APH Investment ..., Serious Problems Snapshot
Corruption is a serious obstacle for companies operating or planning to invest in Colombia. Corruption permeates several sectors of the Colombian economy. The same applies to the public administration, where corruption cases in the high echelons are as big an obstacle for a transparent and efficient administration as they are for a competitive investment climate. The large networks of clientelism are particularly manifested in the public contracting sector. The Colombian Penal Code and the Anti-Corruption Act criminalize several forms of corruption including active and passive bribery, extortion, abuse of office and the bribery of foreign officials. Gifts and facilitation payments are also prohibited under Colombian laws. Nonetheless, these practices are widespread. The government generally implemented anti-corruption laws effectively, despite some instances of official impunity being reported.
Last updated: August 2018
Judiciary
Businesses contend with high corruption risks when dealing with the judiciary. The functioning of the courts is undermined by corruption and extortion, although the Constitutional Court and Supreme Court show independence from the executive (FitW 2018). Irregular payments and bribes are often exchanged to obtain favorable court decisions (GCR 2015-2016), three-quarters of businesses perceive significant corruption in the court system (MC 2016), and a quarter of businesses identify corruption in the judicial system as a major constraint on their ability to do business in Colombia (ES 2017). Consequently, companies rate the independence of the judiciary as poor and the ability of the legal framework to facilitate dispute settlement and challenging regulations is also rated as poor (GCR 2017-2018). Slightly over a third of Colombians perceive most or all judges and magistrates as corrupt (GCB 2017). The courts’ independence is undermined by a lack of qualified personnel, transparency in its operations, and a lack of infrastructure (BTI 2018). The political opposition has alleged that President Santos’ government has used its influence over the judiciary for political purposes (BTI 2018). Enforcing a contract in Colombia takes significantly longer, over three years, and is costlier than elsewhere in the region (DB 2018). This has led many companies to include international arbitration clauses in contracts (ICS 2018).
In June 2017, Colombia’s head of the anti-corruption unit within the office of the Attorney General, Luis Gustavo Moreno, was arrested for undermining judicial processes by accepting bribes and laundering money (FitW 2018). His cooperation subsequently led to investigations or indictments of three Supreme Court justices as well as multiple legislators and officials (FitW 2018).
Colombia is a member of the International Centre for Settlement of Investment Disputes (ICSID) and has accessed the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Public Services
Public utilities carry a moderate corruption risk for business. Roughly one in ten companies expect to give gifts to public officials in order “to get things done” (ES 2017). Slightly over a third of Colombians consider most or all government officials to be corrupt (GCB 2017). The regulatory system is described as transparent in general (ICS 2018). Civil servants have significant leeway in exercising their functions since formal written rules are often lacking (BTI 2018). Corruption, in general, has plagued many government agencies and they are also regarded as inefficient by the central government (BTI 2018).
Starting a business requires eight procedures and takes 11 days, which is significantly less time than is required elsewhere in the region (DB 2018). Hundreds of electronic services have been integrated into the government portal of Colombia, including one-stop-shops and an e-regulations webpage.
Land Administration
The land administration carries a moderately high corruption risk for business. Property rights are recognized in urban areas and well protected by the government (BTI 2018). Companies are not confident that the government is able to protect their property rights (GCR 2017-2018). Only a small fraction indicates they expect to give gifts to obtain a construction permit (ES 2017). During the 1990s and in the early 21st century, over 800 businessmen and corporations collaborated with death squads to expand their land properties and displace small farmers (Colombia Reports, Jul. 2018). After the peace deal with the guerrilla movement FARC came into force in 2016, the government started a wide-scale land restitution process (ICS 2018). The vast majority of beneficiaries of this policy has been able to return to their parcels (ICS 2018).
Expropriation is allowed under Colombian law. However, the constitution does not specify the amount of compensation or how expropriations are supposed to be handled, causing concern for foreign investors (ICS 2018).
Registering property in Colombia takes seven steps, which is in line with the regional average, but takes only a fourth of the time needed elsewhere in the region (DB 2018).
