Nicaragua risk report
Rampant corruption within Nicaragua's political circles impairs the functioning of state institutions and limits foreign investment. International companies report widespread favoritism and impunity among public officials. The judicial system functions under heavy political pressure, and courts are susceptible to corruption and manipulation by politicians and criminal organizations. High-risk areas for bribery include Nicaragua's tax and customs sectors, where the application of regulations and procedures is arbitrary and is plagued by extortion, facilitation payments, and kickbacks. Nicaragua's anti-corruption legislation is comprehensive and addresses all major forms of corruption; including bribery, abuse of office, facilitation payments and gifts to public officials. Nevertheless, the law is not enforced effectively, allowing for pervasive corruption and creating a challenging business environment for foreign companies.
Judicial system Very high risk
Nicaragua's legal system is burdensome and involves very high risks of corruption. Three out of five businesses perceive significant corruption in Nicaragua's judiciary (Miller & Chevalier 2016). Bribes and irregular payments in return for favorable judicial decisions are commonplace (GCR 2015-2016). Corrupt practices are found at all levels of the judiciary and mechanisms to protect judges from political influence do not exist (BTI 2016). Accordingly, companies have extremely low confidence in the independence of the courts and report that the legal framework is inefficient when it comes to settling disputes and challenging regulations (GCR 2016-2017). The quality of judicial services is very low (BTI 2016). Investors allege that authorities apply laws in an arbitrary, negligent, or slow manner in an apparent effort to favor one competitor over the other (ICS 2017). Foreign entities are often at a disadvantage in disputes against Nicaraguans with political or personal connections (ICS 2017). Uncertainty exists over whether local courts will enforce awards from local and international proceedings (ICS 2017). Enforcing a contract takes significantly less time and is slightly less costly compared to the regional average (DB 2017).
Courts are prone to corruption and manipulation by organized crime groups, drug cartels and a democratic socialist political party, the Sandinista National Liberation Front (FSLN), which allegedly accepts bribes from drug traffickers for campaign financing in return for judicial favors (InSightCrime, July 2014). Several of these cases involving illegal business deals have been resolved in secrecy (BTI 2016).
Nicaragua is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it is a member state to the International Centre for the Settlement of Investment Disputes (ICSID).
Police Very high risk
There is a high risk of corruption when dealing with the Nicaraguan police. A third of companies report significant corruption in the police (Miller & Chevalier 2016). Over half of firms report paying for private security (ES 2014). A perception exists that police officers act with impunity because of corruption, inefficiency and a lack of transparency in the judicial system (HRR 2016). Companies cannot rely on Nicaragua's police to protect them from crime, theft, and disorder (GCR 2016-2017). The Law of Organisation, Functions, Career and Special Regimen of Security of the National Police entitles the president to be the 'supreme commander' of the Nicaraguan police force, centralizing power over all executive decisions - including recruitment of police officials - in the hands of the presidential administration (InSightCrime, July 2014). Such exceptional control over Nicaragua's police decreases its independence and raises the levels of corruption and patronage through political ties (InSightCrime, Jan. 2014).
Public services Very high risk
There is a high prevalence of corruption in Nicaragua's public services. Foreign companies encounter red tape and corruption when dealing with Nicaragua's public services administration. Bribes and irregular payments when dealing with public utility companies are fairly rare (GCR 2015-2016). Inefficient government bureaucracy is ranked as the most problematic factor for doing business in Nicaragua (GCR 2016-2017). The public administration is intensely politicized and has limited capacity and lacks professionalism and effective monitoring (BTI 2016). There is an absence of a career-based civil service, meaning that people are not hired on the basis of merits (BTI 2016). Starting a business in Nicaragua takes fewer steps and requires less time than the regional average (DB 2017). Getting electricity is slightly less time-consuming than the regional average (DB 2017).
