This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.
Last week we celebrated one of the great state of Texas’s greatest gifts to the musical world – the red-headed stranger, Willie Nelson, who was born April 29, 1933. Nelson played and sang from an early age and began his career penning songs in Nashville, including Crazy, which was recorded by Patsy Cline and became an international hit. However, his run in Nashville ended by the late 1960s, and he returned to Texas where he reinvented himself and his music into the new monikered “Redneck Rock” subgenre of both rock and country. He became world famous, lost his fortune, recorded a record called The IRS Tapes, with the profits going to the IRS to pay off tax debts and earlier this week, at the ripe of age of 80, was awarded a Black Belt in judo. A true Texas original.
I thought about Willie Nelson when I came across a recent release by the UK company Arachnys Information Services Ltd (Arachnys), entitled Open Data Compass, about their tool designed to help businesses identify “information blind spots and evaluate online access to corporate, litigation and news records from emerging markets.” The Compass, as Arachnys refers to the report, does not measure corruption or the ease of doing business, but instead focuses on “the ease with which investors and businesses can access, reconcile and analyze business-critical data in any given market.” As such, it is a valuable tool for the compliance practitioner to use in a company’s risk analysis in evaluating countries. And, best of all, it is available at no charge.
To create Compass, Arachnys focused on three metrics: (1) size of news industry, which was used because “the media is a rich source of information for everything from macro political and economic trends to specifics and even hearsay pertaining to an entity or individual;” (2) availability of corporate registration and ownership information, because transparency of corporate information is a good sign for good corporate governance; and (3) accessibility of official litigation information, because access to litigation information makes it easier to spot red flags earlier on in the investigation process.
Compass did have some interesting findings. While corruption is still a big problem in Eastern Europe, it was noted, “EU membership or the prospect of accession seems to have sparked significant improvements in the availability of corporate data in particular.” Further, this region’s “investment in online infrastructure to open up official data” has paid off. Unfortunately this positive finding contrasted directly with that of the United States, about which Compass reported, “attempts to push for greater corporate transparency in the United States have mostly floundered. The long-debated Incorporation Transparency and Law Enforcement Assistance Act was recently reintroduced by Senator Carl Levin but is unlikely to be passed. Instead, individual states like Delaware offer companies “internal offshore” arrangements, where the lack of obligation to reveal financial statements, officers or shareholders satisfies companies seeking weak disclosure requirements and further obfuscates the corporate information landscape.” A sad commentary indeed.
Latin America generally received high marks for the openness of data, with the report stating, “the region is defined by strong availability of news and litigation sources.” I also found it interesting that both India and China, countries generally perceived to have high instances of corruption, scored well because, “when it comes to open data, the sources available are comprehensive, accessible and mainly functional.” For the Middle East, defined in Compass as “MENA,” it said, “it seems to be a case of quantity not quality. The majority of the Gulf Cooperation Counsel states have an open, functional and centralized corporate registry, but the actual information available is often lacking in detail. Rather than being repositories of relevant company information, in some GCC states, the portals are little more than investment promotion sites.” Basically in the Middle East, you will still need “boots-on-the-ground” spadework to be able to dig out anything substantive.
For comparison, the report takes a look at several other well-recognized metrics used in anti-bribery/anti-corruption and anti-money laundering (AML). These include comparisons of the Compass rating with the country’s level of development; the Transparency International Corruption Perceptions Index (TI CPI); GDP per capita in each country and the Reporters without Borders Press Freedom score. All of these are useful and interesting comparisons for your consideration. Of course, the report has a full set of rankings.
The report ends with several interesting overall conclusions.
- The trend in emerging markets is positive for increased transparency and openness. This certainly will help in due diligence efforts going forward.
- Even most of the laggards are improving. The reports notes that “countries below this threshold are showing signs of significant progress…and are moving in the right direction with litigation information becoming increasingly more open.”
- Growth and openness to hand-in-hand. Here the report states, “there also seems to be a correlation between economic growth and corporate data openness, suggesting that as countries move toward developed market status their corporate transparency also improves. All of the BRIC countries and their MINT peers score comparatively well, and overall there is also broad correlation between GDP and the Compass scores.”
- International organizations matter. Here the story is the advance of the EU, where “EU membership and economic growth over the last 10 years has grown along with strong corporate transparency.”
Compliance practitioners often grumble that the TI CPI is the only tool available to them. While the Arachnys Open Data Compass does not focus on corruption, it certainly is a useful adjunct to any compliance practitioner whose company might be looking to move into a new region. It gives you a manner in which to access a country and region’s transparency and incorporate it into your overall risk analysis.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at [email protected]
Thomas Fox has practiced law in Houston for 25 years. He is now assisting companies with FCPA compliance, risk management and international transactions.
