Chief compliance officers and chief risk officers have a newly published—and significantly comprehensive—free resource by which to assess the level of business-related bribery risk in the countries where they operate: the 2017 TRACE Bribery Risk Matrix.
TRACE International, a non-profit business association, first launched its Bribery Risk Matrix in 2014 designed to address one concern: the likelihood of being asked for a bribe by a foreign public official in each country. The matrix considers not only the perceived expectation and tolerance of bribery within a given country, but also a host of other factors that can affect a company’s likelihood of encountering bribe demands.
To arrive at each country’s score, the matrix analyzed the following four domains, along with their respective subdomains:
Domain 1: Business interactions with government (sub-domains: contact with government; expectation of paying bribes; and regulatory burden)
Domain 2: Anti-bribery laws and enforcement
Domain 3: Government transparency and civil service (sub-domains: transparency of government regulatory functions and transparency and health of civil services sector)
Domain 4: Capacity for civil society oversight (sub-domains: quality and freedom of the media; and human capital and social development)
Based on statistical analysis of this information, each country was assigned not only an overall score between 1 and 100—with 100 representing the greatest risk of bribery—but also individual scores for each of the four domains and nine subdomains.
The 2014 and 2016 editions of the TRACE Matrix were based on publicly available data from nearly a dozen sources, including the World Bank, the United Nations, and the World Justice Project. The 2017 edition, in comparison, pulled from additional data sources, including from the Institutional Profiles Database; the Index of Economic Freedom; and the Bertelsmann Stiftung’s Transformation Index—data that is robust, current, and covers a larger number of countries. “Changes to both content and method means users should exercise caution when comparing the new country scores to those published in previous years,” says Alexandra Wrage, president of TRACE International.
The data in aggregation can help compliance departments tailor their due diligence practices to the specific risks presented in each country and to better allocate their limited compliance resources. “Companies are using the matrix now as part of their risk assessment when they go into a country,” Wrage says.
For example, if a company must interact with many government offices, then a country with a high risk in Domain 1 would be of specific concern. This is because the more red tape a company must go through, the more opportunities that government officials in that country have to shake employees down for a bribery payment. “Red tape has a really high correlation with bribe demands,” Wrage says.
The level of civil society engagement and free press also plays a significant role in the likelihood of bribery occurring. “If there’s an engaged civil society and free press reporting on the theft of government officials, that’s going to suppress the pace at which people steal, because they risk exposure,” Wrage says.
Country-by-country. Among the 200 total countries assessed, the five countries that posed the highest risk of business-related bribery overall in the 2017 edition of the TRACE Matrix are Somalia (88), Venezuela (85), Turkmenistan (85), North Korea (82), and South Sudan (82). The top five countries that posed the lowest risk of bribery are Sweden (5), New Zealand (6), and Norway (7), along with newcomers Finland (8) and the United Kingdom (10).
By continent, Africa received the highest bribery risk score, with an overall average score of 58. The continent that posed the least risk of bribery was Europe, with an overall average score of 30.
Breaking down the highest and lowest rankings per domain, the TRACE Matrix found that among all countries Singapore posed the lowest risk of bribery in Domain 1, whereas Venezuela posed the highest risk. In this domain, Singapore received a low score of 1 for its low degree of government interaction, low expectation of bribes, and very low regulatory burdens, while Venezuela generally posed a high degree of risk concerning its business interactions with government.
Digging a bit deeper beyond just the top highest and lowest rankings, other countries with low bribery risk scores in Domain 1, indicating a low risk of bribery, included Hong Kong (4), Sweden (6), New Zealand (7), United Arab Emirates (8), and Finland (9). Those that pose a high risk of bribery in Domain 1 include North Korea (86), Cambodia (83), Turkmenistan (83), and Bangladesh (82), along with many more countries.
BRIBERY RISK RANKINGS AT A GLANCE
Robert Clark, manager of legal research at TRACE International, provides a snapshot of just a few of the bribery risk rankings from the 2017 TRACE Matrix.
United States. The United States currently stands at 16th place overall on the TRACE Matrix with a very low score of 17. The underlying data do show recent improvement with respect to the expectation of bribery and (through 2016, the most recent data available) the transparency of government policymaking and the constraint of independent auditing and review on government power. At the same time, it receives An average score for anti-corruption legislation, due to it not having enacted laws giving effect to certain provisions of the United Nations Convention against Corruption.
United Kingdom. The U.K.'s risk score in the 2017 Matrix showed considerable improvement. This was due largely to increased transparency, including the degree to which the U.K. publicizes its laws and government data, and strong improvement in the extent to which independent auditing and review act as a check on government power. Also helping the UK's overall score was its high degree of civil participation and the effectiveness of non-governmental checks on government power, along with notable improvement with respect to bribery expectation and anti-bribery laws.
