Ecuador

Ecuador Corruption Report

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Snapshot

Ecuador_321x160.pngCorruption is a major obstacle for businesses investing or planning to invest in Ecuador. Several sectors (such as public services and public procurement) suffer from endemic corruption, and bribery and facilitation payments are widespread. Ecuador’s anti-corruption legal framework covers various corruption offenses; gifts and hospitality offered with the intention to gain an undue advantage are illegal. However, these laws are poorly enforced, and government officials engage in corruption with impunity.

Last updated: January 2016
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Judicial System

The judiciary carries a high corruption risk for companies operating in Ecuador. Political pressure and interference, as well as widespread corruption, impede the institution to a large extent. Judges are susceptible to bribes in return for favorable decisions and for accelerating the settlement of legal cases (HRR 2014). The judiciary lacks independence, and the courts’ efficacy in settling disputes and in challenging government regulations is weak (GCR 2015-2016). Judicial procedures are lengthy and complicated, and the courts’ inefficiency and inconsistency sometimes cause trial delays (HRR 2014).

Corruption accusations are often politically motivated in Ecuador, and cases often get entangled in lengthy and inconclusive judicial proceedings (Global Security, June 2015). Furthermore, evidence suggests the outcomes of many trials were predetermined (HRR 2014).

Police

Businesses interacting with Ecuador’s police sector face a high risk of corruption. The institution suffers from different forms of corruption, poor recruiting, and a lack of training and funding (HRR 2014). The police do not reliably protect companies from crime or enforce law and order (GCR 2015-2016).

Public Services

The Ecuadorian public services sector carries a high corruption risk for business. Companies cite frequent demands of bribes and facilitation payments by local authorities in return for issuing necessary permits (Global Security, June 2015), and government regulations and inefficient government bureaucracy are burdensome for businesses (GCR 2015-2016). Conflicts of interest are widespread among local officials (CatC 2011). Ecuador struggles with a large informal sector – over 30 percent of firms in Ecuador are not formally registered – which further exacerbates corruption within the regulatory framework (The World Bank, 2012). Starting a business is more time-consuming yet less costly than the regional average while dealing with construction permits is less time-consuming and less costly than elsewhere in South America (DB 2016).

In mid-2014, more than USD 13 million was reported stolen from the municipality account at the Central Bank of Ecuador by the mayor of Riobamba, Juan Salazar Lopez. Investigations into the case revealed that the mayor himself had disclosed the account password to unauthorized persons. The mayor was charged with embezzlement and sentenced to eight years in prison (HRR 2014; Global Security, June 2015).

Land Administration

Property rights are guaranteed under Ecuadorian law but are not always protected in practice (ICS 2015). An inefficient judiciary contributes to the weak enforcement of property rights; several recent cases have demonstrated the courts’ inability to properly protect property owners’ rights (BTI 2014; ICS 2015). Furthermore, private property has been jeopardized by the attitude of the government, which has frequently used the threat of embargo or nationalization to pressure private companies (BTI 2014). Registering property is less time-consuming and less costly than elsewhere in South America (DB 2016).

Tax Administration

Tax rates and regulations are ranked among the most problematic factors to doing business in Ecuador (GCR 2015-2016). Companies also complain of frequent changes to the country’ tax code (ICS 2015). Surveyed firms express little trust in the Ecuadorian tax system, while almost half of all surveyed companies in Ecuador know of a company that evades taxes. Furthermore, the majority of companies believe that large companies pay fewer taxes, further aggravating the lack of trust in the system (The World Bank, 2012). Paying taxes in Ecuador is almost twice as time-consuming as the average for South America (DB 2016).

Customs Administration

Companies face a high corruption risk when dealing with Ecuador’s customs authorities. Corruption is perceived as a barrier to trade in Ecuador; it is more problematic for importing than for exporting (BTI 2014; GETR 2014). Dealing with customs procedures is burdensome, and irregular payments frequently occur (GCR 2015-2016; GETR 2014).

Public Procurement

Companies face a very high risk of corruption when doing business in Ecuador’s public procurement sector. Companies believe that funds are often diverted towards companies and individuals due to corruption and perceive favoritism to be widespread among procurement officials (GCR 2015-2016). Further, there are reports of civil servants receiving ‘commissions’ from companies that are awarded government contracts (BTI 2014).

