New Zealand still ranks ‘King of the Castle’ in Oceania but faces corruption risks

By Calvin London
Founder & Principal Consultant
The Compliance Concierge

The latest Corruption Perceptions Index (CPI) scores for 2023 shows New Zealand (NZ) once again has a stellar record when it comes to corruption. New Zealand again continues to rank among the least corrupt countries in the world and leads the Oceania region. For the second year, its CPI ranking dropped. Will this dominance persist, and what are the challenges to the perception of corruption in NZ compared to its Oceanic neighbours?

An article published here last year touched on three likely causes of corruption in NZ. This follow-up article takes a closer look at these three factors - organised international crime, government control and facilitation payments, and unchecked money laundering – in the broader Oceanic region and whether they will contribute to the further decline in NZ’s once stellar CPI.

Corruption in Oceanic Countries:

The CPI for the last four years shows the Oceanic region has been stagnant. The region ranks highly compared to other countries neighbouring the region, due to the influence of Australia and New Zealand (Table 1).

CPI data is generated only for countries included in at least three of the CPI component indexes. Several of the Oceanic countries, including French Polynesia, Tonga, Cook Islands, and Samoa, do not meet these criteria.

Table 1: CPI scores and country ranking for Oceanic (yellow) and notable Asia Pacific countries for the last four years. Numbers represent the ranking position of 180 countries surveyed with Country Score.
Table 1: CPI scores and country ranking for Oceanic (yellow) and notable Asia Pacific countries for the last four years. Numbers represent the ranking position of 180 countries surveyed (and the country score out of 100)

CPI country scores are based on a combined normalised component index where 0 is considered highly corrupt compared to 100, which is very clean.

For the six Oceania countries included in the CPI, five dropped in ranking with only Vanuatu improving compared to the rest of the world.

The worrying trend for the region is that Australia and NZ dropped from the previous year and are trending downward. There are indications Australia is on a steady path of improvement due to recent anti-corruption reforms. NZ on the other hand has been on a slight but steady decline since holding the number 1 position in 2021, which some experts attribute to a lack of confidence in government trade, taxation, and contracting.

High CPI marks only reflect that a country is perceived to have low levels of corruption in its public sector. Top-scoring countries have well-functioning justice systems, stricter rule of law, and political stability. Ironically, all of this has made these seemingly “clean” countries attractive to corrupt officials worldwide when choosing where to launder and invest their ill-gotten gains for safekeeping.

Although the Transparency International CPI is one of the primary references for the perception of corruption, other organisations provide alternate data on corruption, for example the Global Corruption Index (GCI).

The Global Corruption Index evaluates 196 countries based on 43 criteria from 11 international entities. The latest report (2023) ranks NZ as top for Oceania, with Australia and Tuvalu in the top 25%. Tonga and Papua New Guinea are the bottom countries (Table 2). As for the previous year, no country in Oceania is considered extremely risky regarding corruption and white-collar crimes.

In broad strokes, the GCI is consistent with the CPI.

GCI scores and country ranking for Oceanic (and Asia Pacific countries of note) for 2022. Numbers represent a score out of 100 and a ranking position of 196 countries surveyed
Table 2: GCI scores and country ranking for Oceanic (and Asia Pacific countries of note) for 2022. Numbers represent a score out of 100 and a ranking position of 196 countries surveyed

New Zealand corruption threats

Although the CPI and GCI assess corruption from different aspects, the analysis over the last few years indicates the domination of NZ as a ‘clean’ country and the relative stability of the Oceanic countries in terms of corruption. While there is no reason to suspect this domination will not continue, NZ should not become complacent about corruption.

The concern for Oceanic countries, especially NZ and Australia is the potential complacency that ‘it will not occur here’. With 71% of Asia Pacific countries scoring below both the regional and global average score, the flow-on effects of weak anti-corruption agendas, organised crime, and suppression of public liberties to speak up could significantly impact NZ’s CPI position.

The Threat of Transnational Crime and Corruption

Changes may not come from within the country but from transnational and organised crime from and through its neighbours in Oceania and Asia Pacific. In some top-ranking countries, evidence has shown that governments can have a weak defence and a low resilience against international organised crime that allows crime and corruption to penetrate their borders (often in ways not commonly recognised as crime).

The Transparency International 2023 CPI summary report stated, ‘Many cross-border corruption cases have involved companies from top-scoring countries that resort to bribery when doing business abroad. Others have implicated professionals who sell secrecy or otherwise enable foreign corrupt officials. And yet, top-scoring countries often fail to go after perpetrators of transnational corruption and their enablers.

Overall, GCI criminality scores for the region were significantly lower than the global average. Traditionally the remoteness of the region quarantines many Oceanic countries from the typical routes of organised crime.

Australia and more recently, NZ have become attractive markets for organised crime activities such as illicit drugs. Changes to the way such drugs are moved across the Pacific by crime syndicates from Asia, as well as Mexican and South American drug cartels, increases connectivity to other Oceanic countries such as Tonga, Samoa, and Fiji as sites of production as well as consumer markets.

