What you need to know
- Australia's score in Transparency International's annual Corruption Perceptions Index (2022) increased by two points (75 out of 100), placing it 13th out of 180 surveyed countries and territories.
- While Australia's score evidences some improvement from last year, further action is needed to regain its historic best ranking and score (7th of the surveyed countries and a score of 85 out of 100 in 2012). Transparency International Australia (TIA) has suggested this action should include reforms to Australia's whistleblower and lobbying laws, facilitating greater transparency around political donations, and enhancing anti-money laundering laws.
What you need to do
- Australian businesses may encounter expectations of increased due diligence or protective covenants in transactions, including in relation to the areas of suggested improvement identified by TIA. They should ensure that they have effective compliance systems and controls in place to monitor, prevent, and detect corruption.
What is the Corruption Perceptions Index?
Transparency International recently released its annual Corruption Perceptions Index (CPI) for 2022. The CPI ranks 180 countries based on their 'perceived level of public-sector corruption' according to independent experts and business people.
These countries are scored between 0 to 100, with 0 being highly corrupt and 100 being very clean, and are ranked by their score.
While these 'perceptions' are assessed on public-sector corruption, the CPI ranking is frequently used by both public and private sector organisations worldwide to assess bribery and corruption risks in a country, and the due diligence that may be required when engaging with third parties in that country.
Australia's performance in the CPI (2022)
Australia scored 75 out of 100 in the 2022 CPI, ranking Australia 13th in the world. This is an improvement to Australia's performance in the CPI (2021) where Australia received its lowest ever score (73 out of 100), and was placed 18th in the world.
TIA and other commentators have attributed Australia's improvement, in part, to the creation of the National Anti-Corruption Commission (the NACC). The NACC is scheduled to commence operation in mid-2023. You can read more about the NACC's responsibilities and powers in our publications here and here.
While Australia's score indicates that Australia is 'turning a corner', further reform is required to return Australia's ranking back to its historic highest score (85 out of 100 in 2012). TIA has expressed the view that the federal government should focus its attention on the following areas:
- Whistleblower reform. TIA has criticised Australia's whistleblower laws as overly complex, 'full of loopholes', and not providing practical support to whistleblowers.
In November 2022, the federal government announced a two stage plan to improve Australia's whistleblower framework. The first stage involves amendments to the Public Interest Disclosure Act 2013 (Cth), intended to improve overall whistleblower protections in the Commonwealth public sector (e.g. by expanding reprisal protection to individuals who 'could make' a disclosure), and providing greater flexibility to agencies in deciding how they address disclosures). A Bill to implement these amendments is currently before the Senate Legal and Constitutional Affairs Committee, which is due to report on the Bill in March 2023.
The second stage of the reform, intended to commence after that Bill is passed, includes public consultation on further improvements needed to address the complexity of the current whistleblower framework, and whether Australia needs a standalone whistleblower protection authority or commissioner.
- Improving anti-money laundering laws. TIA and others have advocated for enhancements to Australia's anti-money laundering laws, arguing that Australia continues to be viewed as a destination for 'dirty money', particularly through casinos, poker machines, and real estate. The federal government indicated AML/CTF laws as an intended target for legislative reform in its 2022 pre-election campaign. However the scope and timing of any ensuing legislative change is as yet unclear, and it remains the case that Australia is one of the few member countries of the Financial Action Task Force (FATF) yet to implement FATF recommendations regarding regulation of non-financial 'gatekeeper' professions such as real estate agents, accountants and lawyers.
There has been industry specific change (and mooted change) in certain states, with amendments to regulation of casinos, and proposed reform of regulation of poker machines in New South Wales.
- Increasing transparency on political donations. TIA has called for greater transparency regarding campaign donations, after Australian Electoral Commission data for FY21-22 noted significant donations from high risk sectors including the gaming sector and mining, and a high incidence of 'dark money'. The Joint Standing Committee on Electoral Matters' current inquiry into the 2022 federal election has among its terms of reference whether there should be reforms to Australia's political donation laws, foreshadowing potential future reform. The reporting date for that inquiry has not yet been published.
- Greater lobbying reform. TIA and other commentators have called for greater transparency in relation to lobbying of government and increased oversight over movement of personnel between the private sector and the government.
While lobbying regulation at a federal level is limited, greater regulation has been implemented at a State level. In NSW, the Integrity Legislation Amendment Act 2022 (NSW) commenced on 28 November 2022 and enables regulations for a broader range of disclosures from members of parliament. In Queensland, the Integrity and Other Legislation Amendment Bill 2022 (Qld) was assented to on 12 December 2022 and will prohibit unregistered lobbyists from engaging in specified conduct (e.g. carrying out a lobbying activity for a third party client).
Global results in CPI 2022
The global average score this year remained at 43 out of 100, and 68% of surveyed countries scored below 50. The CPI data reports that over the past five years, eight countries have significantly improved their scores, scores for 10 countries have significantly dropped, and the scores of 162 countries have remained static. Notably, the United Kingdom (currently 73) and Canada (currently 74) each declined by seven points during this period.
This year's top performers were Denmark (90), Finland (87), New Zealand (87), and Norway (84). The lowest performers were Somalia (12), Syria (13), South Sudan (13), and Venezuela (14).
The CPI scores of Australia's largest trade partners for imports and exports remained generally stagnant between 2021 to 2022: China (45); Japan (73); South Korea (63); India (40); and US (69).
Implication of Australia's ranking for businesses
While the CPI is based on perception, its scores and rankings provide an indicative (and influential) measure for businesses when assessing corruption risks associated with any given surveyed country. Although Australia is still considered a 'clean' jurisdiction, its overall average rating decline since 2012, and the 'areas for improvement' advocated by TIA, might manifest in transaction counterparties seeking enhanced due diligence or more stringent protective covenants from Australian entities, to counteract any additional perceived corruption risk.
The publication of the CPI is a timely reminder for businesses to assess and, where necessary, update their systems and controls to accommodate for changes in the corruption landscape.
Authors: Rani John, Partner; James Clarke, Partner; and Luke Thiagarajah, Lawyer.