Land administration Very high risk
The land administration carries high corruption risks for foreign investors. Companies report that property rights are insufficiently protected (GCR 2016-2017). Due to poor record keeping, establishing a claim to a land title might be problematic (ICS 2017). Extensive due diligence and caution are advised before investing in a property (ICS 2017). President Ortega has declared that the government will not evict those who have taken illegal possession of property; the police similarly often refuse to assist in property eviction cases (ICS 2017). There have been reports of U.S. citizens subjected to false accusations in an effort to expropriate their properties; some have been threatened with incarceration if they do not voluntarily surrender their property (ICS 2017).
The Nicaraguan government has granted a Hong Kong-based company a 100-year concession to construct a canal through Nicaragua (ICS 2017). The concession includes a law that allows the Canal Authority to expropriate any land, with compensation paid at "cadastral value" needed for the purposes of constructing the canal, including land outside the proposed route of the canal (ICS 2017). Investors have expressed fears that expropriation compensation will be paid below fair market rates and in violation of the CAFTA-DR agreement (ICS 2017).
Registering a property takes nine steps, which is two more than the regional average, but the total time required is significantly shorter (DB 2017).
Tax administration Very high risk
There is a high risk of corruption in Nicaragua's tax administration. Companies count tax regulations and tax rates among the most problematic factors for doing business in Nicaragua (GCR 2016-2017). Foreign investors have raised concerns about corrupt practices in the tax administration (ICS 2017). Irregular payments and bribes when dealing with annual tax payments are reported by businesses to be common (GCR 2015-2016). Companies face a much higher number of tax payments every year compared to the regional average, but the total time companies spend on paying taxes is far below the regional average (DB 2017).
Customs administration Very high risk
Nicaragua's customs administration is plagued by a high prevalence of corruption. A third of companies perceive significant corruption in the customs sector (Miller & Chevalier 2016). Companies report that bribes and irregular payments are commonly exchanged when dealing with customs officials (GETR 2016). Companies rate the efficiency of the clearance process and the time predictability of import procedures as poor (GETR 2016). Burdensome import procedures and corruption at the border are among the most problematic factors for importing (GETR 2016). Bribery of officials, arbitrary assessments, and unlawful seizures by customs authorities are common (ICS 2017).
The time and costs required to comply with import requirements are generally significantly lower than regional averages (DB 2017).
Public procurement Very high risk
Risks of corruption in Nicaragua's public procurement sector are high. Companies report that irregular payments and bribes in the process of awarding government contracts are very common (GCR 2015-2016). Companies also report that public funds are often diverted due to corruption (GCR 2016-2017). Legislation is not adequately enforced in the public procurement sector (BTI 2016). There are insufficient mechanisms in Nicaragua to ensure the transparency and accountability of the state's business decisions (ICS 2017); excessive exemptions are made to procedures and requirements in public procurement (BTI 2016).
The government has established the Sistema de Contrataciones Administrativas del Estado (SISCAE), a portal for public contracts where investors can register and obtain information and bid on public contracts. More information on procurement rules in Nicaragua may be found here. Companies are recommended to use a specialized public procurement due diligence tool to reduce corruption risks related to procurement in Nicaragua.
Natural resources High risk
There is a moderately high risk of corruption in Nicaragua's natural resources sector. It is estimated that thirteen percent of Nicaragua's gold is produced illegally and laundered and exported to other countries with the help of corrupt government officials (Verité 2016). It is estimated that up to thirty percent of illegal logging in Central American, including in Nicaragua, is linked to illegal drug trafficking; weak government is identified as a major cause (Insight Crime, May 2017).
