One of the great challenges for U.S. compliance officers—who genuinely do want to build robust anti-corruption and anti-money laundering programs worldwide—is the basic lack of transparency into enforcement information in other countries. Two new reports might shed a bit more light on the subject.
The reports, one published by Transparency International and the other by Arachnys, examined disclosure practices in numerous countries and found big holes in the availability of enforcement decisions, corporate disclosers, litigation records, and media outlets. That lack of access leaves compliance officers struggling in regulatory darkness as they try to build global programs.
“Getting access to information is not becoming easier,” says Adam Foldes, advocacy adviser at Transparency International in Germany and co-author of TI’s annual progress report on the member countries to the Organization for Economic Co-operation and Development’s Anti-Bribery Convention. According to TI’s report, “the availability of information concerning investigations, court cases, judgments, and settlements continues to be a challenge in numerous countries.”
Another study conducted by compliance analysis firm Arachnys supports those findings. The Arachnys Open Data Compass index, which examined the public disclosure practices in 215 countries, assessed three aspects of public disclosure transparency:
Availability of corporate data from corporate registries, stock exchanges, chambers of commerce, and government documents;
Availability of litigation records from court websites, bar associations, and third-party case law repositories, like the World Legal Information Institute; and
Development of the country’s media environment.
According to the Arachnys index, the United States topped all three areas of public disclosure transparency, with an overall score of 92 out of a possible 100. It fared best in the areas of media and litigation transparency (scores of 99 and 100, respectively), but received a mediocre score of 77 on corporate data.
The United States did not fare as well, however, in TI’s progress report on OECD agreements. “In the United States, information from authorities on investigations and on case referrals from and to other countries is not completely available,” the report stated.
Specifically, TI said, the Securities and Exchange Commission and the Justice Department currently don’t disclose the number of ongoing investigations; when those probes commenced; or whether, when and why the agencies decline to pursue enforcement action.
“Not only is a British overseas territory the best place to achieve anonymity, but British assets, specifically London property, are the investment of choice for criminals looking to complete the illusion that dirty money is clean.”
David Buxton, CEO, Arachnys
“While companies listed on securities exchanges may disclose such information to their shareholders in public filings, such disclosures provide an incomplete picture of enforcement activity,” the report said. If enforcement agencies published that information themselves, TI continued, that would be valuable guidance for companies about what types of preventative or remedial measures reduce the likelihood of an enforcement action. (To be fair, the Justice Department does occasionally publish public declinations—such as in the cases of Morgan Stanley and PetroTiger.)
TI made much the same criticism about disclosing more enforcement settlements in its comments about Britain and the U.K. Serious Fraud Office.
In the Arachnys report, Britain ranked No. 2 behind the United States, with an overall score of 83 out of a possible 100. It fared best in the areas of corporate transparency (perfect score of 100), but received scores of 75 and 74 for litigation and media transparency, respectively. Other countries that received high overall scores were Ecuador, France, Albania, and Australia.
Where the findings showed the most improvement is in Latin America, where “quite a lot of new platforms and portals were put online,” says Ed Long, head of research for Arachnys. Venezuela, Brazil, and Ecuador “all have made improvements to their public data,” he says.
The impetus behind that, Long says, are probably the high-profile corruption cases going on in the region—particularly in Brazil, where the massive investigation of state-run oil giant Petrobras continues. Greater transparency and disclosure is Latin America’s way of demonstrating that “they’re trying to tackle their corruption and transparency issue,” he says.
Meanwhile, three notorious tax haven islands received the lowest rankings in Arachnys’ overall index: Turks and Caicos Islands, Micronesia, and Nauru. Turks and Caicos ranked lowest “due to its complete lack of a public corporate registry, its court records not being available online, and its under-developed news industry,” Arachnys said.
“The Turks and Caicos Islands are a black hole for company and legal information, which makes it an extremely attractive place from which to launder money,” says David Buxton, CEO and co-founder of Arachnys. “Not only is a British overseas territory the best place to achieve anonymity, but British assets, specifically London property, are the investment of choice for criminals looking to complete the illusion that dirty money is clean.”
Both the Arachnys index and the TI report also noted several countries whose investigations and enforcement data is lagging. “The systematic collection and publication of enforcement data has serious shortcomings,” TI said. These countries include Argentina, Brazil, Bulgaria, Colombia, France, Ireland, Japan, Mexico, Portugal, Slovenia, South Korea, and Spain.
In several other countries, statistical data on foreign anti-bribery enforcement is either out of date, such as in Ireland; or missing altogether, such as in Belgium, Greece, and Russia. In Italy, too, “information on foreign bribery-related investigations and cases in over 100 courts is not accessible by the public,” TI said in its report.
BOTTOM 10 GLOBAL RANKINGS
Arachnys scored 215 countries and territories based on media environment, provision of official corporate data, and the availability of litigation records. The following 10 companies received the lowest scores.
Disclosure is also lacking in Germany, where authorities keep details on investigations and charges, but never disclose the names of the defendants nor of the countries involved, TI said. In the Arachnys index, Germany received a score of only 43 for litigation disclosure.
In the Arachnys index, Austria is another country that received low ranks for transparency. One reason, Long says, is that much data in the country has been privatized, meaning it must be purchased from third-party providers. That can make it more difficult to obtain, he says.
From a due diligence standpoint, a lack of transparency in enforcement data is concerning. If one company is weighing the acquisition of another, for example, and wants to do a due diligence check, “it’s important to know who the potential business partners are, and if they’ve been implicated in any illegal activities,” Foldes says. Investigations and enforcement alone are not enough, he says—“it should be public to have the deterrent effect.”
Due Diligence Efforts
In countries where companies have limited access to certain information, compliance and legal executives can try various other sources. For example, in countries where companies have an obligation to disclose regulatory investigations (such as right here in the United States) one helpful source of information is directly from the companies themselves in their disclosure materials, Foldes says.
References are another way to verify not only the quality of a potential business partner’s work, but also whether the partner has engaged in any illegal activities. In-depth analyses on country-by-country enforcement actions and investigations—such as those provided by OECD, TI, and Arachnys—are another avenue for information.
Companies can also build safeguards into their contracts with third parties, Foldes says, in the event that a third party cannot fulfill its contractual obligations due to an enforcement action, for example.
A country cannot simply combat bribery and corruption with strong disclosure practices. “It’s a long-term cultural change,” Long says. “Part of that is transparency. Part of it is enforcement.”