This is amplified by the effects of criminal deportees who have been returned to their original island countries. For countries like these, the low resilience, low criminality ranking is not so much an anomaly, but rather a function of how they have been largely bypassed by organised crime.

The CPI does not measure the ability of countries such as NZ to meet the challenges of increasingly globalised, organisational crime. An increasing need for natural resources such as fish and forestry products will add to the attractiveness of these countries for illicit business, as is evident from the increase in illegal fishing in Australian waters for products such as shark fin.

Australia and NZ’s help and guidance to maintain law enforcement capacities throughout the region will be crucial if organised crime in Oceania is to be kept in check while the demand for natural and illicit resources grows.

Political Influences in Oceania on New Zealand

The Pacific region and, by default, the Oceanic region have once again been identified for their stagnation on addressing corruption across several countries. Australia’s change in government has resulted in the introduction of a National Anti-corruption Commission, and this government has embarked on changes to public sector whistleblower protections. This puts pressure on NZ to lead the region in political reform to control corruption.

It will be interesting to see if a change in government in Fiji, will also result in positive reform.

In the Solomon Islands, Papua New Guinea, and Vanuatu, the very sections of government that should be leading the anti-corruption charge are themselves among the most corrupt. The ability of these governments to bring about the required reform against corruption, let alone in a timely manner, is questionable when reports identify that many voters are routinely offered bribes.

NZ offers the opportunity for unchecked illicit funds to challenge a democratic process of election. Rather than lead the way – a position reflective of its top CPI position – it is yet to introduce solid parameters for election funding disclosures.

Facilitation payments are bribery

Facilitation payments or ‘grease’ payments - small payments made to a foreign public official to speed up routine actions to which the payer is already entitled – are permitted in NZ. Global evidence shows that such payments are an open invitation to corruption as proving a ‘small payment’ and ‘routine action’ that defines the facilitation payment often makes them indistinguishable from a bribe.

International trade in NZ (like Australia and every other Pacific Island country) depends on products entering and leaving the country, and it seems obvious that such payments could only facilitate corruption.

The sectors in Oceanic countries that are most vulnerable to corruption are natural resources (mineral and petroleum extraction industries, forestry, and fisheries), public administration and services (police, customs, land, and titles administration), overseas development aid, and offshore banking, all of which lend themselves as targets for illicit facilitation payments. Several of these sectors have already been implemented in money laundering and transnational crime.

Unchecked Money Laundering

Various money laundering techniques have been identified in Pacific countries, ranging from cash smuggling, wire transfers, structured cash deposits, and remittances. An increasing presence of criminal gangs in these countries, including through familial connections, are major contributors to money laundering. These gangs and their connections provide an optimal setting for moving illicit funds in and out of the region. Some countries have also been used as tax havens to hide illegal funds.

NZ has been identified as an enabler (primarily through lawyers) of corporation registration for the Democratic Republic of the Congo (end client jurisdiction) and affiliations with Monaco. Seemingly ‘clean’ countries such as NZ are enabling or even fuelling cross-border corruption, even if it may originate from other places further down the CPI table.

The Pandora Papers investigations showed the scale of the persistent problem. The investigations showed that foreign businesspeople and politicians (facing corruption charges in their own countries) exploited the loose NZ trust structure, identifying 88 trusts opened to obscure identities when executing financial transactions.

Funds funnelled anonymously across borders were often used to buy hot property in countries like Australia and the United Kingdom. NZ’s involvement was a wake-up call for the country as a potential threat to its offshore industry and country integrity. The Pandora Papers also highlighted the involvement of close Pacific neighbours primarily through Singapore and Hong Kong.

The future for NZ and the worrying signs

NZ has ratified several important international anti-corruption conventions, such as the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the United Nations Convention against Corruption. The country continues its mission to disrupt and deter serious fraud and corruption through sections like the Serious Fraud Office. Its success will depend on cooperation from the government.

Key threats associated with bribery and corruption have been identified in the 2023 National Security Intelligence Priorities (NSIPs).

These include transboundary threats, the resilience of Pacific infrastructure, natural resource exploitation, and several other key areas of focus associated with transnational serious and organised crime.

The Oceanic region and the broader Asia Pacific region pose unique challenges for transnational crimes of drug trafficking, human trafficking, environmental crime, small arms trafficking, and money laundering as examples. The geographical location of island territories and nations, along with poorly defined jurisdictional boundaries, differences in governance, laws, law enforcement, criminal justice structure, and different approaches in Oceania, complicate efforts to curb corruption.

Countries in Oceania will naturally look to the ‘king’ for guidance and direction on how to stay clean in terms of corruption. NZ must accelerate its anti-corruption initiatives to avoid the progressive but noticeable downturn seen by countries such as Australia before they started to implement change.

Complacency is the cancer of corruption. Staying on top of the CPI requires a proactive response, especially in the face of increased organisational crime that links to government regulation and the current and future threats to New Zealand’s corruption perception. Hesitation and procrastination open the door for organised crime and once established, it isn't easy to control and will indeed have an impact on the perception of the CPI.

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