CPI 2020: Trouble in the top 25 countries

Our Trouble at the Top series for the 2020 Corruption Perceptions Index, includes a list of the top 25 countries on the CPI and their corruption challenges, an overarching analysis of the root causes of corruption in top countries and five high-profile corruption cases in otherwise "clean" countries.

While Denmark (88) has a public sector that may well be exemplary when it comes to anti-corruption, it does not mean this top scorer is completely clean. Denmark's anti-bribery laws have significant limitations and the Danske Bank scandal highlighted how weak supervision in the financial sector allowed millions in suspicious funds to enter the European Union (EU). While the Danske Bank scandal made it clear that Denmark’s financial supervisory authority did not have the necessary powers, resources or capacity to supervise the financial sector, since then, more inspectors have been hired and the supervisory body gained new powers to monitor and sanction banks. However, it still remains to be seen how these recent changes will be implemented.

New Zealand (88) is a long-term leader on the CPI, and its response to the COVID-19 crisis has been lauded by global business leaders and health care experts, despite some doubts about transparency standards. The country’s reputation easily distracts from corruption risks it must still address. For instance, New Zealand doesn’t have a register for beneficial ownership and falls short on whistleblower protection. In addition, recent elections highlighted a lack of regulation and opaque funding of digital ads that affects political integrity. There is also an urgent need for greater transparency around procurement, particularly that arising from COVID-19 responses.

Finland (85) scores high on the CPI but isn’t spared from corruption. Gaps in the country’s anti-money laundering supervisory framework could make Finland, along with other Nordic countries, very attractive to corrupt individuals and money launderers. In addition, Finland demonstrates little to no enforcement against foreign bribery.

Singapore (85) consistently performs well on the CPI compared to its regional counterparts, but high levels of secrecy in the corporate and financial sectors, coupled with weak financial supervision, make it a very attractive place to park dirty money. This is done through the purchase of assets, like real estate and other luxury goods, hedge fund investments, or bank accounts.

Similar to other Nordic countries, weaknesses in Sweden’s (85) anti-money laundering supervisory framework means the country could serve as a point-of-entry for dirty money in the EU. For example, in 2020 one of the leading Nordic financial services groups, SEB, received an administrative fine of more than US$120 million due to deficiencies in governance and anti-money laundering measures in the Baltics. With connections to the Danske Bank scandal, Swedbank and its Baltic branches actively sought clients with high-risk profiles and reportedly passed at least US$40 billion in high-risk transactions between 2014 and 2019, ignoring anti-money laundering obligations. This weak financial supervision highlights the need for a more harmonised approach to supervision across the EU, as well as an EU-wide independent anti-money laundering body.

Switzerland (85) is known for its breath-taking mountains, magnificent clocks and bank secrecy – also known as bank-client confidentiality. Historically, Swiss banks have attracted corrupt individuals from across the globe including Uzbekistan, Venezuela, Malaysia and Brazil to name a few. However, other types of secrecy may be attractive to the corrupt individuals looking to find a home for their dirty money in Switzerland. The country falls short of international minimal standards to prevent money laundering, including for non-financial services regarding companies and trusts and real estate transactions. Furthermore, whistleblower protections are very weak in Switzerland and criminals and their enablers run little risk of being caught.

Norway (84) is yet another Scandinavian country entangled in an international money laundering scandal. Similar to its neighbours, weak anti-money laundering supervision is a major issue that may lead to dirty money entering the country, and if left unchecked, could continue to facilitate corruption.

The recent Fishrot files investigation showcased the prominent role of Norwegian state-owned bank, DNB, as a gatekeeper for laundered money that flowed through shell companies from lucrative proceeds of illegal offshore fishing. The bank is now under police investigation for possible violations of anti-money laundering measures.

The Netherlands (82) still has much work ahead to comply with the new EU Directive for Whistleblower Protection and advance anti-corruption efforts. Last year, the country started prosecuting an individual in a large money laundering scandal involving ING, after being ordered by a court to do so. The country also shows significant delays in transposing the EU Anti-Money Laundering Directive and has only very recently implemented a beneficial ownership registry. In addition, the Netherlands has all the ingredients for a tax haven because of its mix of beneficial fiscal arrangements available to international corporations.

