Introducing The Risk Advisory Group’s
Corruption Challenges Index
The Corruption Challenges Index is derived from a survey of around 20 due diligence experts from Risk Advisory’s six regional business intelligence teams, conducted in Q4 2016. The survey asked our analysts a series of questions about:
- risk of corruption in each of their countries of expertise
- demand for our due diligence services
- availability of country-specific information to support effective evaluation of integrity risk
The Corruption Challenge score (C) sums sub-scores for Corruption Risk (R) [itself a the product of Exposure (E) and Corruption Threat(T)] and Opacity (O), to arrive at the following calculation:
C = R + O, where
R = E x T
Exposure (E) is arrived at by summing scores based on the frequency of due diligence assignments conducted by Risk Advisory in 2016 in each country (scored on scale between 1 and 4) and the number of FCPA enforcement actions conducted in the period 2008-2016 (scored on a scale between 1 and 5). A country with a maximum score (9) will have seen a high level of interest in our due diligence services, indicating increased investment and concern about corruption on the part of our multinational client base, as well as a high number of enforcement actions indicating a high level of long arm legal scrutiny.
Corruption Threat (T) is the sum of a score based upon the analyst’s judgement of likelihood that a foreign investor will encounter corruption (scored on a scale between 1 and 5) and the analyst’s estimate of the proportion of due diligence assignments conducted in 2016 in which corruption was uncovered (scored on a scale 0.5 to 4.5). Thus a maximum scoring country (9.5) would reflect the analyst’s expert view that there is a high level of corruption and empirical evidence of it arising from our actual investigations during 2016.
As indicated above, Corruption Risk is scored based on a standard risk calculation of the product of Exposure and Threat (E x T). A maximum scoring country (85.5) will show both maximum Corruption Threat and maximum Exposure. Low scoring countries will show the opposite, with mid range variations distributed around the midpoint of the scale.
The Opacity (O) score is based on ten separate questions about availability and quality of information grouped in categories:
- Public information availability (corporate, bankruptcy, litigation and media records), using a score 1-4
- Public information quality, using a score 1-5
- Press freedom, using a score 1-5
- Availability of human sources, using a score 1-5
- Challenges of language, such as transliteration or translation of names, using a score 1-5
In addition to building the index we also asked our analysts to consider the three business sectors that are most exposed to corruption in each country. We were then able to produce regional and global frequency analyses based on this data.