Overview
Two important anti-corruption due diligence tools published their 2020 results in November 2020 and January 2021. While the results are largely consistent, there are some important differences and some key improvements and declines in the Transparency International 2020 Corruption Perceptions Index (TI CPI) and the TRACE 2020 Bribery Risk Matrix (TRACE Matrix). To comprehensively understand the risks and take advantage of the opportunities offered in the Asia-Pacific region (APAC), a review and understanding of both tools is helpful.
Even though the average APAC TI CPI score was better than the global average (45 versus 43), more than half of the countries in the region are perceived as high risk for bribery and corruption. TRACE considers more than three quarters of the countries in the region to be moderate to very high risk. The 2020 TI CPI can be viewed here, and the 2020 TRACE Matrix publication packet here.
Summary
The TI CPI scores and rankings in the region have been generally stable from year to year, but 2020 was notable in that the lowest performers in APAC declined slightly (with one exception, Indonesia, declining 17 places) and the higher performing countries improving slightly (with one exception, the Maldives, which moved up 55 places).
In contrast, the TRACE Matrix rankings showed significant improvement in most countries' scoring in the APAC region, moving some countries from higher risk to lower risk categories (e.g., Brunei moved up 78 places, from high risk to moderate risk; East Timor moved up 27 places, from high risk to moderate risk); but also, some significant declines in rankings (e.g., Hong Kong and the Philippines, both down 10 places).
Interestingly, there were directional inconsistencies between the TI CPI and the TRACE Matrix, with the TI CPI showing declines in some countries while the TRACE Matrix showed significant improvements (e.g., Vietnam and Myanmar). There were also instances where the TI CPI showed improvements but the TRACE Matrix showed declines (e.g., Afghanistan, Hong Kong, and New Zealand).
Methodologies
Both the TI CPI and the TRACE Matrix evaluate performance and assign a score between 1 to 100 to every country and jurisdiction, and then assign a rank based on the score. For the TI CPI, the risk score is inverse to the risk rank, while for the TRACE Matrix, a high score translates to a high-risk rank. For example, the least corrupt APAC country on both charts, New Zealand, is ranked in first and fifth place but got a score of 88 on the TI CPI and 8 on the TRACE Matrix. In contrast, the country at highest risk, North Korea, is ranked 170 and 194, but received scores of 18 on the TI CPI and 93 on the TRACE Matrix.
Another key difference to keep in mind is that the TI CPI measures perceptions of public corruption, (Low, Medium, High) while the TRACE Matrix also includes commercial bribery and publishes scores for four corruption indicators, including the opportunity for bribery (government interaction, expectation, and leverage); deterrence (dissuasion and enforcement); transparency (government and civil service); and oversight (free press and civil society) (Very Low, Low, Medium, High, and Very High).
Jurisdictions of Note
China continued its upward trajectory gaining one point and two places on the TI CPI and five points and eight places on the TRACE Matrix.
Hong Kong SAR scored one point higher in the TI CPI and climbed five places in the rankings, but declined three points and fell 10 places on the TRACE Matrix. TRACE explains that the decline in Hong Kong's ability to deter bribery, and decreased transparency in the city’s government and civil services, contributed to the change in its TRACE Matrix score and rank. That being said, Hong Kong remains in the categories that are considered the lowest risk for corruption in the TI CPI and the TRACE Matrix.
Indonesia's three-point decline and 17-position fall in the 2020 TI CPI was predictable as the 2019 ranking did not reflect the impact of the legislative weakening of its anti-corruption agency, the Komisi Pemberantasan Korupsi. What is surprising is Indonesia’s six-point and 16-place improvement in the TRACE Matrix, which does not reflect a decrease in enforcement, but rather improvements in transparency of governmental and financial interests and media freedom.
The Maldives' improvement is evident in both the TI CPI and the TRACE Matrix in 2020. The country gained 14 points and moved up 55 places, from the high to medium risk category, in the former, and advanced 11 points and 39 places in the latter. TI attributed the country's improved performance to the 2018 election, which unseated several politicians who are now charged with corruption and money laundering, and the removal of repressive laws, such as the criminal defamation law previously used to threaten and prosecute the media and opposition. Similarly, the TRACE Matrix reported the Maldives’ improvement relating to the deterrence of bribery and the society's capacity to conduct bribery oversight in 2020.
Brunei Darussalam maintained its TI CPI score and ranking in 2020, but scored 18 points better and rose 78 places in the TRACE Matrix compared to the previous year. TRACE observed significant improvements in the country's ability to deter bribery and to conduct oversight against bribery, and in the interactions with the country's government.
Myanmar was featured in TI's 2020 press release as a country to watch in 2021. Even though the country scored one point lower than it did last year, and fell seven places in the TI CPI, the country had already improved 13 points in past eight years. TI reported investigations against high-level officials and the implementation of various reforms in 2020, and mentioned that surveys suggest Myanmar citizens felt positively about the government's efforts to combat corruption. These factors suggest that the country was headed in a positive direction prior to the recent military coup, but there is now significant uncertainty. Those improvements may have already been reflected in the TRACE Matrix, which showed an eight-point and 23-place improvement in 2020.
Conclusion
The TI CPI, along with the TRACE Matrix, continue to be among the most useful tools for evaluating the general risk of corruption in foreign jurisdictions. Even though the APAC region saw an overall improvement in the TRACE Matrix in 2020, the growing gap between traditionally high and traditionally low performing APAC jurisdictions in the 2020 TI CPI signals that companies operating in the region should remain cautious of corruption in certain jurisdictions. Additionally, companies should take a flexible and tailored risk-based approach and use due diligence and other compliance procedures to assess risks associated with their ventures.
