of corruption and is not a statistical measure of arrests, prosecutions, or even the frequency of alleged bribery or the size of alleged bribes. Specifically, the CPI aggregates data from thirteen international surveys of local governance, economic and investment risk, and executive opinion.3 These surveys consider factors such as government accountability and sustainability and enforcement of anti-corruption laws. Because Transparency International changed its methodology last year to include a 0 to 100 scale, year-over-year comparisons using a purportedly consistent methodology are possible only from 2012 forward.4
This article first digests the new figures reported in the CPI and then considers ways in which multinational firms can best leverage these figures. Although the CPI remains an important touchstone, companies striving to develop best-inclass compliance programs must recognize the limitations and drivers underlying the CPI rankings, while appreciating the importance of carefully reviewing a company’s particular circumstances in conducting risk assessments and allocating compliance resources.
I. The 2013 TI CPI Scores and Rankings
As in 2012, the 2013 CPI is based on data for each country and offers a regionby- region comparison based on the number of countries scoring below 50 out of 100. Although there are inherent limitations in attempting to draw conclusions from differences in survey data from one year to the next, several patterns emerge.
The rankings for the European Union and Western Europe remained unchanged, with only 23% of countries in that region scoring below 50 out of 100.5 However, the rankings of several European countries continued to fluctuate as a result of the financial crisis and government responses to it. Greece, one of 2012’s biggest decliners, improved by fourteen spots, tying China for 80th place in the rankings after being ranked 94th in 2012.6 Finn Heinrich, the lead researcher on the CPI at Transparency International, credited the government in Athens with “tackling corruption head-on” through “high-profile prosecutions.”7 Spain, on the other hand, slipped ten places from a rank of 30th in 2012 to 40th in 2013, after seeing its score decrease by six points to 59 out of 100.8 Transparency International noted that Spain’s “politicians, royal family and companies continue to be embroiled in allegations of graft, all while the country continues to suffer from recession and mass emigration.”9
The rankings of the Baltic Republics, having joined the E.U. in 2004, posted across-the-board gains, with Estonia’s improving from 32nd to 28th; Latvia’s improving from 54th to 49th; and Lithuania’s rising from 48th to 43rd. The rankings of some of the Balkan states also saw significant improvement, with Serbia’s rising from 80th to 72nd; Montenegro’s improving from 75th to 67th; and that of Croatia, which joined the European Union in July of this year,10 rising from 62nd to 57th. Among G20 nations, the United States remained unchanged in rank from last year (19th place). Germany, Japan, Canada, and the United Kingdom continue to rank higher than the United States, with Germany improving in rank from 13th in 2012 to 12th in 2013 (tied with Iceland); Canada remaining unchanged at 9th (tied with Australia); Japan declining from 17th to 18th; and the United Kingdom improving from 17th in 2012 to 14th in 2013.
Elsewhere in the Americas, Ecuador’s rank improved 16 spots, moving from tied for 118th to tied for 102nd (with Moldova, Panama, and Thailand), while Argentina dropped four spots, from tied for 102nd to tied for 106th (with Bolivia, Gabon, and Mexico). Guatemala lost ten spots in rank, from tied for 113th to tied for 123rd. Venezuela and Haiti both improved in rank from tied for 165th in 2012 to tied for 160th and tied for 163rd, respectively, in 2013, but remained at the bottom among countries in the Western hemisphere.
Showing little improvement from last year, the BRIC countries’ rankings did not rise above 50 out of 100. Brazil, the highest performing BRIC country, declined slightly in rank from 69th place to 72nd (tying South Africa, Serbia, Bosnia and Herzegovina, and Sao Tome and Principe). China’s ranking remained unchanged at 80th place – tied with Greece – while India also remained unchanged at 94th (tied with seven other countries including Algeria and Benin). Russia tied for 127th place in 2013, a slight improvement from its rank of 133rd in 2012, but with an unchanged score at 28 out of 100.
The Middle East and North Africa continue to be extremely high-risk, and the region’s rankings declined overall, from 78% of countries having a score below 50 in 2012 to 84% in 2013.11 The ongoing conflict in Syria has caused its ranking to plunge from 144th in 2012 to 168th in 2013 (tied with Uzbekistan and Turkmenistan), though it still ranked higher than Iraq (171st) and Libya (172nd). Afghanistan and
Somalia tied with North Korea for the worst ranking of all 177 nations surveyed, while Sudan and South Sudan were not far behind at 173rd and 174th, respectively. Pakistan’s gain in rank from 139th to 127th may not be as significant as it may appear, given that its score improved by just one point to a mere 28 out of 100. At the same time, as the full table of rankings and scores, below, illustrates, there is no such thing as “standing still” in this context; as countries improve and decline in terms of raw score, and as ties are broken, a country’s rank can change dramatically.
