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Corruption represents one of the major obstacles to businesses investing in Paraguay. In most sectors corruption hinders competitiveness, and practices of favouritism are particularly widespread in public procurement, public services and the natural resources sector. The anti-corruption legal framework of Paraguay criminalises passive and active corruption, money laundering, embezzlement and other offences but does not cover abuse of office or the bribery of foreign officials. Furthermore, implementation of the existing legislation is weak, and many government officials engage in corruption with impunity. Bribery is a widespread practice in Paraguay.
Last updated: January 2016
GAN Integrity Solutions
Companies dealing with Paraguay's judiciary face a high risk of corruption. The courts' efficiency is weakened by institutionalised corruption (BTI 2014). The judiciary is heavily influenced by external interests; politicians and other interested parties often influence investigations, judges or prosecutors (HRR 2014). Judges have sometimes solicited or accepted bribes in order to change or drop charges against a defendant, and impunity among judges is widespread (HRR 2014). Most citizens believe the judiciary is corrupt (GCB 2013); the courts are ranked as the least trusted institution in Paraguay (CATC 2011). Corruption and inefficiency in the judiciary have also caused lengthy trial delays and extended pre-trial detention (HRR 2014).
Businesses perceive the court's ability to settle disputes and to challenge government regulations as very weak and believe the courts lack independence (GCR 2015-2016). Likewise, businesses complain about the difficulties in adequately implementing contracts and about lengthy procedures, which are exacerbated by the judiciary's limited transparency and accountability (ICS 2015). Paraguay is a member of the International Centre for the Settlement of Investment Disputes and has ratified the New York Arbitration Convention 1958.
In one 2014 corruption case, prosecutor Ruben Villalba was suspended and stripped of his immunity for corruption and extortion. Villalba had received a luxury vehicle and more than USD 10,000 in bribes from lawyer Daniel Mitjans, who claims Villalba extorted more than USD 20,000 in bribes and five luxury vehicles in return for dismissing charges of fraud in two cases against Mitjans (HRR 2014). At the time of review the case was still not concluded.
Businesses face a high corruption risk when dealing with the police in Paraguay. Corruption is widespread within the security apparatus, which lacks adequate funding and training, and several NGOs have reported on police involvement in extortion (HRR 2014). Citizens rank the police as the second-most corrupt institution in the country (GCB 2013), while companies report the police is unreliable in protecting business from crime and in enforcing the law (GCR 2015-2016).
National police authorities did investigate, punish and discharge some members of the police during 2014 in the aim of cracking down on crime and administrative violations within the institution (HRR 2014). In mid-2014, senior police officers Jose Dolores Amarilla, Osvaldo Ayala and Joni Diaz were found guilty for several crimes, including money laundering and extortion, and sentenced to 15 years' imprisonment; five other police officers involved in the case were sentenced to 10 years in prison (HRR 2014). In another case, Francisco Alvarenga, the commander of Paraguay’s national police and several other police officers, including Alvarenga’s son, have been charged with the embezzlement of the agency’s gasoline funds amounting to USD 230,000. Paraguay’s President removed Francisco Alvarenga from his post (Insight Crime, May 2015). The case is ongoing at the time of review.
Paraguay's public services sector carries a high corruption risk for business. Corrupt acts are common practice in the sector: Front-line civil servants take advantage of the time-consuming processes of administrative services to extract bribes in return for accelerating procedures (ICS 2015). Corruption is further exacerbated by the high levels of informality in the economy, which can be traced in, for instance, the low rate of formal registration of companies and employees (CATC 2011). Inefficient government bureaucracy is a major problem for investors and counts among the most problematic factors to doing business in Paraguay (GCR 2015-2016).
At the start of 2016, Paraguay's government institutions implemented biometric control systems for their staff. The initiative is aimed at curbing corruption in public services and to ban the 'planilleros', people receiving a salary without filling a position at the given institution (Prensa Latina, Jan. 2016). Only forms, documents and reports registered in the biometric clocks will be recognised (Prensa Latina, Jan. 2016). Dealing with construction permits in Paraguay is less costly and less time-consuming than the regional average, while starting a business is more costly and time-consuming (DB 2016). The government launched Portal Paraguay to provide several administrative services online as part of the country's e-governance strategy for increased transparency.
Property rights and regulations concerning the acquisition of property are well-defined under Paraguayan law, but judicial inefficiency renders the protection of these rights weak in practice (BTI 2014). Accordingly, business perceives the protection of property rights as inadequate (GCR 2015-2016). For instance, the government did not sufficiently protect the property rights of a Canadian mining company from independent gold diggers (BTI 2014). Land titles are not well-defined, and acquiring the necessary documentation for land titles is time consuming (BTI 2014); registering property is more time-consuming and more costly than regional average (DB 2016).
There is a very low risk of corruption when dealing with taxes in Paraguay. Tax rates and regulations do not pose any obstacle to business; the tax regime counts among the most stable and most competitive in Latin America, representing a competitive advantage for the country (gov.uk, Nov. 2015; GCR 2015-2016). Paraguayans are not subjected to a personal income tax, making it difficult for the government to formalise the economy and to control illicit money flows (BTI 2014). Paying taxes in Paraguay takes more time but is less costly than in to other South American countries (DB 2016).
The Paraguayan customs administration carries a moderate to high corruption risk for businesses. There are low-levels of transparency in the sector, and irregular payments are common; corruption is more widespread in relation to importing than to exporting in Paraguay (GETR 2014). The cost and time required to export to Paraguay is higher than the South American average, while importing is less costly and less time-consuming on average (DB 2016).
