Client Alert

Corruption Perceptions Index 2019: Modest Changes in Asia-Pacific but Risk Landscape Remains Diverse and Dynamic

03 Feb 2020

On January 23, 2020, Transparency International (“TI”) published its annual Corruption Perceptions Index (“CPI”) for 2019.  As with previous years’ indexes, the CPI 2019 demonstrates that many regions, including Asia-Pacific, have not made meaningful strides in the fight against corruption for some time.

The CPI ranks perceptions of public sector corruption in 180 countries and territories according to experts and business people.  Countries and territories obtain scores ranging between 0 (highly corrupt) and 100 (very clean).  TI considers scores below 50 to be failing scores, while scores below 30 indicate severe systemic corruption.  In the latest edition of the CPI, the average score for Asia‑Pacific was 45—a failing score and not a meaningful improvement on its average score of 44 in 2016, 2017, and 2018.  TI states that this pattern “illustrates general stagnation across the Asia Pacific,” with little to no improvement in experts’ and the business community’s perceptions of corruption throughout the region.

The Asia-Pacific region is characterized by wide diversity in economic development, legal and political systems, and progress with respect to the strength of the rule of law, commitment to human rights, and success in combatting corruption.  The region contains some of the strongest performers in the world, with countries like New Zealand (87), Singapore (85), Australia (77), Hong Kong (76), and Japan (73) all featuring in the global top 20 countries and territories.  On the other end of the spectrum, however, some countries in the region are amongst the world’s poorest performers, including Afghanistan (16), North Korea (17) and Cambodia (20).  The large developing economies in the region also did not score well, with China (41) and Indonesia (40) both seeing only a modest two-point improvement on their 2018 scores of 39 and 38 respectively.  Vietnam and the Philippines both also performed poorly, scoring only 37 and 34 respectively, although Malaysia increased its score of 47 in 2018 to 53 in 2019, rising 10 places in the global rankings.

Ones to Watch

In our coverage of the CPI 2018, we highlighted the focus on anti-corruption during the then-upcoming Indonesian general election in April 2019, noting also that Indonesia’s Corruption Eradication Commission (Komisi Pemerantasan Korupsi or KPK) had ramped up its anti-corruption enforcement efforts.  However, TI remarks in its 2019 report that the “independence and effectiveness of Indonesia’s anti-corruption commission, the KPK, is currently being thwarted by the government” and that the commission is “undergoing a loss of autonomy and power.”  Indonesia will be a jurisdiction to watch in the coming year.

Malaysia experienced a dramatic improvement to its score from 47 in 2018 to 53 in 2019, which marks the first time since 2015 that Malaysia did not obtain a failing score.  Part of this increase may be due to the new government’s responses to and the country’s recovery from specific high-profile corruption-related issues, such as those arising from 1MDB, including trials of its former Prime Minister Najib Razak.  On January 23, 2020, following the publication of the CPI 2019, TI’s Malaysia president Muhammad Mohan noted that the 1MDB scandal might have caused a downward trend in Malaysia’s score, but that “[t]he new government has committed to make Malaysia free of corruption.”  Malaysia has seen important legislative and regulatory changes.  As we reported earlier, following the introduction in October 2018 of corporate liability provisions in Malaysia’s Anti-Corruption Commission Act 2009, which come into force in June 2020, Securities Commission Malaysia announced an action plan requiring Malaysian-listed companies to put in place anti-corruption measures.

Thailand and India also implemented changes to strengthen their anti-corruption regimes in recent years—both introduced amendments to their laws in July 2018. Although the countries’ CPI scores have remained roughly the same during the years before and after the amendments—Thailand scored 37 in 2017, 36 in 2018, and 36 in 2019, and India scored 40 in 2017, 41 in 2018, and 41 in 2019—it may take some time to determine the effects of the new changes to the law. 

Given these efforts, it will be interesting to see the impact that these legislative developments may have on corporate behavior and law enforcement patterns.

High Performers Not Immune to Corruption

The CPI 2019 report also emphasizes the fact that, although public sector corruption might be low in countries that rank highly in the index, 2019 showed that “integrity at home does not always translate into integrity abroad.”  Indeed, a number of 2019 cases involved companies from highly ranked countries engaging in corrupt practices in poorly performing countries and territories, including companies from Scandinavia and North America becoming entangled in bribery allegations involving countries and territories in Africa, Asia-Pacific, and the Middle East.

Every year, the CPI index shows that there is much work left to be done to combat corruption throughout the world.  Asia-Pacific remains a particularly difficult region to navigate in light of the vast gulf between the good and poor performers in the region.  Companies should be acutely aware of the myriad risks of doing business in this economically important, but challenging, part of the world.  This is especially true for multinational companies using higher-ranked jurisdictions as bases of operations for doing business in riskier jurisdictions, as they may be lulled into complacency due to the perceived low risk environment from which they launch into more challenging territories.  As before, the Asia-Pacific region also continues to pose significant risk in terms of money laundering, violations of economics sanctions, cybercrime, and other types of fraud.  This means that companies operating in or contemplating investment into the region should continue to remain vigilant.  

For more information about assessing and addressing compliance-related risk in the Asia-Pacific region, or across the globe, please contact us.

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