Two invaluable anti-corruption due diligence tools, updated for 2021, are available to aid in assessing the risk of bribery and corruption around the world. While using different methodologies and scoring, Transparency International's 2021 Corruption Perceptions Index (TI CPI) and the TRACE's 2021 Bribery Risk Matrix (TRACE Matrix) reach largely the same conclusions regarding the bribery risk in Asia Pacific (APAC) countries. Taken together, the tools provide a more accurate view of the risks and opportunities offered in the APAC region.
The average score of APAC countries was above the global average APAC TI CPI score (45 versus 43), but more than half of the countries in the region are perceived as high to very high risk for bribery and corruption. TRACE considers two thirds of the countries in the region to be moderate to very high risk. The 2021 TI CPI is available at https://www.transparency.org/en/cpi/2021, and the 2021 TRACE Matrix publication packet is available at https://www.traceinternational.org/trace-matrix.
Although these tools offer a good starting point for assessing risk, they are not a substitute for adequate risk-based due diligence on counterparties in the region. Notably, many international bribery cases involve companies that are headquartered or conduct banking operations in jurisdictions that have very low-risk rankings. Countries that do not have any track record of meaningful enforcement against their own companies for overseas bribery should be closely reviewed for bribery and corruption risk. These bribery risk tools should also be supplemented with other publicly available reports on money laundering and bank secrecy risks, as these are also indirect indicators of bribery and corruption risk.
Both the TI CPI and the TRACE Matrix rank New Zealand, Australia, and Japan among the countries in the APAC region with the lowest risk of corruption. However, while the CPI includes Hong Kong and Singapore in that category, the Matrix rates them slightly lower because the Matrix includes an analysis of media freedom and civil society engagement. Cambodia, Afghanistan, and North Korea continue to be ranked at the bottom of the APAC countries in both the CPI and the Matrix.
Overall, the 2021 CPI rankings continue to be stable, although there were declines in the scores of countries that are considered the least corrupt (Singapore, Hong Kong, and Australia) as well as those of some of the lowest performers (Afghanistan and North Korea). However, none of the largest declines in CPI rankings (Pakistan and Maldives) or largest improvements (PNG, Vietnam, and China) resulted in any significant movement into or out of their ultimate risk ratings of moderate to high risk. Thus, the chart below shows absolute consistency between the 2020 and 2021 risk ratings.
In contrast, there was some downward movement in the Matrix with Hong Kong, Singapore, and South Korea moving from very low to low, Bhutan and Malaysia from low to moderate, and China from moderate to high.
In looking at the results of both tools, as illustrated in the chart below, there are directional inconsistencies. For example, China’s ratings illustrate the directional inconsistencies between the CPI and the Matrix, as the CPI showed improvement in China's score and ranking, but the Matrix showed a decline; similarly inconsistent were Indonesia (improving on the CPI, but declining on the Matrix) and Pakistan (declining on the CPI, but improving on the Matrix). The inconsistencies are explained by the difference in methodologies used in compiling the data.
Both the TI CPI and the TRACE Matrix evaluate performance and assign a score between 1 to 100 to every country and jurisdiction, and then assign a rank based on the score. For the CPI, the risk score is inverse to the risk rank, while for the Matrix, a high score translates to a high-risk rank. For example, the least corrupt APAC country on both charts, New Zealand, is ranked in first place on the CPI and fifth place on the Matrix but got a score of 88 on the CPI and 8 on the Matrix (the same scores and ranks as in 2020). In contrast, the country at highest risk, North Korea, is ranked 174 and 194, but received scores of 16 on the CPI and 94 on the Matrix.
Another key difference to keep in mind is that the CPI measures perceptions of public corruption, while the Matrix also includes commercial bribery and business risk. The Matrix publishes scores for four corruption indicators, including the opportunity for bribery (government interaction, expectation, and leverage), deterrence (dissuasion and enforcement), transparency (government and civil service), and oversight (free press and civil society), together which provide granularity for interpreting the measurements.
Jurisdictions of Note
China, as noted above, continued its upward trajectory on the CPI, up 3 points from 2021 in its score which puts it at the average for the APAC region (45) and moving up 12 places in its ranking. However, on the Matrix, China declined in its score by 2 points and moved down in the rankings 9 points, elevating its overall risk rating from moderate to high. TI attributes China's improvements since 2014 to the crackdown on anticorruption, but notes a decline in transparency and civil oversight, which TRACE found outweighed the improvements in antibribery laws and enforcement.
Hong Kong SAR scored 1 point lower in the CPI and saw a 12-spot decline in the CPI rankings, and a similar decline of 3 points and fall of 6 spots on the Matrix. TRACE explains that the decline in Hong Kong's ability to deter bribery and decreased transparency in the city’s government and civil services contributed to the change in its Matrix score and rank. Hong Kong remains in the lowest risk category for the CPI but moved to the next lowest in the Matrix.
Despite precipitous declines in the Matrix scores and rankings of Brunei (down 8 and 41, respectively), Malaysia (down 2 and 27, respectively), and the Maldives (down 6 and 33, respectively), only Malaysia was downgraded from low to moderate risk, joining the other two countries of moderate risk.
The CPI, along with the Matrix, continue to be useful tools for a preliminary evaluation of the general risk of corruption in foreign jurisdictions. Even though the APAC region saw no overall movement in the CPI and just slight movement in the Matrix in 2021, both TI and TRACE note concern about the region's slow progress and lack of transparency in some more authoritarian regimes. Companies operating in the region should remain cautious of corruption in certain jurisdictions, and should take a flexible and tailored risk-based approach and use due diligence and other compliance procedures to assess risks associated with their ventures.
Even if a country is headquartered in a relatively low risk jurisdiction, it does not mean there is a low risk of the counterparty engaging in bribery and corruption. There are countless cases of companies from low-risk jurisdictions engaging in misconduct when operating overseas. Therefore, in order to truly understand counterparty risk, it is fundamental to understand that company's compliance program and internal controls and its reputation in the market where the business will be conducted, rather than just its global reputation.