Corruption Challenges Index 2019 report. Photo: The Risk Advisory Group

Global companies operating in the construction industry face a minefield of corruption threats, according to a new report that ranks industries and countries based on the compliance risk challenges they pose to foreign investors.

Findings from the Risk Advisory Group, an international risk consultancy firm, in its 2019 Corruption Challenges Index track recent observations from former federal prosecutors, criminal defense attorneys and construction and government contracts lawyers.

They've warned that the U.S. Department of Justice is focusing more on the construction industry for enforcement actions under the Foreign Corrupt Practices Act.

Atlanta-based Alston & Bird partner Paul Monnin, a former assistant U.S. attorney who served as deputy chief of the economic crimes section, said previously that the target-rich environment of the construction industry has become “the frontier right now on corruption and bribery and fraud enforcement.”

Goran Maksimovic, Risk Advisory's London-based director of corporate investigations and disputes, cited several factors underlying compliance risks in the construction industry, namely government corruption and money laundering. The former factor tends to be more prevalent in emerging markets, where foreign companies might be pressured to pay bribes for building permits, though it also can be a factor in more mature markets.

Maksimovic added, “We're increasingly encountering real estate construction companies being used as money laundering vehicles, particularly by high-profile business people.”

Other high-risk sectors include the energy industry and banking and finance, according to the report. Companies in those realms seeking to minimize corruption risks should “know your market and know your partners,” Maksimovic said.

Of course, companies will encounter more compliance problems in some outside jurisdictions than others. For instance, Turkmenistan, Libya, Somalia, Yemen, Central African Republic and the Democratic Republic of Congo have elevated corruption threats, according to the report.  

While the report found that Africa has the highest average corruption challenge score in the world, there are bright spots amid the continent's apparent danger zones, including Namibia, Botswana and South Africa, where corruption risks are relatively low.  

Companies with leaders “who know the value of what hides behind Africa's complexities and are willing to seek the intelligence required to forge the best path” will find “business possibilities” on the resource-rich continent, according to Hannah Gilkes, Risk Advisory's head of business intelligence in Africa.

On the opposite end of the spectrum, New Zealand was tops across the board for being the least challenging jurisdiction in terms of corruption risks and transparency. Australia, Singapore, Ireland and the United Kingdom also received nods for low corruption risks.

The findings are based, in part, on Risk Advisory's due diligence experts' assessments of the probability that a company will be exposed to corruption when seeking government contracts, licenses or permits in a certain jurisdiction. The report also considered the pervasiveness of local, small-scale official corruption. Those assessments were added to regime stability and transparency scores to determine overall corruption threat ratings.

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