Anti-corruption compliance guides released by prosecutors from the United States and Britain discuss the importance of assessing country risk to avoid corporate liability for bribery. Unfortunately, judging country risk is a challenge because no valid quantitative measure of national corruption exists.
Organizations like Transparency International (“TI”) have developed statistical proxies -- such as the Corruption Perceptions Index (“CPI”) -- that some lawyers advise clients to use as a measure of corruption. My article Perception is Not Reality: The FCPA, Brazil, and the Mismeasurement of Corruption argues that the CPI is probably biased in ways that make it inappropriate to rely on when assessing country risk.
The heart of my argument is that the aggregation of lots of opinions is still no more than opinion itself. Citizens of some countries may be more inclined to form the opinion that their politicians are corrupt or feel freer to express such sentiments. Businesspeople and other experts may have their own cultural biases that systematically skew opinions about the comparative corruption of nations. As detailed in my article, a growing body of statistical research criticizes tools like the CPI. Even some of TI’s own researchers have admitted that it is not a valid tool for cross-national comparisons of corruption.
Unfortunately, the legal profession has not taken note of the limitations of the CPI. Many lawyers advise their clients to consult the CPI without mentioning its limitations. Admittedly, the CPI has some facile appeal -- since the perception that North Korea is a more corrupt business environment than Sweden probably has some basis in reality. However, there is also good reason to suspect that there may be some disjuncture between corruption perceptions and reality. Perceptual biases that influence corruption perception may be particularly salient when thinking about Brazil, among other countries. Furthermore, statistical proxies for corruption that are less popular among lawyers contradict the perception of Brazil as a nation with extremely high corruption.
This issue is especially troubling since much scholarly criticism of the FCPA has argued that it may produce economic distortion -- driving investment away from countries where the risk of corruption is thought to be high. This is unfair to these countries, which tend to be poorer.
My research also suggests that lawyers who promote the use of the CPI by their clients may create an unjustified fear of otherwise attractive business opportunities in developing countries like Brazil. My research suggests that when lawyers are called upon to help corporations calibrate anti-corruption compliance programs to the risks faced in different nations -- they should not advise credulous use of tools like the CPI.
Diligent cross-national risk evaluation requires attorneys and businesspeople to understand the limitations of tools like the CPI and to critically compare such data to other kinds of corruption statistics. A qualitative analysis of the challenges that may be posed by different national legal systems and cultures is also likely to be appropriate.
I hope that my research contributes to the ongoing dialogue about the economic effects of the FCPA and that my article may be useful to lawyers seeking to understand the risks their clients encounter when doing business abroad.
Stuart Vincent Campbell (pictured above) expects to graduate with honors from the University of Minnesota Law School in May 2013. He is professionally proficient in both Portuguese and Spanish and has studied at Pontificia Universidade Católica in São Paulo, Brazil. He is currently clerking at the Washington County Attorney’s Office in Stillwater, Minnesota where his work focuses on white-collar crime and civil disputes. The views expressed in this article are those of the author alone and should not be attributed to any organization with which he is affiliated.