Sub-Saharan Africa and the Eastern Europe & Central Asia regions continue to be perceived as the most high-risk, with 90% of all nations in Sub-Saharan Africa – including Somalia (ranked 175th), Zimbabwe (ranked 157th), and the Democratic Republic of the Congo (ranked 154th) – and 95% of all nations in Eastern Europe & Central Asia – including Uzbekistan and Turkmenistan (tied for 168th) and Ukraine (144th) – posting scores well below 50 out of 100.12
In the Asia-Pacific region, however, a few nations made modest gains. Laos’s score improved five points and its rank improved from 160th in 2012 to 140th in 2013. Myanmar, which recently freed many political prisoners and held what have been generally recognized to be free elections,13 increased its raw score by six points while increasing its ranking from a near-last 172nd in 2012 to 157th in 2013.
Meanwhile, the same three countries topped the rankings for the second year in a row, with Denmark and New Zealand tying for 1st for the second-consecutive year and Finland falling slightly to 3rd place. Transparency International noted that, although the top performing nations have shown that “transparency supports accountability and can stop corruption,” better-performing nations still face issues like “state capture, campaign finance and the oversight of big public contracts which remain major corruption risks.”14
II. Right-Sizing the Use of the CPI in Risk Assessments and Allocating Resources
Transparency International’s statement that “the abuse of power, secret dealings and bribery continue to ravage societies around the world”15 is borne out in the daily barrage of news items documenting allegations of corruption in developed and developing countries alike. Yet the CPI rankings should be only one of several key data points for managers seeking to evaluate corruption risk and, in turn, allocate scarce anti-corruption compliance resources, particularly in multinational firms acting globally.
One issue, for example, that bears emphasis is the incorporation into the CPI rankings of more localized issues of political corruption that may involve wholly local businesses, labor unions, political parties, and other groups, but which may be far removed from the reach of the FCPA, the UKBA, and other transnational regimes. Patterns of local corruption in certain countries, while almost always relevant to an anti-corruption risk analysis, still have the potential to bias the CPI rankings in ways that reduce their utility to multinational businesses, potentially leading to conclusions that such countries have greater risk than they in fact have for multinationals. Similar distortions in the data from the impact of war, civil unrest, and narco-violence in a number of Middle Eastern and Latin American countries also have the potential to lead to misperceptions of the true business-related corruption risk to the extent that corruption in those nations may be concentrated in regions, or sectors, where multinational corporations do not operate and will not do so for some time.
It also goes without saying that countries with even the highest rankings are not immune to corruption. Countries with high rankings and scores may harbor pockets of governmental activity that are corruption prone yet buried in aggregated statistics. Even large-scale public corruption by multinationals operating in a highranked country may remain hidden for years before it is exposed by whistleblowers, government or internal investigations, or journalists. Although the CPI helpfully depends on survey data, like all lagging indicators it also significantly depends on data in the public domain, which in the anti-corruption arena can shift considerably in a short period.
Thus, while companies subject to the FCPA, the UKBA, or other transnational anti-bribery regimes should continue to pay heed to the CPI, those seeking most efficiently to assess compliance risks also need to assess such matters as: (1) sector risk; (2) business model risk (including the degree to which the firm relies on third parties and the nature of controls over their activities); and (3) the nature and scope of government interactions, not only in connection with winning sales from government customers but also in obtaining zoning and building permits, tax clearances, customs rulings, currency transaction permissions, investment and financing approvals, and a range of other daily decisions from government actors. Firms with business risks associated with non-compliance such as expiring patents, excess capacity, disproportionate sales-based compensation, and limited oversight over sales and supply chain personnel, may well have significant corruption risks even in nations ranked highly in the CPI.
In sum, in the era of “big data,” the CPI rankings remain an important, but (of course) not a sole benchmark for evaluating corruption risk. In any event, this year’s lack of movement in many countries’ rankings provides little reason for complacency. Notwithstanding their limitations, the CPI rankings continue at a macro level to make clear that corruption is a serious issue throughout the globe. But for a company over-relying on the CPI rankings, the new figures should be a time to reflect on the larger question: “What risks might we be overlooking?”