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Businesses operating or planning to invest in Armenia face high corruption risks. Progress has been made to fight pervasive corruption; however, the close relationship between oligarchs, and political and business circles raise concerns about cronyism and influence. The Criminal Code criminalizes several forms of corruption including active and passive bribery, extortion, and abuse of office. Gifts and Facilitation payments are also considered illegal in Armenia, nonetheless, these practices are widespread.
Last updated: July 2016
The judiciary presents businesses with a high risk of corruption. Bribes and irregular payments are often exchanged to obtain favorable court decisions (GCR 2015-2016). The system is not independent: it is subordinate to elites, undermined by corruption, and a lack of training has resulted in a general incompetence of staff (BTI 2016). In effect, manipulation of judges by the executive and widespread bribery and inefficiency are major concerns (NiT 2016). More than two-thirds of citizens perceive the judiciary to be corrupt (GCB 2013).
Businesses perceive the Armenian courts to be ineffective in settling disputes and challenging government regulations (GCR 2015-2016). There are no commercial courts in Armenia and all commercial and contractual matters are regulated under the civil code. However, civil courts already suffer from huge backlogs and pervasive corruption putting further strain on resolving commercial disputes. Enforcing contracts in Armenia is more time-consuming compared to neighboring countries; taking 570 days (DB 2016). Armenia has signed and ratified the International Centre for Settlement of Investment Disputes (ICSID) and has accessed the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
The police present business with a high risk of corruption. There are consistent problems with police misconduct that impairs law enforcement; many of these problems are contributed to a lack of training, resources, and procedures (HRR 2015). Police impunity is also a problem, as there is no independent body that investigates police abuses (HRR 2015). The police are unpopular in Armenia, and convey a lack of trust, due to a track record of abuse of power (BTI 2016). In effect, two-thirds of citizens perceive the police to be corrupt (GCB 2013). Likewise, businesses do not find the police to be reliable in protecting them from crime and enforcing law and order (GCR 2015-2016).
Public services present businesses with moderate risks. Bribes and irregular payments are not often exchanged when applying for public utilities (GCR 2015-2016). Likewise, only one in ten companies expect to give gifts to officials to obtain an operating license (ES 2013). On the other hand, however, regulatory systems, still lack much-needed transparency despite government efforts to improve these (BTI 2016). Regulations are inconsistently applied, undermining fair competition and disadvantaging businesses which are less politically-connected (ICS 2015). Small and medium-sized companies, as well as new market entrants, are particularly vulnerable to these issues (ICS 2015). Starting a business in Armenia takes less time and requires fewer procedures than in neighboring countries (DB 2016).
The land administration carries a moderate risk of corruption for business. Almost three in every ten companies expect to give gifts to officials to obtain a construction permits (ES 2013). Companies that are registered by foreigners as a business in Armenia can buy and own land; however, foreign individuals may lease land, but cannot own land without a special residence permit (ICS 2015). Companies do not perceive property rights to be effectively protected (GCR 2015-2016). Registering property in Armenia is much less time-consuming compared to the regional average; taking seven days and requiring three procedures (DB 2016).
Companies face high risks of corruption within the tax administration. Tax procedures lack transparency and companies of corruption in the administration (ICS 2015). Furthermore, bribes and irregular payments are widespread in meetings with tax officials (GCR 2015-2016). Tax evasion and underreporting have mostly gone unpunished (BTI 2016). Nonetheless, taxes can now be paid online which has increased the levels of transparency (NiT 2016). Paying taxes in Armenia is time-consuming; taking 313 hours per year (DB 2016).
