Corruption Perceptions Index released – warning to Australian companies entering new markets

Transparency International has released its 2013 Corruption Perceptions Index (CPI), which is becoming a global benchmark for measuring perceived levels of public sector corruption in 177 countries.  For companies considering setting up operations in new jurisdictions, or undertaking cross-border M&A activities, the CPI provides a snapshot of the corruption risk posed in a particular country.

The CPI uses data from reputable independent institutions, specialising in governance and business climate analysis, who conducted international surveys with businesses and in-country experts over a 24 month period.

Countries are ranked on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean).  Only a small number of countries rank on the CPI as ‘very clean’, while more than two-thirds of the 177 countries featured scored less than 50.  The index confirms that corruption remains prevalent at all levels of government, from issuing local permits to the enforcement of laws and regulations in a majority of countries worldwide.

Australia emerged as one of the year’s ‘decliners’, with its ranking falling from 85 to 81 this year, which could be attributed to the prosecution of Reserve Bank of Australia subsidiaries, Securency International and Note Printing Australia, for foreign bribery, and corruption in the NSW State Government with the recent findings of the NSW Independent Commission Against Corruption into the affairs of the Obeid family.

It is also worth noting the results of some of our trading partner countries in the Asia-Pacific region:

• Papua New Guinea was ranked 144th, with a score of 25 (consistent with its 2012 ranking)
• Indonesia was ranked 114th, with a score of 32 (consistent with its 2012 ranking)
• Laos was ranked 140th with its score improving from 21 to 26.
• Vietnam was ranked 116th with a score of 31 (consistent with its 2012 ranking).

Despite some improvement, corruption in the Asia-Pacific region remains an on-going issue which should not be overlooked.

As discussed in a previous post, corruption affecting corporate Australia is on the rise.  Australian companies looking to set up operations in new countries or seeking to grow organically through cross-border M&A transactions must be aware of the corruption risks posed, particularly in countries which appear in shades of red on this year’s CPI heat-map.

Conducting anti-corruption due diligence in cross-border M&A transactions is imperative, as systemic bribery and corrupt conduct can significantly affect the value of a target company or asset.  It is equally important to undertake an anti-corruption risk assessment before entering a new country to determine appropriate controls that should be put in place to minimise the risk of corruption.

With the regulatory environment ever increasing, Australian companies should focus on developing and embedding an effective anti-corruption compliance program tailored to the risks faced when operating in high-risk countries.  For some practical insights into the key elements of a compliance program, please refer to our previous post.

Tiffany McLean

Tiffany is a Senior Associate at McCullough Robertson