Australias falling performance in Transparency Internationals Corruption Perceptions Index

What you need to know

• Australia received its lowest ever score in Transparency International's recently released annual Corruption Perceptions Index, placing 18th in the 180 countries and territories that were ranked.
• While Australia is still considered to be a generally 'clean' jurisdiction, its continuing decline in the TI CPI over the last decade is a cause for concern.
• In the medium term, that dropping perception has the capacity to impact confidence in investing or transacting in Australia, and may result in additional protections being embedded in transactional arrangements to address perceived additional risk.

What you need to do

• Australian businesses should be on the lookout for expectations of heightened due diligence or protective covenants in transactions, and ensure that they have robust systems and controls in place to monitor, prevent and detect bribery and corruption from occurring.

What is the Corruption Perceptions Index?

Last month, Transparency International (TI) released its annual Corruption Perceptions Index (CPI). The CPI is the most widely-used global corruption ranking in the world. It measures how corrupt each country's public sector is perceived to be according to independent experts and business people.

Countries are scored between 0 and 100 (with 0 being highly corrupt and 100 being very clean) and ranked in accordance with their position relative to other countries in the index.

Although the 'perceptions' reflected in the CPI concern the public sectors of each ranked jurisdiction, the CPI is a tool widely used in the private sector by businesses worldwide to help them assess the risks of bribery and corruption occurring within a particular jurisdiction or wider region, and to better understand the level of risk involved and due diligence required when engaging with third parties in that jurisdiction or region.

Australia's performance in the CPI (2021)

Australia received its lowest score ever in the 2021 CPI (73 out of 100), placing 18th in the world. Since 2012, Australia's score has dropped 12 points and its rank in the CPI has fallen 11 places.

Transparency International and the Organisation for Economic Co-operation and Development have previously commented on deficiencies in Australia's anti-bribery and corruption framework, including: (a) low levels of enforcement action; (b) gaps in the legislative framework which regulates bribery and corruption; and (c) the absence of a national integrity commission. Serena Lillywhite, CEO of Transparency International Australia recently commented that:

"Transparency International Australia has been sounding the alarm on Australia's deteriorating global corruption standing for years. The latest results point to systemic failings to tackle corruption, foreign bribery and strengthen political integrity."

There was a flurry of activity in the aftermath of OECD criticism following its 2006 Phase 2 report on Australia's application of the Anti-Bribery Convention and the OECD's prior recommendations on combatting bribery in international business transactions, including improved cooperation between investigatory and enforcement agencies concerned with foreign bribery, and improvements to Australia's whistleblower regimes in both the public and private sector. There has been increased enforcement activity in relation to foreign bribery and money laundering. However in recent years, legislative efforts to address identified gaps have stalled, the most prominent examples being the long mooted introduction of a 'failure to prevent' foreign bribery offence, and the recent shelving of a proposed federal anti-corruption commission.

You can read more about those proposed reforms in our earlier articles on the Corporate Crime Bill 2019 and the proposed Commonwealth Integrity Commission.

With Australia now in a Federal election cycle, any fresh legislative activity to address these topics must await the outcome of the election.

One potential driver for future action (in addition to expectations of the Australian public) is the OECD's recently launched 2021 Recommendation for Further Combating Bribery of Foreign Public Officials in International Business Transactions. With this recommendation, parties to the Anti-Bribery Convention (which include Australia) agree to new measures to reinforce their efforts to prevent, detect and investigate foreign bribery. The OECD will deploy these heightened standards as it reviews the performance of signatories to the Convention.

Some context: global results

While Australia's position among advanced economies has fallen, it does remain at the upper end of the overall index. The average global score this year is 43. TI's results revealed that two-thirds of countries surveyed (68%) have serious corruption issues and scored below 50. Over the last decade 25 countries have significantly improved their scores, but in the same period 23 countries have seen significant decline and 131 countries have stayed the same. Notably, the US and Canada are among those jurisdictions with declining scores (the US from 19th to 27th place, and Canada from 8th to 13th place over the last decade).

This year's top performers were Denmark, Finland and New Zealand, each with a score of 88. Other top performers included Singapore (85), Norway (85), Sweden (85), Switzerland (84), the Netherlands (82) and Germany (80).

The lowest performing countries were South Sudan (11), Syria (13) and Somalia (13). Countries experiencing armed conflict or authoritarianism tended to earn the lowest scores, including Venezuela (14), Afghanistan (16), North Korea (16) and Yemen (16).

Australia's largest trade partners for imports and export received mixed scores: China (45); Japan (73); South Korea (62); India (40); and US (67).

What Australia's placement may mean for businesses

Pending further initiatives to address some of the gaps in Australia's anti-corruption framework, a more immediate reaction to Australia's declining position on the CPI may manifest in transaction activity. The CPI is often used as a key metric in assessing corruption risks. Australian businesses might expect to see some counterparties in proposed transactions seek enhanced due diligence, or more stringent protective covenants, to address additional perceived risk.

The CPI otherwise serves as a timely reminder for businesses to ensure that they have robust systems and controls in place to prevent bribery and corruption from occurring within their supply chain and when dealing with third parties.

Authors: James Clarke, Partner; Rani John, Partner, and Dario Aloe, Associate.