Honduras Corruption Report

Corruption and impunity among police officers is a serious impediment to business in Honduras (HRR 2015). Officers often engage in extortion and other abuses of power (FitW 2015). The police cannot be counted on to protect companies from crime or to enforce law and order, and crime and violence create costs for businesses (GCR 2015-2016). In some areas, the high crime rates and violence lead some to abandon their businesses (FitW 2015).

In April 2016, a special commission was created after the president had declared corruption within the police force to be a national security emergency (Agence France Presse, May 2016). After just one month, the commission had suspended 30 deputy commissioners from the police for alleged collusion and for links to organized crime (Agence France Presse, May 2016).

The public services sector carries a high risk of corruption. Irregular payments and bribes are at times exchanged when applying for utilities (GCR 2015-2016). Corruption is found in almost all municipalities in Honduras and is particularly manifested in the opaque use of funds for community infrastructure (BTI 2016). Bureaucratic hurdles also impede investments, and companies complain of procedural red tape to obtain approval for investment activities (ICS 2016).

Almost 75% of the labor force works in the informal economy, significantly reducing market competitiveness (BTI 2016). Starting a business requires 12 procedures and takes 14 days, while applying for construction permits requires businesses to go through 15 procedures and takes 82 days (DB 2016).

Property rights and regulations are well defined by law, but rights are poorly protected (BTI 2016; GCR 2015-2016). A weak and ineffective judiciary has led to many property rights violations, an issue that is a major problem in Honduras (BTI 2016). Registering property is much less time-consuming in Honduras than in neighboring countries, taking 22 days and requiring 6 procedures (DB 2016).

The tax administration carries a high risk of corruption; irregular payments and bribes are widespread when meeting tax officials (GCR 2015-2016). Tax rates are ranked as the second most important obstacle to business in Honduras (GCR 2015-2016).

The customs administration suffers from rampant corruption. Transparency at the border is very poor, and bribes and irregular payments are widespread when trading across borders (GETR 2014; GCR 2015-2016). Companies are more likely to encounter corruption when importing than when exporting from Honduras (GETR 2014).

Public procurement is a very high-risk sector. Bribes and irregular payments plague the process of obtaining contracts and licenses, and favoritism towards well-connected companies taint procurement officials’ decisions (GCR 2015-2016). The diversion of public funds due to corruption is also widespread (GCR 2015-2016).

In one case in September 2014, authorities arrested the head of the Honduran Institute of Social Security (IHSS), Mario Zelaya, and several other officials on charges of embezzlement of public funds (FitW 2015). Reportedly, USD 350 million was misappropriated from the IHSS through, among other schemes, the purchase of overpriced medicine (which was stolen and then resold to the IHSS), overpaying USD 400,000 for ten ambulances, and money laundering through sham companies (The Guardian, June 2015). Leaked documents connected to the case also revealed that the ruling party had received large sums of money from at least ten sham companies with IHSS contracts (The Guardian, June 2015). Zelaya is facing charges that could result in a lifelong prison sentence (BTI 2016).

Companies are strongly recommended to use a specialized due diligence tool on public procurement to mitigate corruption risks associated with public procurement in Honduras.

There is little information available on the extent corruption in the extractive industries. Nonetheless, the high levels of corruption in other sectors are likely to have ramifications on the natural resources sector, too. Illegal logging, for instance, is an increasingly important issue in Honduras and can be traced back in part to corruption and poor governance (EIA Honduras, 2016). Companies complain of long waiting periods to obtain environmental permits, a factor that can encourage the occurrence of corruption (ICS 2016).

Honduras has been a candidate country to the Extractive Industries Transparency Initiative since 2013.