Tax Administration
The tax administration carries a moderate corruption risk for business. Less than one in ten businesses report expecting to give gifts when meeting with tax officials (ES 2017). Roughly a third of Colombians perceive most or all tax officials as corrupt (GCB 2017). Tax rates are cited as among the biggest obstacles to doing business in the country (GCR 2017-2018). Colombia’s tax system has been criticised for its low efficiency, inequality and high levels of tax evasion (OECD 2015).
Paying taxes requires less time and fewer steps than elsewhere in the region (DB 2018).
Customs Administration
The customs administration carries a moderate to high corruption risk for companies trading across the borders of Colombia. Companies are not satisfied with the efficiency and time-predictability of the clearance process (GETR 2016). Companies indicate that bribes and irregular payments are commonly made during the import and export process (GETR 2016). A 2016 survey among business leaders found that roughly two-thirds of respondents perceived significant corruption in Colombia’s customs agency (MC 2016).
Bogota’s El Dorado airport has been involved in multiple corruption allegations. Authorities launched an investigation in February 2018 into the possibility of a network of individuals from different institutions, including government agencies, after a plane with over 500 kilograms of cocaine was allowed to depart the airport (LAFM, Feb. 2018). Earlier in 2015, close to 50 members of the immigration authority at the airport were arrested over charges related to falsifying travel documents, background checks, and approving documents with stamps and seals in exchange for sums ranging from USD 300,000 to USD 5 million (Colombia Reports, Oct. 2015).
The time required to comply with import and export procedures in Colombia exceeds the regional averages but the costs involved are generally lower (DB 2018). Colombia has put in place the Single Window for Foreign Trade (in Spanish).
Public Procurement
The public procurement sector carries a high corruption risk for business. Bribes and irregular payments are widespread in the process of awarding contracts (GCR 2015-2016). Executives report that public funds are often diverted to companies and individuals due to corruption and perceive favoritism to be widespread among procurement officials (GCR 2017-2018). Roughly one out of seven companies indicate that they expect to give gifts in order to secure government contracts (ES 2017). In tender processes, national bids are given priority over foreign ones (ICS 2018).
There have been allegations of corruption in the Ruta Del Sol II and several other tenders involving Odebrecht, the Brazilian firm at the center of a sprawling network of bribery. Colombia’s chief prosecutor has said that the company spent USD 27 million on bribes in Colombia (Colombia Reports, Aug. 2018). Five congressmen are being investigated, and another seven people including a former senator and former vice-minister of transport were jailed (VOA News, Jul. 2017).
Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in Colombia’s procurement process. The government has established an e-procurement system.
Natural Resources
The natural resources sector carries a moderate to high corruption risk for companies. Colombia scores relatively well on measures related to governance of natural resources (NRGI 2017). Colombia publicly discloses mining contracts, but the financial interests of public officials in relation to extractive companies are not subject to disclosure (NRGI 2017). As of 2018, Colombia has made satisfactory progress against the EITI standard (EITI 2018). However, there have been reports of corruption in Colombia’s extractive industries; including in the granting of mining rights, monopolies on titles, and the violation of rights in mining communities (Transparency International, Mar. 2013). Furthermore, gold mining companies have allegedly bribed local officials to smooth mining title deals among other favors (Transparency International, Mar. 2013).
Legislation
The government has set up a comprehensive legal anti-corruption framework and the government generally implemented the relevant laws effectively (HRR 2017). Nonetheless, there have been some reports of government officials engaging in corruption with impunity (BTI 2018; HRR 2017). The OECD noted in its latest report on the implementation of the OECD Anti-Bribery Convention in Colombia that the country has made significant progress in implementing its anti-corruption framework (OECD 2018).
Colombia’s Penal Code and the Anti-Corruption Act criminalize abuse of office, active and passive bribery, the bribery of foreign officials, promising or offering gifts or an undue advantage, facilitation payments, extortion, trading in influence and money laundering. Bribery offenses by individuals may be punished with between three and ten years of imprisonment and fines ranging between 10 and 1000 months of salary (CMS 2018). There is no exception for facilitation payments under Colombian law, but ‘irrelevant’ small payments will generally not be prosecuted (CMS 2018). There is no corporate criminal liability in Colombia, but corporations may nevertheless face administrative fines (CMS 2018). Colombia passed the Transnational Corruption Act (TCA) (in Spanish) making bribery of foreign officials illegal in the country; enforcement of the law has been ramping up as of mid-2018 (FCPAmricas, Jul. 2018). Under the TCA, corporations can be hit with large administrative fines of up to USD 45 million and individuals can be imprisoned for up to 15 years (FCPAmricas, Apr. 2016). Having a compliance program in place is considered a mitigating factor for punishment under the law (FCPAmricas, Apr. 2016). Public officials must file annual financial disclosure forms with tax authorities, however, this information is not made public (HRR 2017). There is no formal whistleblower law in place, but draft legislation was being discussed as of mid-2018.
