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Corruption is a major obstacle for businesses investing in Honduras. All sectors of the economy suffer from rampant corruption. Networks of patronage and clientelism dominate the economy, further deteriorating market competitiveness and impeding foreign investors. The government has a legal anti-corruption framework in place through the Penal Code and the Penal Procedures Code. However, enforcement is lacking, and several cases have revealed widespread impunity. Gifts are illegal, yet the practice is widespread, and the use of bribery is an established part of doing business.
Last updated: August 2016
Corruption is rife in the judiciary. The institution suffers from underfunding, poorly trained staff, ineffectiveness, high levels of corruption, political influence, and intimidation and pressure from patronage networks (HRR 2015). These factors have also resulted in lengthy judicial proceedings and a trial backlog (HRR 2015). Bribes and irregular payments are often exchanged to obtain favorable court decisions (GCR 2015-2016). The courts are inefficient in settling disputes and challenging government regulations; for example, enforcing a contract in Honduras is time-consuming in comparison to regional averages, taking 920 days (GCR 2015-2016; DB 2016).
Honduras is a member state of the International Centre for Settlement of Investment Disputes (ICSID) and has acceded to the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
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 were 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.
Honduras has set up a legal anti-corruption framework, but the laws are poorly implemented (Transparency International, Feb. 2013; HRR 2015). The Penal Code and the Penal Procedures Code criminalize passive and active bribery. Conflicts of interest, post-public employment, and gifts and hospitality are regulated under the Code of Civil Servants Ethics (Transparency International, Feb. 2013). Public officials are subject to financial disclosure laws, yet compliance is lacking (HRR 2015). The Law on Witness Protection provides for the protection of whistleblowers.
The Organization of American States set up the Mission against Corruption and Impunity in Honduras (MACCIH) as a response to the mass protests which have erupted in the country subsequent to the publishing of the IHSS corruption case (mentioned above). The MACCIH is made up of a team of international judges and prosecutors tasked with supervising, advising and supporting Honduran authorities in curbing corruption. Notwithstanding, the MACCIH has been met with some criticism in Honduras as the mission is not actively participating in investigations and prosecution; it is only providing support to Honduran judges and prosecutors already susceptible to much political pressure (New York Times, Feb. 2016). Honduras has ratified the UN Anti-Corruption Convention and is a member of the Inter-American Convention against Corruption.
Freedoms of speech and press are provided for by the law; however, some restrictions limit journalists from reporting on government corruption and other abuses and allow authorities to punish those who do so (FotP 2015). Journalists are often victims of threats and violence, and at least two journalists were killed in 2014 due to their reporting (FotP 2015). A few powerful business interests monopolize media ownership (FitW 2015). Access to government information is provided for by law but is limited in practice (FotP 2015). Government interference and intimidation has encouraged self-censorship among journalists (FotP 2015). In addition, corruption among journalists is common; several adjust their reporting to serve the interests of the state (FotP 2015). Access to the internet is generally unrestricted (FitW 2015). The media environment in Honduras is considered "not free" (FotP 2015).
Freedom of assembly is guaranteed under the law but is not consistently respected (HRR 2015; FitW 2015). Activists often face harassment and intimidation (FitW 2015). During the first three months of 2014, the Unit for Registering and Monitoring Civil Associations revoked the licenses of over 10,000 NGOs for failure to submit reports of their finances and programs to the government, but widespread pressure from civil society representatives led authorities to rescind the resolution (FitW 2015).
- World Bank & IFC: Doing Business - Laos 2016.
- Bertelsmann Foundation: Bertelsmann Transformation Index - Honduras 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- US Department of State: Investment Climate Statement - Honduras 2016.
- Agence France Presse: ‘Honduras fires police officers in corruption purge’, 18 May 2016.
- The New York Times: ‘An Anti-Corruption Charade in Honduras’, 15 February 2016.
- Environmental Investigation Agency: Honduras 2016.
- US Department of State: Human Rights Practice Report - Honduras 2015.
- Freedom House: Freedom in the World - Honduras 2015.
- Freedom House: Freedom of the Press - Honduras 2015.
- The Guardian: ‘How hitmen and high living lifted lid on looting of Honduran healthcare system’, 10 June 2015.
- World Economic Forum: The Global Enabling Trade Report 2014.
- Transparency International: Overview of Corruption and Anti-Corruption in Honduras, 28 February 2013.