Asia Pacific Anticorruption Ranking 2023: Transparency

According to the 2023 Bribery Risk Matrix (TRACE Matrix) and Transparency International’s 2023 Corruption Perceptions Index (Texas Instruments Consumer Price Index). While both ranking systems have the same view of the lowest and highest risk countries, the TRACE matrix presents a slightly more positive view overall, ranking most Asia-Pacific countries as medium risk. In contrast, the TI CPI ranks most countries as high risk. Taken together, the two systems provide a more comprehensive and accurate picture of risks and opportunities in the Asia-Pacific region based on different methodologies and factors.

TRACE considers only a quarter of the region’s countries to be high or very high risk, but two-thirds are at least medium risk. However, for the TI CPI, Asia-Pacific countries scored above the global average (45 vs. 43, as they have for the past four years), with more than half of countries considered high or very high risk, leading TI to describe the region’s scores as stagnant. The 2023 TRACE Matrix publication package is available at:

While these tools provide a good starting point for risk assessment, they are not a substitute for conducting adequate risk-based due diligence on counterparties in the region. It is worth noting that many international bribery cases involve companies headquartered in or doing business in jurisdictions with very low risk ratings. This may be because their anti-corruption efforts support bribery investigations and prosecutions. Countries that do not have an effective enforcement record against overseas bribery by their own companies should closely review bribery and corruption risks. These bribery risk tools should also be supplemented with other public reports on money laundering and bank secrecy risks, as these are also indirect indicators of bribery and corruption risks.

Summary

High and Low: As in 2022, both the TRACE Matrix and the TI CPI rank New Zealand, Australia, and Japan as the countries with the lowest corruption risk in the Asia-Pacific region. However, the TI CPI also includes Hong Kong and Singapore in this category. Meanwhile, the TRACE Matrix ranks these two countries slightly lower, but still at a lower risk, as the TRACE Matrix includes analysis of media freedom and civil society engagement. Both rank North Korea as the country with the highest risk in the region, but also rank Cambodia, Afghanistan, and Myanmar at the bottom.

Decline and Progress：The TRACE Matrix rankings have changed significantly, with India dropping 36 places and Pakistan rising 29 places, from high risk to medium risk. Cambodia has risen slightly, from very high risk to high risk.

Overall, although the TI CPI indicated that some countries’ scores dropped by 1-4 points, the rankings and scores remained basically stable. Only Maldives and India dropped from medium risk to high risk due to a drop of 1 point.

As shown in the figure below, when looking at the results of the two tools, some directional inconsistencies are found. For example, China’s ratings show a directional inconsistency between the TRACE matrix and the TI CPI, as the TRACE matrix shows an improvement in ranking. However, the TI CPI shows a decrease in China’s score and ranking. The same inconsistency is seen for Indonesia (which has improved in the TRACE matrix but decreased in the TI CPI), as well as Vanuatu, Sri Lanka, Solomon Islands, Maldives, Philippines, Myanmar and Bangladesh. The inconsistency is due to the different methodologies used to compile the data.

Methodology

Both the TRACE matrix and the TI CPI assess performance and assign a score between 1 and 100 to each country and jurisdiction, which is then assigned a ranking based on the score. For the TRACE matrix, a high score indicates a high risk ranking, but for the TI CPI, the risk score is inversely proportional to the risk ranking. For example, the least corrupt Asia-Pacific country on both charts, New Zealand, ranks second globally on the TRACE matrix and third globally on the TI CPI, but has a score of 10 on the TRACE matrix and 85 on the TI CPI (a drop of 1 notch and 2 points on the TI CPI compared to 2022). In contrast, the highest risk country, North Korea, ranks 194 on the TRACE matrix and 172 on the TI CPI, but has scores of 92 and 17, respectively.

Another key difference to note is that the TI CPI measures public perceptions of corruption, while the TRACE matrix also includes commercial bribery and business risks. The TRACE matrix publishes scores for four corruption indicators, including opportunities to bribe (government interactions, expectations and influence), deterrence (persuasion and enforcement), transparency (government and civil servants) and oversight (free media and civil society), which together provide detail for interpreting the measurement results.

Jurisdictions to watch

China The TRACE matrix score remained the same, but the ranking rose by 4 places, and the overall risk rating has improved over the past few years. However, in the TI CPI, it fell below the Asia-Pacific average (45), slowing down from the upward trend over the past few years.

Hong Kong Special Administrative Region On the TRACE matrix, Hong Kong’s score continued to drop by 3 points and its ranking dropped by 6 places, but the risk is still low. TRACE explained that the decline in Hong Kong’s media freedom/quality and civil society participation is the reason for Hong Kong’s continued decline. Hong Kong’s score dropped by 1 point and its ranking on the TI CPI dropped by 2 places, but the risk of corruption is still at a very low level.

in conclusion

The TRACE Matrix and TI CPI remain useful tools for initially assessing the overall corruption risk in foreign jurisdictions. Although the TRACE Matrix and TI CPI for Asia Pacific show no overall changes in 2023, both TRACE and TI note concerns about slow progress in the region and a lack of transparency in some of the more repressive regimes. Companies operating in the region should remain vigilant about corruption in certain jurisdictions and should adopt a flexible and tailored risk-based approach and use due diligence and other compliance procedures to assess the risks associated with their business.

Even if a country is headquartered in a relatively low-risk jurisdiction, it does not mean that the risk of counterparties engaging in bribery and corruption is low. There are numerous cases of companies from low-risk jurisdictions engaging in improper conduct when operating overseas. Therefore, in order to truly understand counterparty risk, it is critical to understand a company’s compliance program and internal controls as well as its reputation in the markets where it does business (not just its global reputation).