Concerns over opaque ties between German lawmakers and lobbyists reached new heights last summer, as Germany (80) took over the EU presidency. Although the introduction of a new lobbying register would shed more light on ties between politicians and economic interests, so far the register is still all talk and no disclosure. This means that companies like Volkswagen, BMW and others will continue to exert considerable influence in government, thanks to their powerful lobbies.

In addition, loopholes in Germany’s beneficial ownership register leave the country open to abuse, like in the recent case of Czech Prime Minister Andrej Babiš. Weak financial supervision across sectors, including real estate, banking, etc., continue to contribute to large corruption scandals, including Deutsche Bank and Wirecard.

In Luxembourg (80), the LuxLeaks revelations of 2014 exposed secret tax structures and prompted the adoption of an EU Directive for Whistleblower Protection, which has yet to be transposed in many EU member states. Luxembourg ranks sixth on the 2020 Financial Secrecy Index and is an attractive destination to those wishing to invest in loosely regulated alternative investment funds or store arts, gold and other assets in a freeport. The country has nonetheless made significant progress towards greater transparency with the establishment of a public beneficial ownership register in 2020, which helped shine a light on corporate anonymity with immediate effect.

Thanks to the register, journalists uncovered that the true owner of several offshore companies was the former head of the Central Bank of Lebanon, who invested millions in Europe while redevelopment efforts in Lebanon languished. However, improvements in the register to ensure data accuracy and compliance are still needed. Foreign bribery is another challenge in Luxembourg, where little to no enforcement exists, and a major financial holding company is currently under investigation in Italy, Argentina and Brazil for foreign bribery and money laundering.

Australia (77) faces several corruption challenges, including anonymous company ownership and money laundering. Following the FinCEN files, where thousands of leaked financial documents exposed a vast paper trail of money laundering across the globe, more than US$150 million were traced back to Australian banks.

The country also shows severe deficiencies when it comes to corruption in international real estate. As a result of a 2006 law, properties can be bought and sold without due diligence and real estate agents, lawyers and accountants are not required to report suspicious activities. Australia currently doesn’t require individuals behind foreign companies, or beneficial owners, to disclose their identity when purchasing property. Investigations show that real estate can open the door to money laundering and grand corruption, like in the case of Chinese police chief Wang Jun Ren, who received a 17-year prison sentence after embezzling money to buy Australian real estate. Similarly, South Sudanese General James Hoth Mai Nguoth, bought high-end real estate while his country battled civil war.

When it comes to foreign bribery and financial secrecy, Canada (77) also has major challenges. Anti-money laundering provisions don’t cover all professions and professionals, including real estate agents and lawyers, are not required to identify beneficial owners when conducting due diligence. In addition, the country has no central register of beneficial ownership information of companies.

According to a recent report from Transparency International Canada, one-third of the 100 most valuable residential properties in Greater Vancouver are held through structures that hide their beneficial owners. Nearly one-third of these properties are owned by shell companies, while at least 11 per cent have a nominee listed on title.

A lack of foreign bribery enforcement is another challenge in Canada. The country demonstrates limited enforcement and only opened two known investigations, commenced one case and concluded 4 cases with sanctions from 2016 until 2019.

Hong Kong doesn’t shine when it comes to beneficial ownership transparency or transnational corruption. The country’s legal and enforcement systems continue to hamper efforts to combat foreign bribery, where companies or foreign officials can only be prosecuted if the exchange takes place in Hong Kong.

In addition, Hong Kong doesn’t have an extradition agreement with mainland China, Taiwan or Macau as it was withdrawn after major protests sparked by fears that such an agreement would be used to scare, silence or condemn political opponents. Home to billionaire Joseph Lau who is wanted in Macau for bribery and money laundering, Hong Kong promotes a business environment where shell companies and corruption can flourish.

How do the corrupt enjoy their illicit gains without getting caught? By buying luxury property in the world’s most sought-after cities, like London.

While the UK (77) is the first G20 country to launch a public register of beneficial ownership, a loophole in the law allows foreign companies to purchase real estate anonymously. This is particularly problematic as research shows that over 75 per cent of properties subject to criminal investigations between 2004 and 2015 used offshore anonymous companies to hide their owners’ identities.

The UK government committed to closing this loophole by introducing a register of beneficial ownership for property, but it has yet to be implemented. The necessary legislation has been subject to significant delays. In the meantime, rich businesspeople linked to autocratic regimes are allegedly purchasing property via shell companies, such as billionaire and daughter of former President of Angola, Isabel de Santos.

