Using Corruption Perception Index for AML Risk Scoring

June 22, 2020

Transparency International’s Corruption Perceptions Index (CPI) shows Canada is the top ranked country in the Americas.

However, the bad news is that ranking in the annual measurement of corruption has dropped for the last few years

Canada scores a 77/100, a rating that is down to 12th out of 180 countries measured.

While Canada is consistently a top performer, the country dropped four points since last year and seven points since 2012. The index ranks countries out of a score of 100, where 100 is the least corrupt and one is the most corrupt.

U.S. continues downward slide

The U.S. ranks at 69/100, but is 23rd out of 180 countries. The U.S. ranking has also dropped two points since last year to earn its lowest score on the CPI in eight years.

This comes at a time when Americans’ trust in government is at an historic low of 17 per cent, according to the Pew Research Center.

The U.S. score drop is a seven-point slide over the last four years.  Therefore, there are still some challenges and anti-corruption perceptions under the country’s current framework.

Mexico was listed at 29/100, showing some improvement in its annual ranking.

The lowest in the Americas was Venezuela, which only scored 16, which is also one of the bottom five scores globally.

Corruption, democracy and human rights

When you look at the world map in the CPI, it uses colors to chart how well countries are doing in terms of democracy or human rights.

Blue is to show that a country is doing really well. Green also indicates that they are generally doing well. Then, there is the red zone in areas of the highest corruption perceptions. This map shows that no country is in the green or blue color range.

There are many dark reds in Africa, Asia or Latin America, and there are still corruption challenges in Western Europe in Canada, the U.S., Australia, Japan and other countries. No country is free from corruption.

Transparency International says the map also suggests corruption and bribes do not stay within borders.

They say the money that is gained through illegal actions or through bribes does not always stay in those deep red countries.

It often goes to the lighter yellows and orange countries where they are seen as less corrupt, but may be willing to hide the money of the corrupt regimes or countries.

Top countries hold rankings

In the last year, top performers Denmark and New Zealand have held their ranks as the least corrupt countries on the CPI.

When we talk about countries that are at the top of the corruption perception index also being an entryway for illicit funds, we see Switzerland there at No. 6, as it is a well-known secrecy jurisdiction.

Countries at the bottom of the index include Venezuela in the Americas and Syria in the Middle East and the African nations of Yemen, Sudan and Somalia.

Taking a regional view of the corruption perception index, Western Europe and the EU are still amongst the highest ranked regions along with sub-Saharan Africa, and North Africa.

How CPI is calculated

The index ranks 180 countries and territories by their perceived levels of public sector corruption.

The CPI aggregates data from a number of different sources that provide perceptions by business leaders and country experts. The rank the level of corruption in the public sector.

It is a composite index of 13 other indices such as the World Economic Forum, the World Bank, the Economist Intelligence Unit and the Ibrahim Index of African Governance.

For a country to be on the CPI report, it needs to have had at least three of those indices rank them in the past three years.

A country’s CPI score is then calculated as the average of all standardized scores available for that country. Scores are rounded to whole numbers.

How compliance officers can use CPI

The corruption index is also used by compliance officers to help them conduct country risk assessments.

The CPI, along with the Basel AML Index and the TRACE matrix, is among the tools that can help compliance compile and document geographic risk scores for regulators. Remember this index measures “perceived” public sector corruption. It does not measure the private sector.

One of the keys is to keep the risk score as simple as possible and to document the way your model works.  If you use the CPI index, remember its scoring system is the opposite of some others – the higher the score, the lower the risk.

One way around this would be to bucket the CPI from a range of scores into risk level labels, such as high, medium high, medium, low and very low. Determine each country’s risk level based on where their score falls in the range. Then you assign point values to each risk level (i.e. 20 for risky country, 0 for low risk country)

This would allow you to use the CPI risk alongside other indices that measure risk scores differently.

You also need to include the reasons why you chose your methods and what existing models you used in your calculations.

To learn more about how to use CPI and other indices to calculate geographic risk score, watch our recent webinar on Assessing AML Geographic Risk. If you want to speak to a CaseWare RCM Alessa risk specialist about how calculating risk score, click here.

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