In the realm of global corruption measurement, the Corruption Perceptions Index (CPI), released annually by Transparency International (TI), has long been seen as a guiding beacon.
The CPI remains an enduring fixture in the global arena, serving as a risk assessment tool to gauge the corruption levels of countries. Its influence knows no bounds: from guiding decisions on loan approvals, to investment disbursements, to due diligence reports results, and even shaping compliance programs.
Organizations and institutions around the world rely on the CPI to navigate the murky waters of corruption, seeking assurance and insight before venturing into unfamiliar territories.
The allure of the CPI lies in its perceived ability to offer a snapshot of a country’s corruption landscape, by offering a visually appealing, user-friendly map, ranking countries against each other. The score of each country is meant to assist us in making informed choices while mitigating the potential corruption risks.
Investors, lenders, and policymakers eagerly turn to this index, hoping it will unlock the secrets hidden within each nation’s governance and administrative realms.
However, beneath this captivating facade lies a deeper, more complex narrative.
Critics argue that the CPI’s reliance on perceptions rather than empirical data introduces a veil of subjectivity, possibly distorting the true corruption reality on the ground. As the debate rages on, there remains a pressing need to strike a balance between utilizing the CPI’s insights and acknowledging its limitations.
The CPI’s influence is vast, and its impact profound, but we must remain vigilant in questioning its purpose and efficacy ( I cover some of the criticism and pushback from the compliance community in this earlier article).
Amidst the mounting scrutiny and criticism of the CPI, one would imagine that even the original creator of the index, Johann Graf Lambsdorff, would have put an end to it — and some say he did, a few years ago:
“In 1995 I invented the Corruption Perceptions Index and have orchestrated it ever since, putting TI on the spotlight of international attention. In August 2009 I have informed Cobus de Swardt, Managing Director of TI, that I am no longer available for doing the Corruption Perceptions Index.”
The curious case of Prof Lambsdorff’s withdrawal from the Index seems to have slipped under the radar, eclipsed by the continued spotlight on the Index itself. While the reasons behind his departure remain undisclosed, it’s intriguing how this significant event received little attention compared to the continued buzz surrounding the Index.
In 1998, a poignant statement from the founder of Transparency International Peter Eigen was unequivocal on the purpose of the CPI:
“Underlying the CPI is the reality that much of the world’s most damaging bribery comes directly from business enterprises trading and investing internationally. The scale of corruption in many poorer countries, particularly the corruption of their elites and the negative impact of corruption on development and the plight of the most poor, would be much less were it not for illicit actions by companies with headquarters in many of the leading industrialised countries. More than this, benefits to bribe payers are facilitated by the existence of safe havens provided by the banking systems of some of the leading industrialised countries.
TI, as a matter of priority, is developing approaches which will capture in a separate Index the sources of this international corruption. This will shine the light on the countries that are the homes of bribe-paying corporations. It will be a vital complement to the CPI and will reflect the hitherto unseen faces of international corrupters.
In this context, TI welcomes the successful completion of the OECD treaty which will criminalise these actions by their exporters and deny tax deductibility to bribes paid abroad. TI has, throughout, been actively involved in these initiatives, and will continue to monitor closely its implementation by governments.
Let me, on behalf of all involved in TI, call on the world’s press to convey the readers the message of the havoc wrought by the bribe payers. Please also resist the temptation to pin labels on countries as being “the world’s most corrupt.” That would be wrong. The CPI includes only about one-half of the world’s sovereign states, as reliable data is not available for the balance.
We repeat, too, that the CPI measures perceptions, and that perceptions do not necessarily accord with realities. Our press release explains the CPI, its purpose and its substantive expert base and methodology. I hope you will study this carefully. ”
As we ponder over these two statements, we are left to wonder:
- How did the CPI deviate so drastically from its founder’s original vision of exposing international and corporate corruption and focusing on the damaging impact of bribery?
- How has the CPI become a widely used, yet grossly inaccurate measure for bribery risk assessments, potentially hindering the progress of emerging countries unfairly labeled as corrupt?
- Why did Prof Lambsdorff’s departure from the Index go unnoticed, despite his instrumental role in creating this influential tool?
- What insights can we gain from Peter Eigen’s compelling statement on the underlying reality of bribery and corruption, and the need for additional indexes and measures to capture international corruption sources? Why was Transparency’s “Bribe Payers” Index brutally stopped
- In the pursuit of transparency, why does the CPI’s methodology rely on perceptions rather than concrete data, potentially leading to biased rankings?
- How can we reconcile the CPI’s perception-based approach with the real complexities of corruption, which can vary greatly between countries and regions?
- Is it time for a comprehensive reevaluation of the CPI’s methodologies and inclusion of crucial aspects like illicit financial flows and money laundering to provide a more accurate picture of corruption dynamics?
- How can compliance professionals strike a balance between utilizing the CPI as a valuable tool and recognizing its limitations, while also incorporating diverse data sources for a more robust risk assessment?
In the quest for clarity, it falls upon regulators, governments, and policymakers to honestly confront the shortcomings of the CPI.
Honesty must prevail if we are to address the challenges it presents accurately, and the errouneous perceptions it continues to convey.
The real question is: will absolute transparency jeopardize the illicit flows that fuel the prosperity of developed economies? I suspect the delicate balance between candor and safeguarding economic interests will remain a thought-provoking dilemma.