Bangladesh (search) and Chad (search) were ranked most corrupt on a global watchdog group's annual list of corruption levels in 159 nations, released Tuesday. At the other end of the scale, Iceland was ranked least corrupt.

Corruption undermines efforts to eradicate poverty, with graft by public officials hampering attempts to raise the living standards of the poor, Transparency International said.

"Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty," said Peter Eigen, chairman of the Berlin-based group.

To form its annual corruption index, Transparency International asked businessmen, academics and public officials about how countries they live in or do business with are perceived.

On a scale of one to 10, Bangladesh and Chad both scored 1.7, meaning that graft is perceived as being rampant. The least corrupt country, Iceland, scored 9.7.

Corruption is a widespread problem in Chad, but difficult to detect in a nation where most civil servants and judicial workers are paid low — and often delayed — salaries.

Human rights organizations and civic groups in Chad say corruption is most widespread in the customs and tax enforcement services, the judiciary and the government procurement office. Legal clerks are known to obstruct procedures to elicit bribes. Tax and customs officials sometimes facilitate tax evasion only to return later to pursue the crimes they facilitated.

There is a perception that most graft goes unpunished in the African country, despite a February 2000 anti-corruption law that spells out penalties. Bribery, for example, is included, but there is no known case of anyone having been prosecuted since the law was enacted.

In Bangladesh, government agencies siphoned off a reported $68 million through corruption last year, with the communications sector the worst offender, the group said.

Government officials and senior bureaucrats were blamed in 72 percent of the cases involving misuse of public funds in the South Asian nation. In terms of bribes and misuse of power, the police department was responsible for nearly 17 percent of money lost, the report said.

Minister for Communications Nazmul Huda dismissed the report, saying "it's not based on truth."

Transparency International chief executive David Nussbaum said many developing countries need reforms in the public sector to ensure that U.N. aid reaches poverty-stricken populations. The United Nations has a goal of halving extreme poverty by 2015.

"Corruption isn't a natural disaster: it is the cold, calculated theft of opportunity from the men, women and children who are least able to protect themselves," he said in a statement. "Leaders must go beyond lip service and make good on their promises to provide the commitment and resources to improve governance, transparency and accountability."

Turkmenistan, Myanmar, Haiti, Nigeria, Equatorial Guinea, the Ivory Coast and Angola joined Chad and Bangladesh as the most corrupt countries, the report said.

After Iceland, the least corrupt were Finland, New Zealand, Denmark, Singapore, Sweden, Switzerland, Norway, Australia and Austria. The United States was ranked 17th.

The watchdog said worsening of corruption levels from last year's survey were recorded in Costa Rica, Gabon, Nepal, Papua New Guinea, Russia, Seychelles, Sri Lanka, Suriname, Trinidad and Tobago and Uruguay.

Improvements were found in Estonia, France, Hong Kong, Japan, Jordan, Kazakhstan, Nigeria, Qatar, Taiwan and Turkey.

Many of the 10 countries that joined the European Union in May 2004 and those involved in the EU accession process have also shown improvements in fighting corruption, indicating sweeping reforms and a new emphasis on making public institutions more accountable, the group said.