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The Corruption Index: An In-Depth Look at What it Means & How it Relates to FCPA

corruption

The Corruption Index: An In-Depth Look at What it Means & How it Relates to FCPA

The Corruption Perceptions Index (CPI) is an index published annually by Transparency International since 1995 which ranks countries “by their perceived levels of corruption, as determined by “expert assessments”  and opinion surveys.

The CPI currently ranks 176 countries “on a scale from 100 (very clean) to 0 (highly corrupt).” Denmark and New Zealand are perceived as the least corrupt countries in the world, ranking consistently high among international financial transparency, while the most perceived corrupt country in the world is Somalia, ranking at 9–10 out of 100 since 2017.

This short video link below provides an overview of the Corruption Perception Index.

One could argue that there could be a direct correlation between the number of FCPA Violations and how high a country ranks on the Corruption Perception Index (CPI).  Upon analysis, there is no such correlation and therefore the reliance by Chief Compliance Officers on the CPI as published each year by Transparency International comes into question

Upon further investigation of the survey developers – Transparency International (TI)  based in Berlin Germany, it becomes clearer why the survey cannot be relied on.

The Corruption Perceptions Index has received criticism over the years. The main one stems from the difficulty in measuring corruption, which by definition happens behind the scenes. The Corruption Perceptions Index, therefore, needs to rely on third-party surveys which have been criticized as potentially unreliable. Data can vary widely depending on the public perception of a country, the completeness of the surveys and the methodology used. The second issue is that data cannot be compared from year to year because Transparency International uses different methodologies and samples every year. This makes it difficult to evaluate the result of the new policies.

Another issue is historically been funded since its inception in 1993 by large multinationals – Exxon/ Mobil,  Shell, and Hedge Fund KKR being the largest donors. One cannot help but question the objectivity of the survey with large private donors. TI’s International Board of Directors reacted to this conflict of interest by stripping its US affiliate – Transparency International USA – of its accreditation as the National Chapter in the United States and it was reported by TI Headquarters that  TI-USA came to be seen in the United States as a corporate front group, funded by multinational corporation given the large donor base.

Secondly, the surveys themselves are conducted by organizations such as Freedom House, which have known biases. In August 2019 whistleblower accounts from seven current and former TI Secretariat staff emerged describing a “toxic” workplace culture under the current Managing Director, Patricia Moreira. Reported in The Guardian, the misconduct reported ranged from gagging orders in termination agreements to bullying and harassment of critical internal voices

Although the Corruption Perception Index remains popular with its audience as it is unveiled each year, it becomes more clear after digging deeper into Transparency International why there \’s not a more robust correlation between FCPA Violations as identified by the SEC and DOJ and the faltered Corruption Perception Index.

Syria

Civil War in Syria: How Conflict Erodes Trade

Syria has a turbulent history. Numerous nations, factions and leaders have wrestled for control of the country at turns over the last 100 years. The present conflict, a civil war raging for eight years now, has drastically affected Syria’s trade by destroying infrastructure, displacing its productive workforce, and weakening business confidence in the region. The World Bank estimates the current conflict has produced a cumulative loss in Syria’s GDP at $226 billion as of 2017, an amount equal to four times Syria’s GDP in 2010.

Syrian Trade Throughout History

The region now called Syria was home to one of the most ancient civilizations on earth. Evidence of early trade relations dates as far back as 10,000 BC. Many of the greatest human achievements had their origins in the area known as the Cradle of Civilization. Its location on the Silk Road enriched Syria with wealth and strategic importance during the Roman Empire.

Throughout the 20th century, Syria experienced French control, uprisings, nationalization, regional wars, and conflict among rival factions. The economic outlook for Syria seemed to be improving in the 1990s and early 2000s. The World Bank considered it a fast-growing, lower-middle-income country. Syria’s main exports were crude and refined oil and information and communications technologies. Syria also enjoyed a healthy travel and tourism industry.

Impacts of the Civil War

The civil war has either eliminated or drastically reduced all of Syria’s main trading industries, exacerbating the suffering for Syrian civilians. In 2010, exports totaled around $19 billion. By 2016, they had fallen to $555 million. Syria’s ranking as a global exporter fell from 88th in 2011 to 141st in 2015.

Syria trade profile post civil war

Sanctions, Destruction and Displacement

A consequence of the conflict, Syria is subject to numerous sanctions by the United States, Canada, European Union, Arab League and Turkey. These include embargoes on investment, blocks on trade in key industries such as oil, financial services and precious metals, and the freezing of assets. The aim of such sanctions is to pressure Syrian leaders to end the conflict, but average Syrians also suffer the economic fallout.

As in any war, destruction is rampant. Mortar fire and airstrikes have damaged and demolished key infrastructure for trade. Bridges, grain silos, roads and other economically significant assets are strategic targets for both sides. Access to fuel and electricity is limited, denying Syrian businesses the productive factors necessary to produce goods to trade as well as the means to transport them. Schools, food sources and medical buildings have also been targeted. As of 2017, seven percent of housing stock has been destroyed, and 20 percent damaged. Trade necessarily takes a back seat when citizens struggle to have their basic physical needs met.

Given the dire circumstances, over half the country’s pre-war population has been displaced either internally or externally. According to recent estimates, over five million refugees have fled Syria. It’s a human tragedy with immediate and long-term implications. As the workforce collapses, goods are no longer able to be produced, and trade grinds to a halt.

Syria trade exports drop 92%

Distrust, Uncertainty and Disassociation

Businesses are wary to engage in nations experiencing conflict. The Syrian Civil War is complex and associated with a corrupt regime causing suffering for its citizens. International sanctions create a legally uncertain environment. Even if it is possible to engage in trade with Syrian firms, there is no guarantee that in a month or a year it will still be possible — new sanctions may be imposed or the factory producing the goods could be targeted. These risks substantially raise the cost of engaging in trade with Syria.

Adding to Syria’s economic woes is the curtailment of economic development assistance. The World Bank Group ceased all Bank operational activity with Syria at the onset of the war. Previously it provided technical assistance and advisory services on private sector development, human development, social protection and environmental sustainability. Although not directly related to trade, much of this support helps local businesses and the economic health of communities.

Why Trade Matters for Syria

Any kind of conflict can have negative effects on trade, directly by destroying factors of production and dislocating people, and indirectly by causing uncertainty and breaks in connectivity with global supply chains. Reduced trade invariably damages the economy, causing individual suffering which can foment more unrest. Nations become trapped in a vicious cycle.

This seems undoubtedly to be the case in Syria, where the destruction of trade has meant economic suffering that aggravates the humanitarian crisis. The longer conflict persists, the deeper the separation from global society, and the harder it will be to rebuild the economic mechanisms and institutions necessary to increase trade and encourage economic growth.

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Alice Calder

Alice Calder is a graduate research assistant at George Mason University, currently pursuing her MA in Applied Economics. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

This article originally appeared on TradeVistas.org. Republished with permission.