Compared to most of the rest of the world, Iceland has a strong reputation as a clean country. In the most recent version of Transparency International’s Corruption Perception Index (CPI), Iceland ranks in 14th place—quite impressive overall, though behind Iceland’s Nordic neighbors Denmark, Finland, Norway, and Sweden. Yet Iceland’s high CPI score obscures a number of incidents over the last several years, where public officials in Iceland were involved in conduct that seems to raise concerns about potential conflicts of interest. Consider a few of the most high-profile examples:

• In 2017, Iceland’s Minister of Justice was criticized in connection with the appointment of judges to the newly-established Court of Appeals. Notably, at least three of the fifteen judges appointed had personal ties to the Minister: one was a partner at a law firm where the Justice Minister had worked prior to her appointment, another was the spouse of a partner at the same law firm, and a third was the spouse of her fellow party member and colleague in parliament (see here and here).
• In 2019, after revelations of allegations that a major Icelandic fishing company had been involved in bribing Namibian government officials (the so-called Fishrot scandal), demonstrators called for the resignation of the Minister of Agriculture and Fisheries. The reason was his connections to the company, where he had once served as chairman of the board, and his longtime personal friendship with the company’s CEO. Indeed, the Minister said publicly that his first reaction to the scandal had been to phone his CEO friend to ask him how he was feeling (see here, here and here).
• In 2022, the Minister of Finance found himself in hot water after it became known that his own father was among a select few allowed to bid for valuable holdings in a state-owned bank (see here and here).
• In December 2022, the Finance Committee of the Parliament proposed adding to the government’s budget a 100 million ISK grant (approximately US$ 727,000) to a media company, whose CEO was the sister-in-law of one of the committee members. (The proposal was promptly withdrawn when this was disclosed.)

To be clear, none of these incidents necessarily involves corruption. But they all raise concerns about potential conflicts of interest, and the appearance of impropriety. And while each of these incidents arose out of its own distinct set of circumstances, there is a common underlying factor that may have contributed to all of them, and that generally poses challenges to effectively preventing corruption and regulating conflicts of interest: Iceland is very small, with a population of only 370,000 people. Although Iceland is in many ways most similar—culturally and politically—to its larger Nordic neighbors, with respect to population size and the distinct anticorruption challenges it presents, Iceland may turn out to share some common features with other small-population jurisdictions, such as Belize, the Bahamas and Vanuatu. Consider some of the ways in which fighting corruption and conflict of interest may be more challenging—or at least pose different sorts of challenges—in very small countries:

• Clientelism and nepotism: Where everyone knows everyone, it may be impossible to avoid close personal and professional ties between government decisionmakers and the stakeholders directly affected by government decisions—ties that would be considered inappropriate in larger countries. For example, those responsible for appointing public officials will, as a rule, have some prior personal relationship to or knowledge of one or more of the applicants. In these circumstances clientelism and nepotism can be endemic—or at least appear to be so (see here and here). To be sure, this is not a problem that is unique to small countries, but it may be much more prevalent in small societies than in countries with much larger populations.
• Informality: Personal familiarity among the parties involved in public decisions can foster a culture of informality. While this can sometimes be an advantage for small societies—leading to more efficiency and flexibility—a lack of strict adherence to formal procedures (for example, procedures requiring transparency, impartiality, and recordkeeping in public decision-making) can easily become a breeding ground for corruption.
• Inhibiting whistleblowing: In small societies, it can be much harder to preserve the anonymity of whistleblowers, because the number of people who might plausibly have provided inside information to law enforcement agencies or media outlets is much smaller.  Moreover, social exclusion, ostracism, and stigmatization—all known side effects of whistleblowing—can more dramatically affect people in smaller communities, where job opportunities are sparse and career development relies heavily on reputation and kinship. Whistleblower protection laws, including laws against retaliation, may not be as effective for protecting whistleblowers from hard-to-prove social punishments.
• Increased difficulties in detecting corruption: Corruption in very small societies may manifest in ways which are more subtle than traditional monetary bribery or embezzlement. In small, tight-knit groups, the currency of quid pro quos tends to be social capital rather than money (see also here and here). For example, the quid pro quo for hiring the relative of a close friend or professional associate is usually not monetary. Rather, it is a similar favor returned in kind at a later date. Social transactions of this kind do not require any money changing hands between the parties. Such transactions, furthermore, maintain and reinforce the informal relationships and networks within which they occur, further enhancing the influence of such networks. This kind of corruption may be harder to detect using traditional methods.  
• Increased difficulties in combating corruption: Corruption within small, tight-knit groups may not only be more difficult to detect but also harder to combat. The social relationships and networks causing the corruption in the first place may also make it more resistant to anticorruption measures, as the institutions tasked with combating corruption may themselves be vulnerable to the corrupting influence of such relationships and networks. This kind of corruption of institutions tasked with combating corruption may, furthermore, be more difficult to detect for the same reasons as outlined earlier.

To be sure, smaller countries are not necessarily, or even usually, more corrupt than larger countries. Indeed, some cross-country research suggests that, after controlling for other factors, a smaller population may be correlated with lower levels of bribery, at least on average. Nevertheless, for the reasons outlined above, very small countries may face distinct challenges when attempting to detect and combat corruption effectively, and such societies may therefore require distinct solutions. If that is correct, the standard playbook for combating corruption may have to be rethought, or at least adjusted to include how best to address the particular kinds of challenges which tend to arise in those rare places where everyone knows everyone. The question of what kinds of adjustments might be needed is the subject of a forthcoming post on that topic.