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A country-risk index based on FCPA-related investigations data

As the recent high-level and healthy debate on the FCPA Blog has shown, there are various ways to gather and analyze corruption-risk data at the country level, all of which have respective pros and cons but nevertheless are indispensable in our era of risk-based compliance decision-making.

We’re all fortunate to have several corruption-risk indexes to work from. They originated with Transparency International’s Corruption Perceptions Index in 1995 and now include, among others, TRACE’s Bribery Risk Matrix and the newly launched Corruption Risk Forecast from the European Research Centre for Anti-Corruption and Statebuilding and CIPE.

Apart from existing indexes (which I use constantly), it occurred to me some time ago there’s a way to assess country risk using data about FCPA-related investigations.

My source for the data is FCPA Tracker, a sister site of the FCPA Blog that’s subscription-based.

For methodology, I take five years of company disclosures and agency releases relevant to FCPA-related investigations. I then use FCPA Tracker’s dynamic list of countries mentioned in the disclosures and releases.

I don’t use FCPA enforcement data from the DOJ or SEC. Every corporate FCPA enforcement action is negotiated, and negotiations impact what countries are finally mentioned in charging and settlement documents. For that reason, I think a more accurate picture of where FCPA compliance problems (and potential problems) happen can be gleaned from companies’ disclosures and releases from enforcement agencies.

(The DOJ and SEC generally don’t announce, confirm, or comment on pending FCPA-related investigations, but overseas enforcement agencies such as the UK Serious Fraud Office routinely publish releases about ongoing anti-corruption investigations.)

I include all companies with disclosed FCPA-related investigations since January 1, 2017, and all countries mentioned in the relevant company disclosures and agency releases.

I aggregate the closed and pending investigations. The closed investigations — now 106 overall — are closed because of enforcement actions or declinations or when companies or agencies otherwise say they’re closed. Based on disclosures and releases from companies and agencies, pending FCPA-related investigations stand today at 100.

(For comparison, there have been 63 corporate FCPA enforcement actions since January 1, 2017, versus 206 disclosed FCPA-related investigations.)

From 206 closed and pending investigations, I use data on FCPA Tracker showing what countries are mentioned in company disclosures and agency releases and how often.

Not all companies disclose a country covered by an investigation. Forty-eight of the 206 companies included in the current data don’t. So, the country list comes from about 77 percent of the companies that have disclosed FCPA-related investigations since January 1, 2017.

Overall, the disclosures and releases mention more than 85 countries, according to data from FCPA Tracker.

Based on my methodology, here are some of the countries mentioned at least four times. Although I have omitted countries with fewer than four mentions, they’re compiled from the same data.

Countries mentioned in company disclosures and agency releases about FCPA-related investigations since January 1, 2017

53 mentions

Brazil

37 mentions

China

8 mentions

Mexico

7 mentions

Saudi Arabia

 6 mentions

Angola, India, Iraq, Indonesia, Kazakhstan

5 Mentions

Italy, Malaysia, Peru, Russia, Turkey, South Korea, Ukraine

4 Mentions

Algeria, Libya, Kuwait, Nigeria, South Africa, Syria

——

In its simplest form, the current data means 53 of 206 companies with closed or pending FCPA-related investigations mention Brazil, or about 26 percent.

A slightly more advanced calculation is to subtract from 206 companies the 48 companies that don’t mention any country. That would mean Brazil is mentioned by about 32 percent of the companies that mention one or more countries. China’s percentage is 23.4, and Mexico’s is 5.0.

And so on for more than 85 countries mentioned.

As with any country-risk index, we could debate whether one based solely on data about FCPA-related investigations is predictive and to what degree. Whether it demonstrates accurate prospective risk probabilities could only be determined by backcasting, which I haven’t done.

But at a minimum, the country data derived from five years of both closed and pending FCPA-related investigations shows patterns relevant to risk-based compliance decisions.

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