Colombia is party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Colombia has also signed and ratified the Inter-American Convention Against Corruption and the United Nations Convention Against Corruption (UNCAC).
Civil Society
Freedom of speech and press are guaranteed under the constitution and the government generally respected these rights in practice (HRR 2017). Opposing views are freely expressed in Colombia (FitW 2018). Defamation is a criminal offense in Colombia and journalists commonly resort to self-censorship (FitW 2016). The media is reportedly free to criticize the government, yet, since the 1990s, several journalists have been killed for reporting on issues such as corruption (FitW 2016). In 2016 alone, 262 journalists were the victim of intimidations, including cases of threats, obstruction of journalism, and even kidnapping (BTI 2018). The government does not exercise any censorship on the internet (FitW 2018). The media environment in Colombia is described as ‘partly free’ (FotP 2017).
Colombia has longstanding civil society traditions (BTI 2016). The government has violently restricted freedoms of assembly, despite it being guaranteed by the law (FitW 2018). Colombia is considered a dangerous place for civil society, several NGO members have been kidnapped, extorted or killed by paramilitary groups (BTI 2018). Violence still hinders participation in civil society (BTI 2018), particularly for land victims’ rights campaigners who are being threatened by former paramilitary forces and other actors (FitW 2018).
Sources
- World Bank: Doing Business 2018.
- Freedom House: Freedom in the World 2018.
- US Department of State: Investment Climate Statement 2018.
- Bertelsmann Foundation: Transformation Index – Colombia 2018.
- CMS: Guide to Anti-Bribery and Corruption Laws 2018.
- Extractice Industries Transparency Initiative: Colombia Profile 2018.
- OECD: Phase 2 Follow-Up Report on Implementing The OECD Anti-Bribery Convention in Colombia 2018.
- FCPAmricas: “Colombia Ramps up Enforcement of Transnational Bribery Law”, 12 July 2018.
- Colombia Reports: “Corrupt AND Audacious? Odebrecht Sues Colombia for USD 1.3 Billion”, 2 August 2018.
- Colombia Reports: “Colombia’s Land Thieves Going Unpunished: Land Restitution Chief”, 23 July 2018.
- Caracol Radio: “Ms de 2300 Policas Fueron Destituidos en Los Ultimos Aos por Corrupcin”, 7 June 2018 (in Spanish).
- LA FM: “Polica Revela Existencia del Cartel del Dorado, Red de Corrupcon que Facilita Envo de Droga en Aviones Privados”, 5 February 2018 (in Spanish).
- World Economic Forum: Global Competitiveness Index 2017-2018.
- Freedom House: Freedom of the Press 2017.
- World Bank: Enterprise Surveys 2017.
- Transparency International: Global Corruption Barometer 2017.
- US Department of State: Human Rights Practices Report 2017.
- Natural Resource Governance Institute: Colombia Profile 2017.
- Voice of America: “Colombian Officials Got USD 27 million in Odebrecht Bribes, Prosecutor Says”, 25 July 2017.
- Miller & Chevalier: Latin America Corruption Survey 2016.
- Freedom House: Freedom in the World – Colombia 2016.
- World Economic Forum: Global Enabling Trade Report 2016.
- FCPAmricas: “The “TCA”: Colombia’s New Foreign Bribery Law”, 22 April 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- OECD: Economic Surveys Colombia – Overview, January 2015.
- Colombia Reports: “50 Bogota Airport Officials Face Arrest Over Crime Ring”, 14 October 2015.
- Transparency International: Overview of Corruption and Anti-Corruption in Colombia, 15 March 2013.