On January 28, 2021, the much-anticipated Corruption Perceptions Index (CPI) for 2020 was issued by Transparency International. Governments, corporations and NGOs around the world await the annual listing. Does your organization?
In this article, we will look at why you should and how you as in-house counsel can use it to help your organizations reduce corruption risk.
- What is the Corruption Perceptions Index (CPI)?
Since 1995, the CPI has been a measure of corruption risk in different countries around the world. Prepared and issued each year by Transparency International, it is the leading global indicator of public corruption. Based in Germany, Transparency International is the premier global organization dedicated to the fight against corruption.
The CPI is based on interviews with business leaders and country expert assessments. The 2020 report includes 13 country expert assessments, including one on Canada written by Professor Jennifer Quaid of the University of Ottawa; James Cohen, Executive Director of Transparency International – Canada; and one of the co-authors of this article, Amee Sandhu of Lex Integra.
- How does it work?
The 2020 list ranked 180 countries in terms of corruption. This year, Denmark and New Zealand were in first place, meaning they are perceived to have the lowest perceived levels of public sector corruption; they both scored 88 points out of 100.
Somalia, South Sudan and Syria had the lowest scores (12, 12 and 14, respectively) indicating that they are perceived to be the most corrupt.
Canada scored 77 points, ranking it 11th, on par with Australia and Hong Kong.
- I have never heard of the CPI. Why should I care?
If you or your company are not aware of the CPI or do not use it for risk assessment purposes, you need to read on.
The CPI, or similar rankings, are critical tools for assessing risk. If your company is active abroad or thinking of expanding into new markets, failing to use such a tool may indicate that your company is not sufficiently aware of corruption risks, and these blinders can lead to inadequate risk mitigations and potential anti-corruption law violations. It’s sobering to note that the average score of the countries included in the CPI is 43 out of 100.
In spite of Canada’s healthy score (although it is worthwhile to note that Canada did slip below the top 10 in the last two years), anti-corruption enforcement remains low and Canadian companies are considered to be behind their counterparts with respect to understanding and implementing mitigations against corruption.
If a company is not sufficiently aware of corruption risks, the ultimate risk for the organization and its leaders is criminal convictions for violating one of the myriads of anti-corruption laws around the world, including Canada’s Corruption of Foreign Public Officials Act. In addition, and more frequently, companies can find themselves debarred from public procurement processes and face (ongoing) reputational damage.
- How can my organization use the CPI?
Some examples of how companies use this information include the following:
They select a certain score (say 50) and tie that score into their commercial risk assessment process for approving proposals. Some companies further decide to automatically rule out doing business that involves a country with a score of 50 or below. Or if they do business with such countries, they will expect their internal business team to put additional risk mitigations in place, such as only engaging in work that is low risk from a corruption point of view, which may mean not partnering with third parties.
Another way companies use this information is to identify all of the countries they do business in, cross reference that information to the CPI scores, and then can see how much revenue they are earning from countries that represent the greatest corruption risk. This calculation helps them assess whether they have a greater exposure than they realized to corruption risk, thereby helping legal and compliance teams build the case for resources. For instance, if 90% of your revenue comes from countries that score the lowest on the CPI, it might be time to ask for a budget or headcount increase, backed by this type of data.
This information can also be used to galvanize your colleagues or business partners in those regions of the world. It can help secure the resources required to ensure that they are well supported and have access to and the support of your Canadian head office to speak up if they see any corruption risks.
- The mechanics: How do I go about actually using the CPI? As in-house counsel, I am often brought in after the deal has been structured. I would be seen as the deal killer.
We recommend using the CPI and other corruption risk assessments as a way to educate your business leaders, and finance, legal and business development leads about the importance of risk management. If the legal or compliance team is brought in early, they can help the business team re-structure the potential deal or project, or have the company build in appropriate risk mitigations. A best practice is to factor in the CPI and other corruption risk assessment concepts early in the bid or project cycle so that adequate corruption or third party (including client) due diligence can be done.
The GC or chief compliance officer can take the lead here by speaking to the head of business development, commercial, risk and/or internal audit, the CEO and the governance committee of the Board of Directors to ensure appropriate risks are flagged in the deal pursuit process, during the execution of those contracts, and via internal audit during a retrospective review.
In terms of mechanics, the company’s risk tolerance and risk assessment templates and contracts should all contain corruption risk mitigation measures. Training should include a section on corruption risk, and overall, all business development processes should be adapted to assess corruption risk before opportunities are approved or even pursued.
- If we only do business with countries that have high score, do we still have to worry about corruption risks?
In short, yes.
In addition to the current scores, it is important to see whether the scores are static, improving or decreasing over time.
Another issue is that a high score does not tell the whole picture. Over the past years, there have been major corruption investigations in Canada (e.g., SNC-Lavalin), France (e.g., Airbus), the US (various cases, as there is significant enforcement) and the UK (e.g., Rolls Royce and UnaOil). This article describes some of the big corruption cases in so-called “clean countries.”
- Is the CPI the best tool out there?
A common criticism of the CPI is that the scope is a perception-based score. For example, did Canada’s score go down from 2019 to 2020 because there is more corruption in Canada? Or did the Canadian population become more aware of corruption risk due to the newspaper coverage of corruption stories in (e.g., SNC-Lavalin, Bombardier, and Me to We), and therefore become more aware of the potential for corruption and other white-collar crime?
While no tool is perfect, the CPI has been published for more than two decades and its findings are quite consistent, so it can be a very useful addition to your risk assessment toolkit.
- Where can I find more information?
Susan Côté-Freeman is on the Board of Berlin-based Transparency International. She is also the Chair of the Board of Transparency International – Canada, the Canadian chapter of Transparency International.
Amee Sandhu is the founder of Lex Integra, a boutique firm that focuses on business law and corporate ethics. She is on the Board and legal committee of Transparency International – Canada, and she is a country expert contributor to Exporting Corruption: Progress report 2020: Assessing enforcement of the OECD Anti-Bribery Convention.
Connect with Amee and Susan on LinkedIn or Twitter.