Peru risk report
Corruption is a serious problem for businesses in Peru, with irregular payments, bribes and favoritism of government officials in awarding contracts being particularly common. In fact, a very weak judiciary, inefficient government bureaucracy and high levels of favoritism have culminated in high corruption levels in almost all sectors of the Peruvian economy. Corruption is criminalized through Decree No. 635 of the Peruvian Penal Code (in Spanish), which covers attempted corruption, extortion, passive and active bribery, money laundering and bribery of foreign officials. Anti-corruption laws are, however, poorly enforced by the government. The Corporate Anti-Corruption Act is expected to enter into force in July 2017, and under which companies can be held directly liable for corruption offenses. The official procedure of accepting gifts and small courtesies is not specified in the penal code, thus also representing a risk for companies. Further, Peru’s Penal Code does not explicitly criminalize facilitation payments.
Judicial system Very high risk
Peru's judicial system carries a very high risk of corruption. Bribes and irregular payments are very commonly exchanged to obtain favorable court decisions (GCR 2015-2016). Further, user surveys indicate unofficial payments affect both the speed and the final outcome of judicial processes (SNSoC 2012, in Spanish). The proficiency of individual judges varies, however, allegations of corruption, political interference and external interference in the judicial system are widespread (ICS 2016). The vast majority of Peruvians believe that the judiciary is corrupt (GCB 2013). With the exception of the commercial courts, Peru's judicial system is often extremely slow to hear cases and issue decisions (ICS 2016). Businesses report that the courts are inefficient in settling disputes and challenging government regulations (GCR 2015-2016). Investors may settle disputes with the government with through national or international arbitration, nonetheless, companies going through private arbitration centers must choose venues carefully (ICS 2016). Peru is a member of the International Centre for Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
I late 2015, the National Judicial Council fired Prosecutor-GeneralCarlos Ramos Heredia for corruption and misconduct in several cases (FitW 2015). It was found that Ramos had obstructed investigations into a high-profile corruption scandal involving Álvarez and businessman Rodolfo Orellana. Ramos had improperly sanctioned anti-corruption prosecutors overseeing investigations into a billion-dollar bribery and money laundering and network run by the former governor of Peru’s northwestern Ancash state, Cesar Alvarez. Ramos had also met with Rodolfo Orellana, involved in money laundering, and Ramos’ son had allegedly collected bribes from Orellana in exchange for favors from the prosecutor general (Insight Crime, May 2015). A former Supreme court judge was also arrested for alleged involvement in Orellana’s money laundering case (Insight Crime, May 2015). A special congressional investigative commission and other government entities continued investigations into the case (HRR 2015). No further information was available at the time of review.
Police Very high risk
The police in Peru carry a high corruption risk for companies. Most surveyed companies believe police in Peru are corrupt (LACS 2012). The same applies to the citizens of Peru, the vast majority of whom, rank the police among the most corrupt institutions in the country (GCB 2013). Companies report that they cannot rely on the police to enforce law and order and to protect them from crime (GCR 2015-2016). On a more positive note, authorities have mechanisms in place to investigate and punish abuse and corruption within the ranks of the police and more than 600 officers have been disciplined during the 2015 (HRR 2015).
Public services Very high risk
The public services sector carries a high corruption risk for companies. Basic administrations are deficient and suffer from widespread corruption (BTI 2016). Furthermore, the quality of public services is severely hampered due to inefficient government bureaucracy, which is the most problematic factor for doing business in Peru (GCR 2015-2016). Bribes and irregular payments to obtain public utilities, however, are only exchanged from time to time (GCR 2015-2016).
Starting a business and obtaining construction permits is less time-consuming and requires a smaller number of procedures compared to the average in neighboring countries (DB 2016).
Land administration High risk
Businesses dealing with Peru's land authorities may encounter corruption. Even though property rights are well-defined in law (with the exception of areas inhabited by the indigenous population), they are not adequately protected in practice because the judicial and administrative systems are flawed (BTI 2016). Businesses perceive the protection of property rights in Peru, including financial assets, to be weak (GCR 2015-2016). Registering property in Peru in almost ten times less time consuming compared to neighboring countries (DB 2016).
Tax administration Very high risk
The Peruvian tax administration carries high corruption risks for business. Foreign companies have complained about tax officials extorting payments disguised as disproportionate fines and interest charges on unpaid taxes (ICS 2016). Businesses also report that the Peruvian tax agency's (SUNAT) reinterpretation of tax laws contradicts the intent of government policies making it harder and costlier to conduct business in the country (ICS 2016). Paying taxes in Peru is less time-consuming, yet more costly in Peru on average compared to neighboring countries (DB 2016).
Customs administration Moderate risk
Peru's customs administration carries a moderate risk of corruption. Trade is impeded by inefficient customs procedures, and importing and exporting requires time-consuming paperwork to clear goods at the border (GETR 2014). Corruption in these processes is not uncommon (GETR 2014). Moreover, bribes and irregular payments are widespread when trading across the borders of the country (GCR 2015-2016). Peru's tax and customs agency, the National Superintendence of Tax Administration, applies regulations and laws inconsistently, creating additional investment and trade barriers (ICS 2016). Nearly half of surveyed businesses believe Peru's customs agency is corrupt (LACS 2012).
Public procurement Very high risk
Foreign companies complain of high corruption risks in public procurement processes in Peru (ICS 2016). Irregular payments and bribes are often exchanged to obtain public contracts and licenses (GCR 2015-2016). The misuse of public funds and irregularities in the awarding of public works contracts are key challenges (Thomson Reuters, Nov 2013). Indeed, businesses report that public funds are regularly diverted to companies, individuals or groups due to corruption and that favoritism among procurement officials is widespread (GCR 2015-2016). Contracting in oil and gas and infrastructure projects are particularly vulnerable to corruption since the long time span required to execute such contracts allows for ample opportunity to receive requests for improper payments (Lexology, Sep. 2016). Defense and police procurement are also cited as being particularly problematic (ICS 2016). Thus, companies are recommended to use a specialized public procurement due diligence tool to mitigate the corruption risks associated with public procurement in Peru.