Reportedly, smugglers avoid paying excise taxes by routinely bribing border officials at the Friendship Bridge between Paraguay and Brazil. The Tri-Border Area between Paraguay, Argentina, and Brazil is, to a large extent, also plagued by illegal smuggling and organised crime; the Paraguayan city Ciudad del Este has become infamous for illegal trade and money laundering (Council on Hemispheric Affairs, July 2012).
Companies face a high corruption risk when operating in the Paraguayan public procurement sector. Businesses find both that public funds are often diverted to companies and individuals due to corruption and that favouritism is widespread among procurement officials (GCR 2015-2016). There is a lack of oversight and accountability in the administration of government procurement, and the failure to separate official actions from personal financial interests has heightened the risks of corruption in the sector (CATC 2011). Paraguay's procurement sector suffers from a large-scale network of favouritism which is known as la patria contratista; companies involved in these schemes are attributed contracts by corrupt officials in return for bribes (Auriol, Straub & Flochel, Mar. 2015). The main means by which officials favour firms over others in government tenders is through the application of the exceptional purchase mechanism to annul the obligation to organise public tenders above certain amounts (Auriol, Straub & Flochel, Mar. 2015). Companies are recommended to set-up and strengthen compliance systems and conduct due diligence when investing or planning to invest in Paraguay.
Companies operating in Paraguay's natural resources sector face a high risk of corruption. Regulatory agencies supervising the industry are inefficient and opaque (ICS 2015), and patronage networks play a major role in the distribution of resources (BTI 2014).
Paraguay's legal framework provides for penalties for corruption, but the government does not implement the relevant laws effectively (HRR 2014). Legislative activities in Paraguay lack transparency, and impunity is widespread among legislators (Council on Hemispheric Affairs, Aug. 2014). In fact, no surveyed respondents in Paraguay believe that their country's anti-corruption laws are effective (LACS, Jun. 2012). The Criminal Code provides penalties for active and passive bribery. Influence peddling and embezzlement are criminalised. However, no provisions apply to the bribery of foreign officials or bribery in the private sector (United Nations, Oct. 2014). Money laundering is regulated under the Preventing and Penalizing Unlawful Acts to Launder Money or Property Law. All public employees are required to disclose their and their family's assets within 15 days of taking office and again 15 days after finishing their assignments or terms (HRR 2014). The Reporting and Information System available on the Ministry of Finance website allows for public access to financial reports, budget execution and public salaries (HRR 2014).
Paraguay has ratified the United Nations Convention against Corruption (UNCAC) and the Inter-American Convention against Corruption (IACAC).
Freedoms of speech and press are protected under Paraguayan law (HRR 2014), but the government places many restrictions on these freedoms. The killing and intimidation of journalists who report on corruption, organised crime and other human rights abuses is a serious problem in Paraguay (gov.uk, Nov. 2015). This environment has led to journalists practicing self-censorship (FitW 2015). Only a low burden of proof is required for libel and defamation cases (Council on Hemispheric Affairs, Nov. 2015). In late 2014, lawyer and advocate for judicial reform Kattaya Gonzalez published an opinion column in a major Paraguayan newspaper dealing with corruption in the Supreme Court. Subsequently, the General Inspectorate and the Supreme Court opened an investigation into Gonzalez's alleged misconduct; the court dropped the case by the end of the year (HRR 2014). The media environment in Paraguay is described as 'partly free' (FotP 2015).
Freedom of assembly is guaranteed under Paraguayan law, and the government generally respects these rights in practice (HRR 2014). NGOs can register and operate freely and without government interference (CATC 2011). Civil society groups sometimes cooperate with the Office of the Comptroller-General on corruption cases. Cooperation between other branches of the government (such as the judiciary and the parliament) with civil society is also developing and includes collaboration on codes of ethics (United Nations, Oct. 2014).
- World Bank: Doing Business 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- Prensa Latina: 'Paraguay Starts Implementing Biometric Control to Fight Corruption', 4 January 2016.
- US Department of State: Investment Climate Statement – Paraguay 2015.
- Freedom House: Freedom of the Press - Paraguay 2015.
- Freedom House: Freedom in the World - Paraguay 2015.
- Council on Hemispheric Affairs: 'Structural Problems Perpetuate Widespread Corruption in Paraguay', 10 November 2015.
- Gov.uk: Overseas Business Risk - Paraguay, 2 November 2015.
- Freedominfo.org: 'Decree Brings Access Law Into Effect in Paraguay', 22 September 2015.
- Insight Crime: 'Paraguay Police Cmdr Charged as Corruption Scandal Grows', 20 May 2015.
- Emmanuelle Auriol, Stéphane Straub and Thomas Flochel: Public Procurement and Rent-Seeking: The Case of Paraguay, 25 March 2015.
- US Department of State: Human Rights Practices Report – Paraguay 2014.
- Bertelsmann Foundation: Transformation Index - Paraguay 2014.
- World Economic Forum: The Global Enabling Trade Report 2014.
- World Bank: Enterprise Surveys - Dealing with Government in Latin America and the Caribbean 2014.
- United Nations: Conference of the State Parties to the United Nations Convention Against Corruption, 4 September 2014.
- Council on Hemispheric Affairs: '25 Years of Kleptocracy in Paraguay: Endemic Corruption Perpetuates Poverty', 22 August 2014.
- Transparency International: Global Corruption Barometer 2013.
- Council on Hemispheric Affairs: 'En Route to a Failed State - Corruption in the Paraguayan Legal System, the Illicit Market, and Transnational Security', 10 July 2012.
- Miller Chevalier: Latin America Corruption Survey, June 2012.
- Freedom House: Countries at the Crossroads - Paraguay 2011.