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Do We Really Need C = T – O To Tell Us Things We Already Likely Know?

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I recently came across Risk Advisory’s Corruption Challenges Index. In perhaps a dig at Transparency International’s Corruption Perception Index (see here for a recent post) Risk Advisory states:

“We’ve looked at a number of factors above and beyond the simple perceived local corruption threat, to give a more nuanced and balanced evaluation of where the real challenges of negotiating corruption risks lie. These factors include such things as levels of FCPA enforcement action and local industry risks, as well as how information flows affect a company’s ability to understand who exactly it’s dealing with; how media reporting can be slanted according to the publisher, for example, or the willingness of people to talk openly about the likelihood and frequency of requests for bribes.”

Sounds fairly sophisticated – or nuanced – shall I say; however my response to the Corruption Challenges Index is the same as my response to the Corruption Perceptions Index: does the compliance community really need surveys or formulas (such as C = T – O read more below) to tell us things we already likely know. (See here for the prior post).

Without the Corruption Challenges Index and its crafty formula, many in the compliance community probably already knew that countries like Turkmenistan, Libya, Somalia, Yemen, and North Korea are  more “challenging” and that countries like New Zealand, Australia, United Kingdom, France, and Singapore are less “challenging.”

Without the Corruption Challenges Index and its crafty formula, many in the compliance community probably already knew that the “corruption threat” is higher in countries like Libya, Somalia, and Yemen compared to countries like New Zealand, Singapore and Ireland.

Without the Corruption Challenges Index and its crafty formula, many in the compliance community probably already knew that countries like Turkmenistan, Libya, Somalia and Yemen were more “opaque” than countries like New Zealand, Australia, United Kingdom and France.

So if the Corruption Challenges Index (the Corruption Perceptions Index and other similar attempts) really don’t tell us much compared to what we already likely know, what is the point of these surveys?

My own two cents is they are mostly just an effort to market products and services and a way to generate media coverage (which various media outlets happily cover to fill its pages or website – see here and here).

Set forth below is how Risk Advisory explained its methodology.

“The Corruption Challenges Index is compiled by due diligence experts from Risk Advisory’s seven regional business intelligence teams, with country risk scoring from our political and security risk focused Intelligence & Analysis team.

The index assesses corruption threat, regime instability and accessibility of information in 187 countries to arrive at a ‘Corruption Challenge’ score, and a resulting ‘Most Challenging Jurisdiction’ ranking.

In countries where the threat of corruption is elevated, integrity due diligence performs an essential risk management function. But when information is scarce or unreliable, due diligence requires specialist knowledge and research skills to undertake. The most challenging countries are those where threat is high and due diligence difficult. The index is designed to quantify this nexus.

Our experts were asked to grade each country on the likelihood of two scenarios; 1) foreign investors encountering corruption in seeking a significant government contract, licence or permit, and 2) a business operating locally enduring small scale official corruption to undertake day-to-day operations.

These scores were added to a regime stability score to arrive at a Corruption Threat rating (T). This is offset against an Opacity score (O), which is based on our experts’ assessments of the comprehensiveness and reliability of public information, media openness, the freedom of human sources to converse and particular linguistic barriers such as transliteration or complex translation. We have also added new subsets of variables, including how accessible certain public records are (such as corporate filings, litigation filings, and media reporting).

The Corruption Challenge score (C) subtracts Opacity (O) from Corruption Threat (T); C = T – O

The index’s most challenging countries are those assessed to have a high risk of both petty and grand corruption, less stable regimes and low availability of public information and business intelligence.

In addition to building the index we also asked our analysts to consider the three business sectors that are most exposed to corruption in each country. We were then able to produce regional and global frequency analyses based on this data.”

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