Brazil. Brazil has an overall score of 54, representing a bribery risk on the high side of moderate. Brazil does very poorly with a score of 75 in Domain 1 (measuring bribery opportunity). But this is balanced out by the country's reasonably open government and the checks provided by the press and civil society, which give it low scores of 39 and 30, respectively, for Domain 3 (government transparency) and Domain 4 (civil society oversight).
Russia. The streamlining of government bureaucracy—which led to a significant improvement in Russia's Matrix ranking between 2014 and 2016—has kept the country's interaction-based risk not far from average, though there remains an above-average expectation of bribery and leverage with which to exact a bribe. Legal deterrence is more of a problem, with Russia receiving poor scores for both anti-corruption legislation and enforcement, and outside checks on corruption are limited by ongoing restrictions on press freedom and lackluster civic engagement. These factors add up to a reasonably high degree of bribery risk, and a return to the bottom half of the Matrix country rankings.
India. India is an example of how reform efforts and changes in country conditions can result in a dramatically improved score. With a 2016 overall score of 78 placing it among the bottom quartile of ranked countries, India moved into the top half in 2017 with an overall score of 45. The change can be ascribed to a very steep drop in expectation-related indicators, as well as improvement in more mundane-seeming areas, like cutting back on the degree of red tape involved in establishing utility service.
China. China has an overall score of 158. Its failure to enact certain anti-corruption laws, its low level of civic participation, and the lack of non-governmental checks on government power have affected its current standing for the worse. In particular, we expanded our range of inputs for assessing civil-society oversight to include—along with a country’s overall civic health—indicators for civic participation, the mobilization of society to take up challenges, and the existence of non-governmental checks on government power. China scores very well with respect to societal mobilization, but very poorly with respect to civic participation and non-governmental checks.
Mexico. As in previous editions of the Matrix, Mexico makes a very good showing when it comes to enacting anti-corruption legislation—though this is largely offset by a correspondingly poor enforcement environment. The country's bureaucracy has stayed at an average level of interaction and burdensomeness, while the expectation of bribery has continued its recent rise. With respect to both transparency and civil-society oversight, Mexico stands squarely in the middle of the pack, though its overall rating (a moderate but worse-than-average risk score of 52) is negatively affected by a long-term worsening with respect to freedom in political reporting.
Source: TRACE International
In Domain 2, Norway posed the least risk, whereas Somalia posed the highest risk. With a low bribery risk score of 1 in this domain, Norway has “very high-quality” anti-bribery laws and anti-bribery enforcement. In comparison, these elements are practically non-existent in Somalia, which took the top spot as the country that poses the highest risk of business-related bribery.
In Domain 2, other countries that scored well include Estonia (2), Hong Kong (5), United Kingdom (7), Sweden (7), and Singapore (8). Those that scored poorly include Eritrea (98), Chad (93), South Sudan (90), and Turkmenistan (88), and North Korea (86).
Somalia additionally poses the highest level of bribery risk in Domain 3, whereas Sweden poses the lowest risk. This score is due to Somalia having “very poor governmental transparency and very poor transparency of financial interests,” whereas Sweden boasts very good transparency in these areas and takes the top spot overall for posing the lowest risk of business-related bribery among all the countries.
In Domain 3, other countries that scored high include New Zealand (2), Norway (3), United Kingdom (5), as well as the Netherlands (6), United States (8), Finland (8), and Canada (8). Those that scored among just a few of the worst include Libya (96), Burundi (93), Equatorial Guinea (93), and Chad (91).
Norway posed the least risk in Domain 4, while North Korea posed the highest risk. This is because Norway, with a low score of 1 in this domain, has a high degree of media freedom and quality, as well as social development, whereas North Korea has very little.
In Domain 4, other countries that scored high include Denmark (92), Finland (4), and Sweden (5), among many other top-ranked countries. Those that pose high business bribery risk in this domain included Eritrea (100), Somalia (91), Syrian Arab Republic (89), Uzbekistan (87), and Turkmenistan (87).
The overall message from TRACE International is that chief compliance officers and chief risk officers have a valuable tool at their fingertips for which they can use to assess a specific country’s bribery risk before entering a new market or are seeking to invest more in an existing market.
But it’s important to keep in mind that bribery assessment tools like the TRACE Matrix are just one element of analysis that should go into an enterprise-wide risk management program. Compliance teams, in collaboration with other business unites, should always apply their own analysis to the numbers.