Armenia’s customs administration holds a high risk of corruption. Transparency at the border is rated as low and irregular payments and bribes are widely exchanged when dealing with customs (GETR 2014). Reforms have been implemented, which has reduced waiting times at the border, thus reducing corruption risks (NiT 2016). Nonetheless, customs procedures still lack transparency (ICS 2015). Reportedly, a two-invoice system, showing reference prices instead of invoice prices, occur during customs clearance as does the manipulation of the classification of goods to further increase costs (ICS 2015). Customs regulations are inconsistently applied undermining competitiveness, however, sound knowledge of customs laws and regulations can enable businesses to deflect most demands for bribes by officials (ICS 2015). Patronage networks are also a source of corruption in customs, as many business elites enjoy informal quotas for export and import operations (NiT 2016).
The public procurement sector carries a high risk of corruption for businesses operating in Armenia. Bribes are widely exchanged to obtain contracts and licenses (GCR 2015-2016). Companies report that funds are often diverted to businesses and individuals due to corruption and that favoritism towards well-connected companies often taint the decisions of procurement officials (GCR 2015-2016). In effect, companies have complained about opaque tender processes and preferential treatment (ICS 2015).
An investigation carried out by Armenia’s Investigation Committee revealed that purchases of equipment for video conference communication system for the army’s administration center was overpriced, and falsely invoiced. The scheme enabled the embezzlement of USD 455,000 (Arka, Nov. 2015). The Armenian defense ministry contracted A R-I C T to provide the equipment at a price of more than USD one million. The director of A R-I C T is charged with gross fraud and remains in custody pending trial (Arka, Nov. 2015, NiT 2016). No further info was available on the case.
Businesses should be aware of the high level of corruption in the natural resource sector. Most notably the mining sector has contributed to corruption risks, due to the fact it is easy for companies to bypass environmental legislation (BTI 2016).
Armenia has a legal anti-corruption framework in place, however, implementation is poor. The Criminal Code criminalizes the major forms of corrupt activity, including active and passive bribery, attempted corruption, extortion, trading in influence, bribing a foreign official, money laundering, and abuse of office in the public sector. Bribery in the private sector is also addressed in the Criminal Code. It also forbids officials to receive gifts, to hold additional jobs, or to engage in private business activities. In Armenia, a public employee is not allowed to accept any gifts, money or services for performing a service, according to the Law on Civil Service. High-ranking public officials and their families are subject to financial disclosure, however, the relevant commission lacked the authority to verify the accuracy of the declarations (HRR 2015). For instance, during 2015, several officials including judges and the prosecutor general declared gifts worth USD thousands triggering no investigation into the matters (HRR 2015).
Armenia is a member of the UN Anticorruption Convention and has signed and ratified both the Council of Europe’s Civil Law Convention on Corruption and the Criminal law Convention on Corruption.
The Armenian constitution guarantees freedoms of speech and press; however, they are limited in practice (FitW 2015). Criticism of the government is tolerated to some degree, but a number of issues are still taboo. Due to the monopolization of the media by government institution censorship is a problem in Armenia, and there is little protection for journalists who speak out (BTI 2016). Civil actors are often marginalized, and political interference in broadcast media and public opinion is widespread (BTI 2016). In practice, there are no restrictiond on Internet usage (HRR 2015). The media environment in Armenia is described as ‘not free’ (FotP 2015).
Freedom of assembly is guaranteed under Armenian law and the government generally respected these rights (HRR 2015). Due to previous communist rule, Armenia has no long-standing civic traditions. NGO’s do operate freely, but lack public trust, as they are often associated with political actors (BTI 2016).
- Bertelsmann Foundation: Bertelsmann Transformation Index 2016.
- Freedom House: Nations in Transit – Armenia 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- US Department of State: Human Rights Report – Armenia 2015.
- Freedom House: Freedom of the Press – Armenia 2015.
- Freedom House: Freedom in the World – Armenia 2015.
- US Department of State: Investment Climate Statement 2015.
- Arka News Agency: ‘Investigation into $ 500 embezzlement from Armenian defense ministry completed’, 12 November 2015.
- World Economics Forum: Global Competitiveness Report 2014.
- Transparency International: Global Corruption Barometer 2013.
- World Bank Group: Enterprise Surveys – Armenia 2013.