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Trace’s Bribery Risk Matrix Restates The Obvious

captain obvious

Recently Trace International, which calls itself “the world’s leading anti-bribery standard setting organization,” released its Trace Bribery Risk Matrix.

Like other rankings of bribery and corruption, there is nothing per se wrong with the Bribery Risk Matrix. However, as stated several times on these pages (see here and here), I am not sure what these rankings really do (other than generate media coverage for the organization releasing the rankings) given that they generally restate the obvious (hence the picture of “Captain Obvious”).

For instance, does the compliance community really need a “sophisticated” formula such as: Domain_1 x 0.400 + Domain_2 x 0.150 + Domain_3 x 0.225 + Domain_4 x 0.225 to alert compliance professionals that doing business in Somalia, South Sudan, North Korea, Yemen and Venezuela present the highest risk of bribe demands whereas New Zealand, Norway, Denmark, Sweden and Finland present the lowest bribery risk? I am pretty sure that the compliance community already understands this as well as that Europe is a less risky continent to do business in compared to Africa (another finding of the Bribery Risk Matrix).

Again, there is nothing wrong with “data” to reinforce these observable truths, but other than generating media coverage for the organization releasing the rankings (here I am talking about them after all) I am not sure what such rankings really accomplish.

Regarding the above referenced formula, as Trace explains:

“The Bribery Risk Matrix provides an overall risk score and risk scores in four domains deemed to be indicators of potential business bribery risk:

1. Business Interactions with Government;
2. Anti-bribery Deterrence and Enforcement;
3. Government and Civil Service Transparency;
4. Capacity for Civil Society Oversight.

The first domain, “business interactions with government,” includes the subdomains of “contact with government,” “expectation of paying bribes,” and “regulatory burden.” These indicators capture aspects of the “touches with government” that regulatory and business interviews conducted as part of our research identified as very important for business bribery.

The second domain identifies factors operating to deter bribery, both informally through societal atti-tudes and formally through governmental enforcement.

The third domain, which addresses government and civil service transparency, includes indicators con-cerning whether government budgets are publicly available and whether there are regulations addressing conflicts of interest for civil servants.

The fourth domain captures information concerning the extent of press freedom and civic engagement, both of which serve as indicators of a robust civil society that can provide government oversight.”

Regarding the above-referenced formula, Trace explains:

“Domain 1, Business Interactions with the Government, is weighted more heavily than the other three domains, based on interviews with international regulators, input from anti-bribery experts and TRACE’s own extensive experience in assessing business bribery risk. Domain 2, Anti-Bribery Deterrence and Enforcement, is given a reduced weighting based on the difficulty of obtaining reliable data concerning the enforcement of anti-bribery laws. Domains 3 and 4 are weighted equally.”

Trace is correct to weigh “Business Interactions with the Government” more heavily than other factors and this obvious point has been stated numerous times on these pages given that the root cause of many FCPA enforcement actions follow a simple formula.

Regulatory burdens (ranging from customs procedures, licensing and certification requirements, foreign government procurement policies, etc.) create bureaucracy, bureaucracy creates interactions with foreign officials, and the more interactions with foreign officials, the greater the FCPA risk will be.

In highlighting this salient fact, these pages have long highlighted the World Bank’s Ease of Doing Business Rankings (see here) and as the below graphic from Trace demonstrates that is pretty much the original source data for its Domain 1.

The other “domains” in Trace’s rankings seek to capture rather soft and fluffy topics such as societal attitudes about bribery, press freedom, and civic engagement.

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