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Corruption Challenges Index 2018 Corruption danger spots for business in 2018
The world’s most and least challenging places for foreign investors in relation to corruption levels
Welcome to Risk Advisory’s Corruption Challenges Index 2018, our second edition. Like our first survey, this draws on our direct experience of working in the world’s most challenging countries, revealing the markets that pose the most – and the fewest – corruption challenges for foreign investors. We have evaluated various factors – local corruption threat, foreign investors' exposure, the level of FCPA enforcement action – and have refracted these through the prism of accessibility and availability of information when carrying out investigative research.
The countries that pose the greatest challenges are not necessarily bad places to do business: for some countries and sectors, the higher the risk, the greater the reward. But an essential part of navigating these challenges is to have a robust risk mitigation programme in place, based on adequate integrity due diligence.
Three maps visually representing Corruption Challenges, Corruption Threat, Opacity
Top 10 league tables – Corruption Challenges, Corruption Threat, Opacity
Top 3 sectors exposed to corruption globally
Viewpoints – analysis from regional experts on what the data shows
Corruption investigations in Latin America have brought former heads of state to prison. Whether this demonstrates their effectiveness or a sign of pervasiveness of the problem - we shouldn’t ignore the strides countries have taken to fight corruption.
Given its importance as a destination for foreign investment and a key driver of global economic growth, countries in the Asia Pacific region probably represent the greatest challenge for anti-corruption practitioners.
Navigating the complex web of state enterprises, merchant families and parastatal entities in the Middle East is challenging. Personal connections and political leverage are key to success, yet present corruption and regulatory risks to global partners.
Former Soviet Union countries continue to have a mixed record with respect to corruption. The regional outliers are Central Asian countries and Azerbaijan, where ruling families dominate. They control key business assets, as demonstrated by the recent and ongoing FCPA investigations in the Uzbek telecoms sector.
The governments pursue few if any anti-corruption policies, independent media is suppressed and basic corporate information is not available. For example, in Azerbaijan
company ownership information is treated as confidential. There is hope that the new Uzbek leadership will move towards greater transparency, especially after the resignation of the old-guard state security chief, Rustam Inoyatov. Turkmenistan is the most challenging country according to our index. Why? Partly because the government does not disclose all of its members and it does not even have a website. Also, Turkmenistan exports oil and gas, and it’s these commodities that give rise to concern over the illicit enrichment of its political elite.
The Russian national symbol, the double-headed eagle, is a metaphor for the country’s fight with corruption. On one hand, the country has made evident progress with low-level bribery. Online cameras have been installed at police stations and in offices of other regulatory agencies, and multifunctional civil service centres opened across the country with layouts similar to those of bank branches. Corrupt governors have been removed from office in a number of regions (some have been sentenced or are facing trial) and replaced with young, and ostensibly honest, technocrats who are closely watched by law enforcement. On the other hand, the Russian government has recently classified information about certain government contracts, including those relating to the military sector or supplies to Crimea, while land registry data about properties of top government officials and their families have also been designated as confidential, all in a direct effort to safeguard companies from foreign sanctions. Additionally, seniorlevel corruption and nepotism appear to remain high.
In Ukraine, the government and its supporters in parliament are aiming to curb the independence of the National Anti-Corruption Bureau and to obstruct the establishment of an independent anti-corruption court. The IMF is demanding that the country’s anti-corruption legislation be strengthened, but even a threat to freeze the fund’s loans is not forcing the government to move swiftly. Wealthy businessmen, or oligarchs, dictating their will to government remain the ruling class.
Nevertheless, we continue to assess the quality of corporate information disclosure in both Russia and Ukraine as high.
The Baltic countries have the best scores in the region in our index, but their banking sectors, as recent developments show, have not stopped providing clandestine transaction services to clients east and south-east of their borders. The US Treasury has accused Latvia’s third largest bank of “institutionalised money laundering” linking it to “illicit activity … [in] Azerbaijan, Russia and Ukraine” and to parties “involved in North Korea’s procurement or export of ballistic missiles”. A few days later, IlmarsRimsevics, the head of the Latvian Central Bank was arrested by the national anti-corruption agency on bribery charges.
The Corruption Challenges Index is compiled by Risk Advisory’s due diligence, political and security experts.
The index assesses corruption threat, regime instability and accessibility of information in 187 countries to arrive at a ‘Corruption Challenge’ score, and a resulting ‘Most Challenging Jurisdiction’ ranking.
In countries where the threat of corruption is elevated, integrity due diligence performs an essential risk
management function. But when information is scarce or unreliable, due diligence requires specialist knowledge and research skills to undertake. The most challenging countries are those where threat is high and due diligence difficult. The index is designed to quantify this nexus.
Our experts were asked to grade each country on the likelihood of two scenarios: 1) foreign investors
encountering corruption in seeking a significant government contract, licence or permit (grand
corruption), and 2) a business operating locally enduring small scale official corruption to undertake
day-to-day operations (petty corruption). These scores were added to a regime stability score to arrive at a
Corruption Threat rating (T).
This is offset against an Opacity score (O), which is based on our experts’ assessments of 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.
The Corruption Challenge score (C) subtracts Opacity (O) from Corruption Threat (T):
C = T - O
The index’s most challenging countries are those assessed to have a high risk of both petty and grand corruption, less stable regimes and low availability of public information and business intelligence.
In addition to building the index we also asked our analysts to consider the three business sectors that are most exposed to corruption in each country.