Transparency International's recently-published Corruption Perceptions Index, used by compliance officers and money-laundering-reporting officers (MLROs) at private banks worldwide to determine country risk, shows that corruption levels remain alarmingly high in many countries.

The Corruption Perceptions Index, first released in 1995, scores and ranks countries around the world according to levels of corruption in their public sectors. Transparency International draws data from the views of experts and surveys of business people, not from the general public. The data – collected from last year and published at the end of last month – comes from 13 different external data sets which TI does not produce itself. These include the World Bank and the World Economic Forum, as well as data from private risk-and-consulting companies and think tanks.

The CPI results are comparable across time back to 2012. The data sources all measure various aspects of public-sector corruption such as bribery and diversions of public funds for nefarious purposes. They also gauge the efficacy of prosecutions, the adequacy of anti-bribery and corruption (ABC) legal regimes, access to information and legal protection for whistleblowers, journalists and investigators.

Financial crime officers, money-laundering reporting officers (MLROs), compliance officers at private banks and fund firms worldwide are responsible for ABC – except in the US, where President Donald Trump has suspended the legal force of the Foreign Corrupt Practices Act 1977. On 10 February the White House announced that the Attorney General was not going to initiate any new FCPA investigations or enforcement actions, unless he wanted to make an exception. Only in one lonely case – that of Gordon Coburn and Steven Schwartz, the former president and chief legal officer of Cognizant Technology Solutions – is a new prosecution going ahead, with jury selection reportedly beginning in April. The duo allegedly authorised bribes in India.

The tone at the top
Small Nordic and European states usually dominate the top spots on the index as the least corrupt states worldwide, with little change from one year to the next. This is indeed the case here. Denmark and Finland remain first and second respectively, Singapore has moved up from 5 to 3, New Zealand has slipped from 3 to 4 and Luxembourg has risen from ninth place to number 5, a spot that it shares this year with Norway and Switzerland, which last year occupied fourth and sixth place respectively. The rest of the top 20 consist of Sweden (8), Holland (9), Australia, Iceland and Ireland (all at 10), Estonia and Uruguay (13), Canada and Germany (joint 15), Hong Kong (17), Bhutan and the Seychelles (both 18), and Japan and the UK at 20.

Some movement offshore    
Offshore states, or states whose financial centres contain strong offshore components, have had mixed results. This year's positions are, in descending order: Singapore (3); Luxembourg (5); Switzerland (5); Ireland (10); Hong Kong (17); the Seychelles (18); the UAE (23); the Bahamas (28); Cyprus (46); Bahrain (53); Malta (55); Mauritius (56); and Panama (114). Their relative positions last year were: Singapore (5); Switzerland (6); Luxembourg (9); Ireland (11); Hong Kong (14); the Seychelles (20); the UAE (26); the Bahamas (30); Cyprus (49); Malta (55); Mauritius (55); Bahrain (76); and Panama (108). Panama's fortunes on the index have declined more or less steadily since 2015, when it occupied position number 72.

Surprisingly, given its recent turbulent history, Hong Kong has not declined from the spot that it held 10 years ago. Such is its reputation for probity that it is still attracting HNW investment on an enormous scale, with UBS chief executive Sergio Ermotti warning recently that it might overtake Switzerland as the world's top wealth management hub. According to a report from KPMG towards the end of last year, far fewer firms in Hong Kong have regulatory problems than in the previous year, and financial talent is pouring in from abroad. Growth in the number of family offices and private trust businesses in Hong Kong has been remarkable, with a 76 per cent increase in AuM over the past six years.

Lower down the list     
Bringing up the rear on the index are the failed states, or states going through profound times of trouble. South Sudan is at the bottom in place (180). Somalia (179), Venezuela (178), Syria (177), Yemen (173) and Libya (173) lie just above it.

Between the middle and the bottom, Ukraine was at 116 in 2022, the year in which Russia invaded it; it has now risen to 105. Russia, in the meantime, has fallen from 137 to 154.

