Separation of powers under attack in 45 countries

The independence of law courts around the world is coming under increasing threat from governments willing to eschew the separation of powers in favour of a politicised judiciary. Our Judicial Independence Index has identified growing government interference in the legal systems of 45 countries since 2017, a trend which is undermining the rights of citizens and comes at the expense of a level playing field for businesses.

Significant increases in the risk to the independence of the judiciary have been witnessed across all continents, but the situation has deteriorated most rapidly in Poland, Venezuela, China, the Czech Republic and Russia, as shown in Figure 1.

Declining judicial independence is a cross-cutting risk. Firstly, it threatens the fair application of commercial regulations and the maintenance of a healthy, competitive business environment. For companies operating in ‘high’ risk countries this could mean a lack of recourse in the event of contract renegotiations, or the expropriation of property; or even unfair legal sanctions from host governments imposed to punish perceived slights or to achieve geopolitical aims. Secondly, it undermines the protection of human rights by enabling states to target political opposition groups, activists and journalists with legal penalties, and removes access to remedy and justice for victims of violations.

Threats to judicial independence seen across all political regime types

In the latest iteration of the Judicial Independence Index, which assesses the separation of powers, appointments of judges, and improper influence in legal rulings, the 10 highest risk countries primarily feature authoritarian states (see Figure 2). These include North Korea (ranked 1st of the 198 assessed), Cuba, Laos and, perhaps most significantly, China, which has replaced Iran as the third riskiest country globally in 2021.

Concerningly, rising threats to judicial independence have been witnessed across all regime types. The data identifies negative trends in traditional authoritarian countries, such as China and Russia, as well as in semi-consolidated democracies like Poland, and even consolidated democracies such as the Czech Republic and Switzerland (see Figure 3).

For authoritarian countries, such as Russia and China, the decline points to a consolidation of power by political leaders. Russia’s poor performance was exacerbated in August 2020 by the introduction of a legal modification that gave the president authority to request the termination of judges’ tenures – placing foreign businesses, NGOs and opposition activists at the mercy of politically biased courts and prompting Russia’s drop from 44^th to 15^th on the global ranking. The detention of US investor Michael Calvey following a trial regarded as deficient by international standards is perhaps the most prominent example of the consequences this can have for business and investors.

Rather than a single event, the independence of courts in China has been consistently ground down since a 2018 constitutional amendment that saw the Chinese Communist Party (CCP) strengthen its already tight grip on the judiciary. Although the Chinese constitution still technically mandates that the courts should be independent, judges are expected to align with and submit to the Party’s dictates. This ensures that the legal system remains firmly subservient to the CCP and leaves businesses in a precarious position if they do not toe Beijing’s political line.

China has also eroded judicial independence in Hong Kong to tighten its hold over the special administrative region. The National Security Law that Beijing imposed on Hong Kong in June 2020 drastically increased the mainland authorities’ control over judicial proceedings in the territory, which explains Hong Kong’s severe drop in the index in 2021.

The forced shuttering and seizure of assets from pro-democracy newspaper Apple Daily was an example of the hot water investors could find themselves in under the auspices of Hong Kong’s National Security Law. In addition, hundreds of members of Hong Kong’s pro-democracy movement have been arrested on national security grounds, underscoring the human right risks that a lack of judicial independence creates.

Democracies, though still robust, also experience deterioration

More surprisingly, while democratic states on the whole remain sturdy, some have seen their judicial independence scores drop. Poland, a fragile and backsliding democracy, has witnessed the steepest decline in judicial independence of any country in the last four years, dropping from 118^th to 61^st in the global ranking, overtaking Hungary as the worst performing country in the EU.

Since 2018, the ruling Law and Justice party’s judicial reforms have heightened the risk of political intervention in the selection and dismissal of judges. The reforms have been denounced as illegal by the EU Court of Justice and driven Brussels’ recent decision to withhold energy transition funds from Poland. Moves such as the politicised targeting of foreign-owned media companies, most notably TVN24, are indicative of negative shifts across a whole range of political and human rights indicators in Poland, as shown in Figure 4.

In established democracies, the decline is driven primarily by ties between business and politics, where judicial independence is challenged in an attempt to protect politically important corporate interests.

In Switzerland, which fell from 160^th to 128^th in the global ranking, the separation of powers is fragile as judges on its top court are elected by their political party. In 2019, the Swiss Peoples’ Party endangered judicial independence when it threatened not to re-elect Yves Donzallaz for voting against the party line on the release of UBS data to French authorities for a tax evasion case. Although Donallaz was re-elected in 2020 in a move widely perceived as an endorsement of judicial independence, the event reflects the Swiss system’s potential to backslide on separation of powers.

Likewise, in the Czech Republic, which is ranked 135^th, down from 180^th in 2017, Prime Minister Andrej Babis has threatened judicial independence in the fight to protect his personal assets. The country’s justice minister was swiftly replaced when the police launched fraud investigations against the PM in 2019.

Companies must remain vigilant in the global business environment

Threats to the independence of the courts come at the expense of checks and balances that remain vital to the rights of citizens and the interests of the business community.

Motivations for eroding the separation of powers may vary across different countries, but the results for societies are broadly the same. As judicial independence comes under threat, so too do the predictable freedoms of those who are not aligned with the stance of the state, including opposition activists, reporters, political figures and judges. Companies on the wrong side of the political or geopolitical fence in ‘high’ risk countries will certainly be at a disadvantage, while deteriorating human rights conditions pose real risks to the operating environment and the ESG profiles of companies deemed to be working alongside the worst performing governments.