As the rotating president of the G7, the British Government has the chance to show leadership this year, encouraging major western economies to tackle these flows of dirty money and demonstrate whether integrity is to be one of their shared values.

As a recent example, Commerzialbank Mattersburg (CMB), claimed false profits and reserve funds, with the bank’s founder and long-time CEO suspected of having falsified the books over a period of ten years and for a total of approximately 528 million euros. Banking authorities first received anonymous reports of fraud in 2015, however, auditors and regulatory authorities did not take action until 2020. The case also reflects weaknesses in the Austrian whistleblowing system.

Additionally, Austria continues to grapple with a startling case of grand corruption, the so-called Strache affair. The scandal is currently being investigated in a parliamentary committee of inquiry, after a video of Heinz-Christian Strache, head of the Austrian Freedom Party and future Vice-Chancellor, was leaked in 2019. In the video, Strache expressed his willingness to compromise himself with Russian interests in exchange for political funding, which ultimately led to the collapse of the coalition government.

In Belgium (76), there is little to no enforcement against foreign bribery due to a significant lack of resources. Semlex, the Belgian-based passport company with frequent business in Africa, is currently embroiled in a corruption scandal where it negotiated lucrative deals for expensive passports after bribing government officials. The company’s bad deeds may not stop there: leaked documents suggest that Semlex may have armed former president Gbagbo of Cote d’Ivoire during the 2011 civil war, despite a UN arms embargo at the time.

Estonia (75) has been praised widely for its strong integrity and transparency, especially in relation to other former Soviet countries. While the small Baltic country may fare better than its counterparts, all is not perfect in Tallinn. The Estonian branch of Danske Branch was involved in a money laundering scandal worth billions. Thanks to weak financial supervision, Danske Bank Estonia features in cross-border grand corruption cases like the Azerbaijani Laundromat affair, involving top political elites. Further evidence published as part of the FinCen Files show that Danske Bank Estonia was aware of the scheme and some bankers were involved with taking commissions from clients to participate in it. While financial supervisory authorities identified several issues with the bank, they failed to take adequate measures or coordinate with other supervisory authorities in the EU, raising questions about whether the anti-money laundering supervisory approach was adequate. In January 2021, the government was also rocked by a corruption investigation into one of its coalition parties, which led to the resignation of Prime Minister Jüri Ratas.

Contrary to its CPI score, Iceland (75) and its reputation as a corruption-free country took a nosedive as revelations came to light that incriminated the country’s governing elite and its national companies. For example, the 2008 financial crisis exposed shady banks, the Panama Papers implicated the country’s former Prime Minister and the Fishrot Files revealed how far the country’s biggest fishery would go to extend its business and launder suspicious proceeds. Iceland’s foreign bribery problem is also a big issue. Last month, the OECD published a new report harshly criticizing the country’s enforcement efforts.

In Japan (74), multi-million dollar bribery scandals in the 1970s and 1980s resulted in a national reckoning, where any form of gift-giving is now treated with low tolerance, including the exchange of fruits and vegetables for votes. Despite few other examples of vote-buying in Japan, a recent survey, Global Corruption Barometer – Asia, found that 82 percent of Japanese citizens think government corruption is a big problem. Corruption scandals have marred former Prime Minister Shinzo Abe’s political record and may contribute to citizens’ low opinion of their government’s ability to tackle corruption, where 76 per cent think government performance is poor. In addition, a 2018 report found that Japan has weak rules on company ownership, and unfortunately, not much has changed since. Japan’s track record in combatting foreign bribery is also extremely poor. There is no publicly available data on foreign bribery enforcement in Japan and no central register for information on beneficial ownership of companies and trusts.

While Ireland (72) has had its fair share of corruption-related scandals, the country has addressed some of those risks with relatively strong safeguards against the abuse of political donations and lobbying and introducing whistleblower protection legislation. Nevertheless, some risks have yet to be fully addressed. Proposed legislation aimed at improving ethics in public office was abandoned in 2020 despite recommendations from a corruption tribunal in 2012. Likewise, Ireland has been criticised for not prosecuting any foreign bribery cases and failing to equip its law enforcement agencies with the powers and resources they need to investigate and prosecute cases of domestic corruption.

