Thoughts on foreign corruption rankings

By Christine Duhaime | December 4th, 2013

2013 Corruption Index

According to Transparency International‘s newly published 2013 Corruption Perceptions Index, the new top ten corrupt nations are Somalia, North Korea, Afghanistan, Sudan, South Sudan, Libya, Iraq, Uzbekistan, Turkmenistan, and Syria.  The ten least corrupt are Denmark, New Zealand, Finland, Sweden, Norway, Singapore, Netherlands, Australia, Canada and Luxembourg.

The results are based on surveys from entities that rank certain countries. Some surprises include that the United States was ranked more corrupt than Hong Kong, which is inconsistent with the reality of doing business in Hong Kong. Likewise, China ranked 80th and Vietnam ranked 116th but there is no material difference in either in terms of corruption however, in China foreign corruption is much more sophisticated.

Foreign businesses in China and Vietnam, including Canadian businesses, say it’s impossible to conduct business there without bribes. Foreign companies are usually given specific directions by government officials on how to make illicit payments to them. More often than not it involves travel and shopping sprees.

According to some foreign businesses, including Canadian businesses, the following is currently one of the preferred methods to pay a bribe to a government official from China: (a) the foreign business opens an account in the government official’s name at a coveted luxury designer store in Hong Kong (there is just one that is coveted by men in China); (b) the foreign business transfers the amount of the bribe to that account; (c) the foreign business arranges and pays for a trip to Hong Kong for the government official for a shopping spree; (d) the government official from China travels to Hong Kong, enjoys a week or so as part of an all-inclusive trip funded by the foreign business, and uses the credit in his name to buy luxury goods at the store; and (e) if there is a credit balance remaining after the purchases at the store, the balance is refunded in cash to the government official minus a handling fee kept by the store.

With the advent of gift cards, also known as stored value cards, corrupt government officials sometimes ask for prepaid gift cards loaded with the amount of the bribe by foreign businesses.

It is next to impossible to detect the use of stored value cards when the cards are bought using funds from bank accounts in Asia that are transferred to stores in Hong Kong where the cards are issued. These transactions contribute to the “shadow” banking system, allowing the exploitation of existing vulnerabilities in the reporting requirements that are imposed on financial institutions and international travelers. Bribery payments to foreign government officials in China (or anywhere)  are proceeds of crime and can be prosecuted as such in conjunction with corruption offenses.

What is probably more accurate in terms of corruption rankings and China’s place therein, is that Chinese businesses and business dealings are opaque and prone to corruption, and China should be higher on the Index, as described in this article in Bloomberg.

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