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How corruption contributes to the crisis of democracy worldwide

February 18th, 2019 - Posted by Mark Dunn in Procurement And Supply Chain

Transparency International’s just-published annual Corruption Perceptions Index (CPI) reveals the world’s most corrupt countries in 2018. Introduced in 1995, the CPI currently ranks 180 countries and territories worldwide by their perceived levels of public sector corruption with the support of expert assessments, corporate professionals and opinion surveys. The 2018 CPI displays an alarming link between the crisis of democracies and the increase of corruption. Delia Ferreira Rubio, Transparency International’s Chair, states:

"Corruption is much more likely to flourish where democratic foundations are weak and, as we have seen in many countries, where undemocratic and populist politicians can use it to their advantage."

No surprises at top and bottom

This year the Index, which ranges from 0 (very corrupt) to 100 (very clean), saw more than two-thirds of countries and territories scoring below 50, while the average score remained unchanged at 43. According to previous data provided by the CPI, only 20 countries have managed to significantly improve their scores in the past 7 years including Senegal and Estonia.

At the same time 16 countries have seen a substantial deterioration, including Hungary and Turkey. The latter two countries highlight a correlation between the increase of corruption, demonstrated by their decreasing CPI scores over the last six years and the outcome of the recently published

Freedom in the World study, annually put forth by Freedom House, in which Turkey was downgraded from the status of "partly free" to "not free". At the same time Hungary obtained its lowest score for political rights and civil liberties since the fall of communism in 1989.

While countries such as Denmark and New Zealand yet again lead the Index with 88 and 87 points, conflict-torn countries such as Somalia, South Sudan, and Syria once more make up the bottom of the index, with 10, 13 and 13 points. This clearly echos accusations of widespread human rights abuses, a nonexistent rule of law and instability from hostile conflicts.

For governments, the lesson is that demonstrating trustworthiness and integrity can attract investment and business partnerships to the country. However, a risky political climate is only one type of risk that companies should consider when conducting due diligence and risk monitoring. For compliance professionals it is therefore essential to take a closer look at the CPI’s outcome and to identify what makes a country's score increase and decrease, respectively.

Any business operating on a global scale should strengthen their efforts to have comprehensive risk monitoring and due diligence in place, especially considering the global extent of corruption displayed by Transparency International’s CPI. Having in mind that over 80 percent of global economic growth originates from emerging markets and developing economies, this correlates with the fact that today’s global organizations must manage to balance opportunities for growth against risk exposure.

Anti-corruption efforts are stagnating

One revelation this years Corruption Perceptions Index has brought, was the setback anti-corruption policies have to endure in the United States. With a score of 71, the United States not only lost four points since last year, but also dropped out of the top 20 countries in the CPI for the first time in 8 years. According to Transparency International, this is connected to the current threats to its system of checks and balances as well as a deterioration of ethical norms at the highest levels of power.

While the newly elected Brazilian President’s promise to end corruption could support Brazil in moving up the Index from their score of 35, the lowest CPI score since 2012, concerns are being raised that his policies could be a threat to the numerous democratic milestones achieved in the past.

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The flawless top?

Besides stagnating results, violations of the rule of law and the discreditation of public scrutiny by populist leaders, high achieving countries are not protected from corruption. Experts from Transparency International suggest that all the CPI’s top seven often fail to investigate and punish domestic companies when they are involved in corruption scandals overseas.

Recent tax and financial scandals such as the Paradise Papers and the Panama Papers have shed light on an often underrepresented correlation between corruption and financial secrecy. Estimates show

that up to a trillion dollars of illicit financial flows are leaving developing countries and find their way into tax havens and to the Index’ high achievers.

High-risk regions

As in previous years, the 2018 Corruption Perceptions Index reveals that, with average scores ranging between 32 and 36, the regions of the world most at risk of corruption are Sub-Saharan Africa, Eastern Europe, and Central Asia. This means that enhanced due diligence is crucial for any business when dealing with business partners in these regions, because of the increased risk of corruption.

Explore More:

1. Learn how ongoing risk monitoring helps address bribery and corruption risk.

2. Explore other blog posts on compliance risk.

What do you think?