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Investors Are Wary Of "Corrupt" Countries; Some Asian Nations Score Poorly - Study
Tom Burroughes
21 October 2015
Corruption continues to put investors off entering certain markets and imposes costs on honest firms trying to compete against those who use bribes, according to a survey of clear relevance to private bankers and wealth managers. Among some of the concerning results of the report was the finding that 58 per cent of respondents have procedures in place for due diligence assessments of third parties: this includes 57 per cent of the Singaporean companies, but only 29 per cent of Indonesian companies. Also a cause for concern is how fear of negative consequences was a reason for not deterring corrupt behaviour. On the list of eight deterrents to corruption, in sixth place are company performance criteria that emphasise integrity (along with financial targets).
, the business risk consultancy, yesterday issued its annual survey of business attitudes to corruption, taking responses from 824 companies. Among its findings were that 30 per cent of respondents said they lost out on deals to corrupt rivals and this figure was particularly high in Indonesia, at 42 per cent; it was only 14 per cent for Australian firms. Globally, 30 per cent of those surveyed said they have avoided doing business in some countries because of corruption. Some 41 per cent of respondents said the risk of corruption was the primary reason they pulled out of a deal on which they had already spent time and money.
While domestic and international bodies are seeking to crack down on corruption, it remains a major problem in parts of the world, such as Asia. In Malaysia, for example, the country has been embroiled in a scandal over 1Malaysia Development Berhad, or 1MDB. The state-run fund, which was founded by Malaysia's prime minister, Najib Razak, has amassed $11 billion in debt. Controversy over Najib’s involvement with the fund has turned the matter into a major scandal in the country. Reports describe it as the largest-ever corruption scandal in Malaysia. It has been reported that Malaysian investigators tracked down movements of hundreds of millions of dollars into what they thought were Najib’s personal bank accounts.
The level of transparency – or lack thereof – in how countries are run and their levels of corruption is increasingly tracked and monitored. The organisation Transparency International, for example, issues an annual Corruption Perceptions Index. Its latest index for 2014 put Denmark as the least corrupt, with New Zealand ranked in second spot, Switzerland in fifth, Singapore in seventh, Australia in 11th and the UK in 14th. Countries are ranked on a scale of 0 (very corrupt) to 100 (clean). Denmark achieved a score of 92. According to the World Economic Forum, corruption globally costs around $2.6 trillion, equal to 5 per cent of global gross domestic product.
Elsewhere in the Control Risks survey, signs of progress were on show: 81 per cent of respondents said international anti-corruption laws such as the US Foreign Corrupt Practices Act “improve the business environment for everyone”. This view was shared by 80 per cent of respondents in India, and 79 per cent of those in Indonesia, despite their countries’ relatively high levels of corruption.
Companies are now more willing to challenge when faced with suspected corruption. Some 27 per cent of companies said they would complain to a contract awarder if they felt they had lost out due to corruption, compared to just 8 per cent of respondents in 2006. In 2006, only 6.5 per cent of respondents said they would appeal to law-enforcement authorities, compared with 19 per cent in 2015, with 24 per cent of respondents now saying they would try to gather evidence for legal action.