Guatemala Corruption Report

Businesses dealing with the judiciary face a high corruption risk. Bribes and irregular payments are often exchanged to obtain favorable decisions, and the courts suffer from political interference (GCR 2015-2016). Furthermore, judicial corruption and ineffectiveness have contributed to the institution’s inefficiency and long delays in the handling of cases (ICS 2016). Business executives perceive the courts to be inefficient in settling disputes and in challenging regulations, and judicial decisions are inconsistent (GCR 2015-2016; ICS 2016). Foreign companies do not face any discrimination when dealing with the judicial system (ICS 2016). Enforcing contracts is significantly more time-consuming in Guatemala compared to the regional average, taking 1,400 days (DB 2016).

In a 2015 corruption case, the Supreme Court lifted the immunity of Magistrate Marta Sierra de Stalling to later arrest her for taking bribes from attorneys of six members of an alleged tax fraud scheme in return for their release on bail (HRR 2015). The case is pending (HRR 2015).

Guatemala 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.

Businesses dealing with the security apparatus face a high corruption risk. The police are corrupt and lack the resources to operate effectively (ICS 2016; HRR 2015). Impunity is reportedly high, and the government lacks the mechanisms to investigate corruption (HRR 2015). Recent years have seen several reports of police extortion and other abuses (FitW 2015). Guatemala is hobbled by a weak rule of law and high crime rates, and businesses do not perceive the police to be reliable in protecting them from crime or in enforcing order (ICS 2016; GCR 2015-2016).

The military is sometimes used by the government to maintain internal security and policing, and in recent times a pattern of military personnel exploiting their networks for corrupt and illegal purposes has emerged (HRR 2015; BTI 2016). In one case in 2014, the UN-backed International Commission against Impunity in Guatemala (CICIG) accused retired military Captain Byron Lima Oliva of building a multimillion-dollar empire from controlling the Guatemalan jail system and taking bribes in return for prison transfers (Yahoo News, Sept. 2014). The Public Prosecutor’s Office initiated 12 investigations into Lima, yet none reached the courts. CICIG investigations revealed a far-reaching corrupt network including congressmen and public officials, and Lima reportedly often bragged about his close relationship with President Otto Perez Molina (Yahoo News, Sept. 2014).

The customs administration carries a very high risk of corruption. Companies complain of high levels of corruption in customs transactions, even more so in ports and borders outside the capital (ICS 2016). Corruption is much more pervasive when dealing with importing than when exporting out of the country (GETR 2014). More generally, import licensing requirements are an obstacle to investment (BTI 2016).

In early 2015, a corruption case involving former president Otto Perez Molina, former vice-president Roxana Baldetti and a number of other politicians led to country-wide demonstrations and the impeachment of the president. Investigations into what became known as the Linea (telephone line) corruption case revealed that Molina had set up a customs corruption ring with the help of high-ranking officials from the customs and tax administrations (The New Yorker, Sept. 2015). A phone conversation between Molina and Bladetti was released in which Molina was contacting the Tax Administration Superintendency director and asking the HR department to accommodate the smuggling network (Telesur, Sept. 2015). Between May 2014 and February 2015, the corruption ring, which controlled several customs offices and the central customs administration, benefitted from substantial bribes in exchange for the lowering of customs duties on a minimum of 500 containers, charging between GTQ 20,000 and 100,000 and embezzling more than GTQ 2 million in bribes per week. Molina and Baldetti have both been in pre-trial custody since May 2015 (Latin America Herald Tribune, 25 Apr. 2016; ICS 2015).

The public procurement sector carries a high corruption risk. Bribes and irregular payments are often exchanged in the procurement process (GCR 2015-2016). Furthermore, companies believe that funds are often diverted to companies and individuals due to corruption (GCR 2015-2016). There have been complaints from businesses about public procuring entities structuring requirements of tenders to favor particular foreign companies over others (ICS 2016).

All procurement contracts exceeding USD 117,570 must be submitted for public competitive bidding (ICS 2016). Nonetheless, companies have complained that government entities have been applying special-purpose mechanisms to large procurement contracts, which allows the procuring entity to avoid competitive bidding through the public tender process and make direct purchases from a pre-selected supplier (ICS 2016).

In mid-2015, a high-level corruption case involving Guatemala’s Social Security Institute was brought under the spotlight by the CICIG and the chief prosecutor. Investigations led to the arrest of 17 individuals including the Institute’s president, Juan de Dios Rodriguez (International Justice Monitor, May 2015). Reportedly, the Institute had fraudulently awarded a USD 15 million public contract to the pharmaceutical company Pisa to ensure renal dialysis to social security patients in return for more than 15% commission and bribes to the board members (International Justice Monitor, May 2015). Pisa did not comply with the minimum requirements of the contract and lacked the required resources and capacity. All board members were jailed (International Justice Monitor, May 2015).