Transparency International says the continued failure of most countries to significantly control corruption is contributing to a crisis in democracy around the world by creating a vicious cycle, where corruption undermines democratic institutions and, in turn, weak institutions are less able to control corruption.

The group's annual Corruption Perceptions Index, a sort of annual snapshot of the relative degree of perceived global corruption, ranks 180 countries and territories from 0 at highly corrupt to 100 at very clean. The report says this year more than two-thirds of the countries scored below 50, with a global average score of 43.

Delia Ferreira Rubio, chair of the nonprofit global organization based in Berlin, said in a statement, “Corruption is much more likely to flourish where democratic foundations are weak and, as we have seen in many countries, where undemocratic and populist politicians can use it to their advantage.”

The democratic Nordic countries of Denmark, Finland, Sweden, Norway and Iceland are the rock stars of anti-corruption. Four of them ranked in the top 10 of the least corrupt countries, and Iceland ranked in the top 20.

The countries on this list that will worry every general counsel and compliance lawyer whose company wants to do business there were North Korea, which scored a 14; Yemen, South Sudan, Syria and, dead last, Somalia at a lowly 10.

Transparency International's analysts defined a democracy as having free and fair elections, allowing for political participation, recognizing civil rights and having a robust system of checks and balances on government.

Their analysis said, “Over the past two decades we have witnessed democratic backsliding across the world, including in what were promising new democracies such as Turkey, Hungary and Poland, and [even] in countries which were considered to be fully functioning democracies like the U.S.”

The U.S. dropped this year from the top 20 best countries to No. 25. “The low score comes at a time when the U.S. is experiencing threats to its system of checks and balances alongside an erosion of ethical norms at the highest levels of power,” the analysis said.

According to the organization, full democracies score an average of 75 on the index, while flawed democracies score an average of 49, and autocratic regimes perform worst, with an average score of 30.

It is not alone in perceiving trouble with democracies. It cited The Economist, a London-based news magazine, which published an annual democracy index showing democracy stagnating in 2018 after three consecutive years of deterioration.

Delia Ferreira Rubio, chair of Transparency International.

It also cited Freedom House, a U.S.-based watchdog group, whose annual Freedom in the World report shows substantial net declines in the health of democracies worldwide. Freedom House found that since 2006, 113 countries have seen a net decline in their aggregate score, while only 62 have experienced a net improvement.

The Transparency International report said no full democracies scored below its index average, and fewer than 10 countries classified as hybrid regimes or authoritarian regimes scored above the average. The study found “a strong and statistically significant effect of corruption on democracy.” The analysts said statistical models were not sufficient to explain whether corruption leads to democratic decline or whether democratic decline leads to more corruption. “However, they are indicative of the very strong association between the two variables,” they added.

Among governments listed as increasingly corrupt in 2018 were Turkey, Hungary, Venezuela, Guatemala and the U.S. “We should also closely watch the new populist governments in Italy, Brazil and Mexico,” the organization said.

Not everyone agrees with this analysis. For example, Alexandra Wrage, head of Annapolis, Maryland-based TRACE International, questions the correlation between declining democracy and corruption.

“As much as we may value the foundations of liberal democracy—including the principles of governmental transparency and press freedom—we shouldn't assume those values will always translate into less corruption,” Wrage says.

She compared the index's rankings with those of the most recent Press Freedom Index published by Reporters Without Borders.

“Although there's a cluster of countries in which minimal corruption and extraordinary press freedom go hand-in-hand, the actual overall correlation between CPI scores and PFI scores is only around 0.6,” Wrage says. “So while the two phenomena aren't entirely  unrelated, corruption is much too complex to be reduced to any single factor.

Wrage acknowledges that the Nordic countries of Denmark, Finland, Sweden, Norway and Iceland always score at or near the top of the Corruption Perceptions Index. “But they have other characteristics in common that also contribute to their comparatively high standing: efficient government administration; robust enforcement mechanisms; and a well-developed set of normative expectations. Countries that share these characteristics are also likely to be considered less corrupt, even under a more authoritarian political system—Singapore, for example.”

Wrage's anti-corruption group issues its own annual anti-bribery index, called the TRACE Matrix, which attempts to identify the different types of corporate corruption risks in different countries. She says she works “to avoid the tendency to assume that cultural or political elements that we like always correlate with transparency.”

For example, she says, “A thuggish dictator determined to reduce corruption could almost certainly do that more efficiently than a fledgling democracy.”

Both groups work to help curb corruption around the world. For its part, Transparency International calls on all governments to:

• Strengthen institutions and preserve checks and balances.
• Close the implementation gap between anti-corruption legislation, practice and enforcement.
• Empower citizens to hold governments accountable.
• Protect press freedoms and journalists.

Wrage's TRACE, on the other hand, aims for a more pragmatic response to the complex problem. Her group helps corporations to identify, and then avoid or reduce the risk of corruption by focusing on particular risks in specific regions. Wrage agrees that “corruption is an old and stubborn problem, corrosive in its impact on both institutions and individuals.”

Senior reporter at ALM since 2004; based in Florida; covers general counsel and white collar crime; contact: [email protected]