Among the biggest corruption cases in the sector is the award of government contracts worth USD 167 million to the brother of Ecuador’s President Correa, Fabricio Correa, during the first two years of the President’s tenure (CatC 2011). The companies awarded the contracts and with which Fabricio Correa was involved were registered on the State’s Public Procurement website as unfulfilled contractors (Global Security, June 2015). When the case received media coverage, the President nullified the contracts associated with Fabricio Correa. In 2010, the Prosecutor General’s Office rejected the accusations of corruption against Correa in several cases (Global Security, June 2015). However, corruption cases involving individuals with senior status have been known to get shuffled aside, while attacks are directed towards the respective whistleblowers (BTI 2014). Companies are recommended to use a specialized public procurement due diligence tool to help mitigate the risks associated with public procurement in Ecuador.

Natural Resources

The natural resources sector carries a moderate to high corruption risk for companies operating in Ecuador. The extractive industries account for a significant proportion of the Ecuadorian economy, making up more than half of the country’s exports; however, the lack of transparency in the sector is detected in the absence of key budget figures and gaps in the disclosure of environmental impact assessment (Natural Resource Governance Institute). For instance, in the hydrocarbon sector, information is published with a varying degree of transparency; national oil companies are given priority over foreign companies in the process of bidding on extractive rights in Ecuador (Natural Resource Governance Institute).

Legislation

The Ecuadorian anti-corruption legal framework is poorly enforced and only a very small percentage of surveyed respondents believe anti-corruption laws are effective (Miller Chevalier, June 2012). Ecuador’s Criminal Code covers the offenses of promising, offering or accepting a bribe or a facilitation payment. Passive and active bribery is punishable by imprisonment of up to five years. Extortion, abuse of office and embezzlement are also criminalized. Gifts and hospitality with an undue purpose are criminalized. The Organic Law on Public Servants establishes administrative sanctions for corruption among public functionaries. Money laundering is regulated by the Law for the Control of Money Laundering. All government officials and civil servants are subject to financial disclosure laws (HRR 2014), but no provisions cover the bribery of foreign officials. Public access to information is guaranteed under Ecuadorian law, yet the government does not implement the law effectively (HRR 2014).

Ecuador has ratified the United Nations Convention Against Corruption (UNCAC) and the Inter-American Convention Against Corruption (IACAC) but has not complied with the main requirements of the IACAC. Ecuador is also a participant in the Andean Plan of Action Against Corruption.

Civil Society

Freedoms of press and speech are guaranteed under Ecuadorian law, but the government severely restricts these rights in practice. President Correa’s administration has openly discredited and attacked private media as well as individual journalists (FotP 2015). The Communication Law (in Spanish), imposes aggressive regulations on the media, fuelling a hostile environment for journalists, whom, in turn, increasingly practice self-censorship. Instances of intimidation, harassment, and attacks on journalists rose dramatically in 2014 (FotP 2015). Defamation and libel are criminalized in Ecuador, and several journalists have faced criminal and civil defamation cases in recent years (FotP 2015). Outlets that provide favorable coverage of the government are generally favored in the process of awarding public advertisement contracts (FotP 2015). Businesspeople generally avoid any association with media outlets that are critical of the government for fear of losing public contracts or being subjected to government audits in reprisal (FotP 2015). In 2014, the Superintendency of Information and Communication (SUPERCOM) ordered ‘ratifications’ be made to a cartoon published in El Universo depicting high-ranking officials’ corruption. SUPERCOM also fined the paper El Universo for not scrutinizing the text in the cartoon prior to publishing (FitW 2015). Instances of online censorship have occurred during 2014, including the suspension of Twitter accounts and the deletion of online content (FotP 2015). The media environment in Ecuador is considered ‘not free’ (FotP 2015).

Freedom of assembly is protected under the Ecuadorian Constitution, yet this is not always respected in practice (HRR 2014). Ecuador’s civil society is underdeveloped, and the government’s monopoly over power has excluded any civic participation that is not in line with the government’s approach (BTI 2014). Furthermore, a 2013 presidential decree granted the government powers to intervene in the operations of NGOs and to forcibly dissolve them (FotP 2015). Evidence suggests that the Council for Citizen Participation and Social Control (CPCCS) does not engage effectively with a large segment of the Ecuadorian civil society (Global Security, June 2015). Indeed, civil society does not participate in agenda formulation, policy-making, or government monitoring (BTI 2014).

Sources

The site provides a wealth of practical anti-corruption resources to support a solid preventative approach, covering subject such as processes, due diligence, practical tools to support compliance program implementation and also compliance and integrity training.

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