Natural resources Moderate risk
Companies may encounter corruption in Peru's natural resource industries. Peru is listed as a compliant country under the Extractive Industries Transparency Initiative (EITI). Under the EITI, the government and extractive industries agree to openly publish all company payments and government revenues from oil, gas and mining. Peru is the only EITI-compliant country in Latin America (ICS 2016).
Peru has a comprehensive anti-corruption legal framework, however, implementation of relevant corruption laws is poor (HRR 2015). Corruption is criminalized through Decree No. 635 of the Peruvian Penal Code (in Spanish), which covers attempted corruption, extortion, passive and active bribery, money laundering and bribery of foreign officials. Facilitation payments are not criminalized under the penal code (Lexology, Sep. 2016). Likewise, there are no provisions specifically addressing gifts and hospitality, yet these, like facilitation payments, are generally unacceptable (Baker & Mckenzie 2016). For instance, under the country's anti-nepotism law for the public service, civil servants are forbidden from accepting donations or other types of bonuses for performing public functions (GI 2010). In March 2016, the government of Peru passed the Corporate Corruption Act, which will enter into force in July 2017. The act holds legal entities, including companies, closed, ordinary and open corporations, associations and other liable of corruption the bribery of public officials in Peru and outside the country's borders (Rodrigo, Elías & Medrano Abogados, Mar. 2016). Companies may be exempted from liability if an adequate compliance program was established within the company prior to the corruption crime (Rodrigo, Elías & Medrano Abogados, Mar. 2016). The law provides for fines that amount up to six times the benefit obtained or expected to be obtained (Rodrigo, Elías & Medrano Abogados, Mar. 2016). The Law on the Public Service Code of Ethics (in Spanish) seeks to ensure accountability and transparency of Peru’s public service. The Code regulates conflicts of interest and government ethics; senior public officials face 8-18 years' imprisonment for illicit enrichment. The Whistleblower Protection Law provides for protection from dismissal or reprimands for whistleblowers, confidentiality in reporting acts of corruption and compensation for the whistleblower; NGOs report that whistleblowers are not sufficiently protected from employer retaliation, arbitrary firing or harassment (HRR 2013).
Peru has ratified the United Nations Convention against Corruption (UNCAC), the Inter-American Convention Against Corruption. Peru is however not a member of the OECD Anti-Bribery Convention (Lexology, Sep. 2016).
Freedom of the press is provided by Peru's Constitution, but local and international media organizations continued to express concern about the use of criminal defamation statutes against journalists and the continued harassment of reporters by both state and non-state actors (FotP 2015). Physical attacks and threats against media workers continue to create a hostile climate for the press; journalists often experience pressure from government officials, business interests, and media owners to self-censor or to limit coverage of sensitive topics (FotP 2015). Reporters have on occasions accepted bribes in return for biased coverage (FotP 2015). Former president of Peru, Alberto Fujimori, was sentenced in 2015 to eight years in prison and was fined USD 1 million for diverting more than USD 40 million to bribe tabloid newspapers in exchange for defaming his opponents during his 2000 re-election campaign. Reportedly, Fujimori dictated himself the headlines to the outlets (CBS News, Jan. 2015). The president appealed the verdict and, despite ‘overwhelming evidence’ was acquitted by the courts (TeleSUR, Aug. 2016). The media environment in Peru is described as 'partly free' (FotP 2015).
The Constitution provides for the right of peaceful assembly and freedom of association, but there are reports of the government not respecting these rights (HRR 2015). NGO activity has increased, but the landscape of voluntary organizations is not robust and is plagued by scarce organizational resources (BTI 2016).
- World Bank & IFC: Doing Business 2016.
- Bertelsamnn Foundation: Transformation Index - Peru 2016.
- World Economic Forum: The Global Competitiveness Report 2015-2016.
- US Department of State: Investment Climate Statement - Peru 2016.
- Backer & Mckenzie: Promoting Medical Products Globally - Peru 2016.
- Lexology: 'Assessing business bribery risk for foreign companies operating in Peru', 2 September 2016.
- TeleSUR: 'Peru's Ex-Dictator Fujimori Absolved for Bribing Tabloids', 16 August 2016.
- Insight Crime: 'Peru's Attorney General Fired For Alleged Misconduct', 14 May 2016.
- Rodrigo, Elías & Medrano Abogados: 'Corporate Corruption Act', 17 March 2016.
- US Department of State: Human Rights Practices Report - Peru 2015.
- Freedom House: Freedom of the Press - Peru 2015.
- CBS News: 'Former Peru president convicted of corruption', 8 January 2015.
- World Economic Forum: The Global Enabling Trade Report 2014.
- US Department of State: Human Rights Report - Peru 2013.
- Transparency International: Global Corruption Barometer 2013.
- Thomas Reuters Foundation: 'Peru targets civil servants in anti-graft push', 15 November 2013.
- Global Witness: 'Rocky Road- How legal failings and vested interests behind Peru’s Purús highway threaten the Amazon and its people', May 2013.
- Transparency International: '(ANTI-) CORRUPTION IN THE POLICE: PROGRESS MADE AND PENDING ISSUES', 15 May 2013.
- Proética: National Survey on Corrupción 2012 (in Spanish).
- Miller & Chevalier: Latin America Corruption Survey 2012.
- Orihuela Abogados, Sandra Orihuela: Anti-Corruption in Peru.