The United Arab Emirates (71) has been heavily criticized by the Financial Action Task Force (FATF) for its inadequate anti-money laundering framework. The country’s chaotic approach to registering companies makes it incredibly difficult for law enforcement to detect who is behind a suspicious company when thirty-nine different registries operate across the seven Emirates.

The UAE’s booming construction and real estate sector accounts for a fifth of the Emirates’ GDP, but remains vulnerable to money laundering because of complex and opaque ownership structures, making it “an oasis for […] corrupt political elites”. UAE also has weak financial supervision and investigative powers when it comes to cross-border crimes.

Unsurprisingly, due to some of these loopholes, the country has been involved in many recent corruption scandals, including Luanda Leaks in Angola and state capture in South Africa, where the Gupta family stands accused of stealing US$7 billion in government funds, in what has been described as a “modern coup”.

A long-standing hub for money laundering in Latin America, Uruguay (71) has been working on changing its reputation as a haven for dirty money by taking additional steps to combat corruption since 2018. The recent Chavismo Inc. investigation highlighted corruption links between the Venezuelan government and private banks and political elites in Uruguay, with alleged evidence of suspicious bank transactions in connection to money laundering. In addition, corrupt individuals have relied on shell companies incorporated in Uruguay to pay bribes and launder funds across national borders, like in the Lava Jato scandal. Also, a 2017 investigation into the real estate market in São Paulo, Brazil identified thousands of high-end properties owned by companies registered in secrecy jurisdictions and tax havens, including Uruguay.

In France (69), former President Nicolas Sarkozy is currently awaiting a verdict for having allegedly bribed a judge to gain information on yet another campaign finance violation prosecution. While Sarkozy is the first French president tried for corruption, the landmark case is no outlier in French politics.

From the Karachi affair, which was linked to both a suicide bombing that killed 15 and a misappropriation of arms sales that implicated the French Prime Minister Édouard Balladur, to a 2007 campaign finance investigation with connections to former Libyan dictator Muammar Gaddafi, France has plenty of corruption scandals that mix high-level politics, campaign financing and human rights abuses. In fact, many assets linked to corrupt individuals often end up in France.

Bhutan (68) is known for scoring higher on the Gross National Happiness Index than the Gross Domestic Product, making material wealth and growth less of a focus of its politics. The country remains in the lower middle income bracket, with 12 per cent of its population living beneath the poverty line. The government created an anti-corruption commission in 2005, only six years after the country first opened its doors to television broadcasts. A 2017 report found that Bhutan’s anti-corruption commission (ACA) has made positive strides and is the second best out of the six ACAs included in the study. However, the anti-corruption agency fares poorly in accountability and oversight, compared to others in the region.

Chile (67) has strengthened its anti-corruption efforts in the last few years, but still isn’t doing enough when it comes to foreign bribery or beneficial ownership transparency.

In 2019, more than a million Chileans took to the streets in protest to voice their anger over the inequalities marring the country. Trust in political institutions was tested by a series of corruption and tax evasion scandals, and led to the October 2020 referendum where an overwhelming majority voted to rewrite the country’s constitution.

The United States (67) ranks second on the Financial Secrecy Index, sandwiched between the Cayman Islands and Switzerland, and accounts for more than 20 per cent of the global market in offshore financial services. The FinCEN Files also revealed that US$1 trillion in suspicious funds was laundered through US banks, exposing significant gaps in US anti-money laundering rules. Companies paid a record-setting US$2.9 billion to resolve charges that they bribed foreign officials.

On 1 January 2021, Congress passed an historic law, The Corporate Transparency Act, effectively banning anonymous shell companies in the country. This momentous win could pave the way for a new global standard on beneficial ownership transparency. A new US President has highlighted fighting corruption as being key to national security and called for a Summit for Democracy. These efforts hold promise for Transparency International and other NGOs calling for adoption of global beneficial ownership transparency and other key anti-corruption protections at international gatherings, including this year's G20 meetings and the UN General Assembly Special Session against Corruption in June 2021.

Updated on 8 February 2020: An earlier version of this article included a reference to an investigative report about the London properties of a Belarussian businessman with alleged links to President Alexander Lukashenko. We have removed this reference after learning that these links are unproven, and that the original media article upon which this was based had been updated accordingly.