Reprieve for Delaware?     
On 2 March, the US Treasury announced that it was not going to enforce any penalties or fines in accordance with the Corporate Transparency Act 2020, which went into effect on 1 January 2024. The Act requires certain entities in the United States to report information about their beneficial owners to the Treasury’s Financial Crimes Enforcement Network (FinCEN). A beneficial owner for these purposes is an individual who, directly or indirectly, owns or controls 25 per cent more of the equity interests in a company or who exercises substantial control over the company in other ways. The CTA defines ‘substantial control’ broadly to include anyone who wields significant influence over corporate management or decision-making processes.

Transparency International has expressed alarm at this development, stating that it will “reopen the US financial system to abuse by money launderers and corrupt officials from around the world.”

The Treasury has indicated that, after an appropriate rule change, it will only require foreign companies to do any reporting, to the benefit of US businesses. Nobody yet knows what will happen to information that firms have already sent off to FinCEN about the beneficial owners of US companies.

In 2021, the International Consortium of Investigative Journalists (ICIJ), based in Washington DC, published the Pandora Papers – 2.94 terabytes of data which unmasked the hidden owners of offshore companies, secret bank accounts, private jets, yachts, mansions and artworks. The papers contained details of 330 politicians’ financial affairs. Delaware, as expected, contained many (35) of the specified HNW trusts, but was not the most mentioned. That honour went to South Dakota (81), whose trust laws, according to the ICIJ, were bewilderingly opaque and intermittently enforced. Florida came second with 37. Texas and Nevada came fourth and fifth with 24 and 14 respectively. The Corporate Transparency Act's definition of a beneficial owner who must be reported includes not only the beneficial owner(s) of a trust that is a reporting company, but also the beneficial owner(s) of a reporting company that is owned or controlled by a trust.

HNW customers' assets in South Dakota trusts more than quadrupled over the 10 years before 2021 to reach $360 billion.

The Panama Papers of 2016 were the first of the ICIJ's controversial offshore data dumps. They contained 2.6 terabytes – almost as much as the data from 2021 – and the Paradise Papers of 2017 contained 1.4.

Or punishment for Delaware?    
Unless President Trump reverses his decision, it might lead to the US being found non-compliant with relevant global anti-money-laundering and counter-terrorist-finance standards that the Financial Action Task Force (FATF) has set for the whole world to meet. According to some new criteria, the FATF will now prioritise jurisdictions with large financial sectors – presumably the Group of Seven industrialised nations, among others – when drawing up its so-called ‘grey list’ of countries with strategic deficiencies.

Greylisting by the FATF can have severe reputational and economic consequences for a targeted jurisdiction, although it is a moot point whether the global standard-setter will have the nerve to penalise the world’s foremost superpower which has dominated the main pillars of its own policy ever since its inception in 1989. No nation can wriggle off a grey list without an internationally-approved action plan.

The task force intends to earmark jurisdictions for active review if they are FATF members (most nations are), or on the World Bank High-Income Countries list, or countries with financial-sector assets above $10 billion.

Greylisting occurs when the FATF places a deficient jurisdiction under ‘increased monitoring,’ the next stage being blacklisting, in which it calls on its member-states to impose ‘enhanced due diligence’ or EDD and/or ‘countermeasures’ (penalties) on HNWs/entities from the nation in question. Countermeasures can involve a refusal of correspondent accounts to HNWs from that state, restrictions of investment opportunities, bans on the establishment of branches by private banks and bans on any reliance on third parties located in the host country to conduct ‘due diligence’ (verification of various pieces of information) on behalf of incoming private banks and customers. The FATF will evaluate the US in 2026.

The ABC of ESG   
Wealth managers who handle their clients' ESG (environmental, social and governance-related) investments ought to note that most countries that are highly vulnerable to climate change lie in the bottom two-thirds of the Transparency International index, under the fifty-ninth place out of a total of 180. Recent TI research, however, has revealed that corruption is undermining a just transition to net zero in nations as high up on the list as South Africa (41), Vietnam (40) and Indonesia (37). In South Africa, more than $56 million is stolen each month from Eskom, the state-owned energy provider, according to its former chief executive.

The international watchdog says that huge numbers of people are at needless risk because corruption is impairing climate projects that are meant to protect them. Countries that suffer the worst effects of the climate crisis are at the bottom of the index, including South Sudan, Somalia and Venezuela.