The overall implementation and enforcement of Nicaragua's anti-corruption legislation are weak, and the level of compliance with the law is poor among Nicaragua's public officials. The Criminal Code of Nicaragua and the Law on Bribery and Crimes Against International Trade and Foreign investment (in Spanish) criminalize all major forms of corruption, including active and passive bribery, abuse of office, money laundering and extortion. The criminal penalty for offering or accepting a bribe is a minimum of three years in prison and a fine. The bribery of foreign public officials is forbidden and punishable by a minimum of five years' imprisonment. Companies may be held subsidiarily liable for civil damage resulting from corruption offenses (UNODC 2015). Likewise, individuals acting on behalf of a company may be held personally liable (UNODC 2015). Article 130 of the Constitution and the Civil Service Probity Law provide the legal framework for conflicts of interest and asset declarations by public officials. Some aspects of private sector bribery are criminalized under the Criminal Code; these provisions, however, do not refer specifically to promising, offering or providing, nor soliciting or accepting an undue advantage by any person working in the private sector (UNODC 2015). Private sector embezzlement is criminalized (UNODC 2015). Facilitation payments and gifts are addressed in the Decree No 124-99. The Government Procurement Law (in Spanish) and the Municipal Procurement Law (in Spanish) require open and competitive bidding, as well as fairness and transparency in procurement procedures. Limited whistleblower protection is contained in Law No 735. The Access to Information Law (in Spanish) requires institutions that receive or oversee state funds to make their documents publicly available; however, the Law preserves the government's right to protect information related to state security. A lack of access to information is a serious problem (HRR 2016).
Nicaragua has ratified the United Nations Convention against Corruption (UNCAC) and the Inter-American Convention Against Corruption, which imposes direct obligations on the government of Nicaragua to adopt institutional and legal measures against corruption. Nicaragua is not a party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.
The Constitution of Nicaragua provides for freedom of the press, but the government has frequently used its administrative and judicial means to limit these rights (HRR 2016). Media freedom is restricted through arbitrary application of libel and defamation laws and judicial harassment (FotP 2016). Legal cases against the press have been decreasing, but this appears to largely be a consequence of an increase of self-censorship and a corresponding decrease in critical reporting (FotP 2016). Reporters increasingly face threats, harassment, and physical violence from both the government and other actors (FotP 2016). Favoritism is widespread, and journalists loyal to the ruling party receive favorable treatment; the government has denied critical outlets millions of dollars worth of official advertising (FotP 2016). Almost all television broadcasters are owned and controlled by allies of FSLN (FotP 2016). There are no restrictions on access to the Internet, but illegal government monitoring of email correspondence is reported by some civil society groups (CSOs) (FotP 2016). The media environment in Nicaragua is considered 'partly free' (FotP 2016).
Freedom of association is often undermined by Nicaragua's National Assembly, whose accreditation is mandatory for NGOs to be able to receive donations (HRR 2016). Freedom of assembly is permitted under the law, but in practice, the police give preferential treatment to pro-government demonstrations and the police frequently fail to protect opposition protesters from harassment (HRR 2016). Civil society participation in decision-making processes radically diminished in recent years; the government now harasses CSOs critical of the regime (HRR 2016). The anti-corruption segment of civil society enjoys significant mobilizing capacity (BTI 2016). Opposition rallies and protests organized by CSOs are often suppressed by pro-government supporters to silence opponents of the government (HRR 2016).
- World Bank: Doing Business 2017.
- US Department of State: Investment Climate Statement 2017.
- InSightCrime: Drug Traffickers Destroying Large Sections of Central American Forests: Report, 16 May 2017.
- Bertelsmann Foundation: Transformation Index 2016.
- World Economic Forum: Global Competitiveness Report 2016-2017.
- World Economic Forum: Global Enabling Trade Report 2016.
- US Department of State: Human Rights Practices Report 2016.
- Freedom House: Freedom in the World 2016.
- Freedom House: Freedom of the Press 2016.
- Miller & Chevalier: Latin America Corruption Survey 2016.
- Verité: Report on Illegal Gold Mining 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- UNODC: Implementation Review of UNCAC Nicaragua 2015.
- World Bank & IFC: Enterprise Surveys - Senegal 2014.
- InSightCrime: 'Nicaragua police reforms could politicize security', 25 July 2014.
- InSightCrime: 'Armed men entering Nicaragua from Honduras for illegal logging', 20 August 2013.