Chief compliance officers and chief risk officers have a newly published resource against which to assess corruption risks in the countries where they operate.
The Risk Advisory Group, an independent global risk consultancy firm, in their 2019 Corruption Challenges Index assessed 187 countries, assigning each an overall “corruption challenge” score weighted against three factors: corruption threat, regime instability, and accessibility of information. “As with the 2017 and 2018 surveys, these findings are based on our experience of carrying out in-depth investigations and due diligence around the world during the previous year,” Chris Rowley, head of business intelligence and investigations at the Risk Advisory Group, said in the report.
Among the 187 countries assessed by the Risk Advisory Group, the top five countries where companies face the biggest corruption challenges are in Turkmenistan, Libya, Somalia, Yemen, and North Korea, followed by South Sudan, Syria, Democratic Republic of Congo (DRC), Eritrea, and Laos. This means that these countries tend to pose a high risk of “both petty and grand corruption, less stable regimes, and low availability of public information and business intelligence,” according to the Risk Advisory Group.
In determining a country’s opacity score, specifically, the Risk Advisory Group said in the report that it considered such factors as “the comprehensiveness and reliability of public information, media openness, the freedom of human sources to converse and particular linguistic barriers—such as transliteration or complex translation.” In this regard, the top three countries where it was most difficult to source reliable data is in Turkmenistan, Libya, and Somalia, as indicated by their high opacity scores. Turkmenistan received an opacity score of 57, while Libya and Somalia received high opacity scores of 52 and 49, respectively.
While many of the results are predictable, compliance and risk professionals may find some of the results surprising. “India, for example, which many people would agree has an endemic problem with corruption, is one of the more transparent countries for us to work in,” Rowley said. India ranked in the top 10 of least opaque countries.
The least challenging countries to carry out business overall are New Zealand, Australia, the United Kingdom, France, and Singapore. And the top five countries where it’s easiest to source reliable data are in New Zealand, Australia, the United Kingdom, France, and Latvia, according to the Risk Advisory Group.
The report also assessed what sectors are exposed to the highest level of corruption risk overall. The top three are construction and development; infrastructure (airports, ports, and storage); and oil and gas.
Region by region
Africa. By continent, Africa continues to be the most challenging geography to carry out business overall. Specifically, four of the top 10 most challenging countries to carry out business are Somalia, DRC, Eritrea, and South Sudan. “In Somalia and South Sudan, ongoing violence, effectively non-functioning governments, and almost non-existent private sectors saw no discernible change compared to the 2018 scores,” said Hannah Gilkes, Risk Advisory Group’s head of business intelligence for Africa.
In Africa, the top three sectors exposed to the highest level of corruption, according to the index, are infrastructure; construction and development; and transportation.
North America. Because it’s consistently easy to source reliable data, this continent remains a low-risk geography in the index from a corruption standpoint. “That said, petty corruption remains a concern for our clients in both countries, especially in the real estate and construction industries,” said Tom Smith, Risk Advisory Group’s head of business intelligence for North America. Additionally, the continent is home to several regions that are widely perceived as tax and secrecy havens, mainly in the Caribbean.
In North America, the top three sectors identified in the index as posing the highest level of corruption risk are construction and development; infrastructure; and oil and gas.
Asia. “With the exception of Singapore, Hong Kong, and Japan, corruption is pervasive across the key growth markets favored by foreign investors in Asia,” said Brendan McGloin, the Risk Advisory Group’s head of business intelligence for Asia. In South Asia, one exception is India, where the country’s “relatively high standards of corporate disclosures make it easier to acquire reliable information on potential business partners than in many first-world countries,” McGloin said.
In Asia, the top three sectors exposed to the highest level of corruption, according to the Risk Advisory Group, are construction and development; infrastructure; and energy generation and distribution.
Latin America. “In Latin America, corruption continues to be a serious source of concern for many of the region’s economies,” said Eric Wheeler, who leads Risk Advisory Group’s head of business intelligence for Latin America. Corruption is worst in Venezuela, where successive political scandals, weak institutions, and the introduction of sanctions on state-owned and state-controlled energy company PDVSA have led the country to the brink of collapse, Wheeler said.
In Latin America, the top three sectors exposed to the highest level of corruption, according to the Risk Advisory Group, are construction and development; oil and gas; and infrastructure.
Europe. Although Europe continues to be the least challenging continent to do business overall, Southern Europe still poses its challenges. The Risk Advisory Group’s corruption score for Italy, for example, remains among Europe’s highest—although, this may soon change. In December 2018, the Italian parliament approved a package of new measures aimed at combating public-sector corruption. “Key elements include the introduction of a lifetime ban on holding public office for those found to have engaged in corruption and stricter measures with regard to the applicability of the statute of limitations in corruption trials,” explained Ariana Issa, Risk Advisory Group’s head of business intelligence for Europe.
In Europe, the top three sectors exposed to the highest level of corruption, according to the Risk Advisory Group, are infrastructure; construction and development; and banking and finance.
Russia, Eastern Europe, Eurasia. “All countries in the former Soviet Union and the Eastern Bloc continue to suffer from high levels of corruption, even though most of them have declared war on graft,” said Dmitry Sachkov, Risk Advisory Group’s head of business intelligence for Russia, Eastern Europe, Eurasia. “Even in the more advanced, EU-member countries, such as the Baltic states, corruption scandals continue to rock local government.” In the index, the Risk Advisory Group said it expects Armenia and Uzbekistan “to lead the way in the numbers of investigations of corruption by senior officials.”
In Russia, the top three sectors exposed to the highest level of corruption, according to the Risk Advisory Group, are construction and development; banking and finance; and oil and gas.
Middle East and North Africa. “Corruption risks are heightened across the Middle East & North Africa (MENA) region, against a backdrop of political repression,” said Hannah Poppy, Risk Advisory Group’s head of business intelligence for the MENA region. “This political trend is likely to continue and further limit the flow of reliable information.” Three of the ten most challenging countries worldwide are in the region: Libya, Syria, and Yemen.
“Even in countries where the investment climate is generally better—such as Saudi Arabia, the UAE, and Egypt—the authorities’ approach either encourages or does little to discourage corrupt practices, which has a trickle-down effect on attitudes across MENA,” Poppy added. The 2019 Corruption Challenges Index also found that high-level corruption risks rose in several countries, including Algeria, Iran, Tunisia, and Yemen.
In this region of the world, the top three sectors exposed to the highest level of corruption, according to the Risk Advisory Group, are oil and gas; aerospace and defense; and construction and development.
Taking into consideration the findings from the Risk Advisory’s 2019 Corruption Challenges Index, compliance and risk professionals have yet another resource to help determine where it may be necessary to enlist the help of experts with the specialized knowledge and research skills necessary to conduct due diligence in those countries where information is scarce or unreliable, or where the corruption threat is high.