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Corruption is a problem for businesses operating in Latvia, and demands for bribes and other irregular payments are pervasive. Close ties between public officials and businesses, the influence of private interests involved in illegal political party funding and the unethical behavior of companies are considered competitive disadvantages for the country. Latvia’s Criminal Law criminalizes several forms of corruption, including active and passive bribery, gifts, conflicts of interest and influence peddling. Anti-corruption laws are not effectively implemented by the government. The government recently strengthened the independence of the country’s anti-corruption commission, established a comprehensive e-government system and centralized procurement processes, but procurement remains the sector most affected by corruption. Giving gifts to expedite or obtain administrative services is reportedly widespread, and irregular payments may also occur.
Last updated: December 2015
Businesses are faced with a modest risk of corruption when dealing with the judiciary in Latvia. Problems of inefficiency, politicisation, and corruption exist in the judicial system (FitW 2015). Latvian’s report low-levels of trust in the judicial system to resolve complaints of corruption (EUB 2014), and nearly half of citizens perceive judicial authorities to be corrupt (GCB 2013). Businesses believe the judiciary is independent but feel the legal framework for settling disputes and challenging regulations inefficient (GCR 2015-2016). Latvia has been criticised for delays in the prosecution of complex criminal cases, which in turn hinders the effective crackdown on corruption (NiT 2015). This applies in particular to high-level corruption, where only a few cases have been resolved. Convictions in corruption cases have generally been reached in cases involving mid-level to low-level officials and transactions of a modest amount (EUACR 2014). The government has eased the process of enforcing contracts by restructuring the courts and has introduced comprehensive specialized laws to regulate domestic arbitration and voluntary mediation (DB 2016). Latvia accepts the principle of international arbitration and is a party to the International Centre for Settlement of Investment Disputes (ICSID), the New York Convention 1958 (UNCITRAL), and the World Bank’s Multilateral Investment Guarantee Agency (MIGA). Parties usually refer commercial disputes to arbitration rather than to the courts.
Companies interacting with the Latvian police do not face high corruption risks. Businesses perceive the police forces to be reliable in protecting them from crime and holding up the rule of law (GCR 2015-2016). Nonetheless, most companies pay for security in Latvia (ES 2013). Civilian authorities exercise effective control over security forces, and effective mechanisms to investigate police abuse and corruption are in place. Approximately half of surveyed citizens in Latvia believe police authorities are corrupt (GCB 2013; EUB 2014).
The public services sector may carry some corruption risks for businesses operating in Latvia. Almost three-quarters of surveyed companies believe that bribery and the use of connections is the easiest way to obtain certain public services (European Commission, Feb. 2014). One-quarter of Latvian respondents think that bribery and abuse are widespread among public officials issuing business permits, and most believe it is acceptable to give gifts in order to obtain a service from the public administration (European Commission, Feb. 2014). Administrative and petty corruption has reportedly diminished in recent years (NiT 2015), ranking Latvia as the country with the least administrative corruption compared to other ex-Soviet countries (OECD, Feb. 2015). Companies believe the burden of government regulations represents a competitive disadvantage, and inefficient government bureaucracy is a problematic factor for doing business (GCR 2015-2016). The cost and the number of procedures required to start a business in Latvia are lower than the regional average (DB 2015).
Latvia’s land administration does not carry any significant corruption risk for businesses. Latvia has the necessary legal framework for the protection of property rights, and land rights of foreign investors are adequately safeguarded by the law (BTI 2014). Companies evaluate the protection of property rights as strong (GCR 2015-2016). Foreign investors may turn to the Latvian Patent Office when property rights are violated (ICS 2015). Almost half of citizens believe active or passive bribery are common among public officials issuing construction permits (European Commission, Feb. 2014).
Companies face a very low risk of corruption when dealing with the Latvian tax administration. Businesses identify tax rates and tax regulations to be among the most problematic factors to doing business in the country (GCR 2015-2016), but no citizens believe bribery is pervasive among tax officials (European Commission, Feb. 2014). The government introduced an electronic declaration system and a simplified the declaration filling process, thus significantly reducing the time spent by companies complying with tax regulations (OECD, Aug. 2015). Paying taxes is less time-consuming on average compared to other OECD countries (DB 2016).
Latvia’s customs administration carries a low corruption risk for business. Companies rate the transparency of the border administration as high and report that irregular payments in exporting and importing are rare; burdensome customs procedures are a problematic factor affecting trade in Latvia (GETR 2014). Only a small percentage of households believe bribery is widespread among customs officials (EUB 2014).
Latvia’s public procurement sector carries a moderate risk of corruption and is perceived as lacking fairness and transparency (ICS 2015). There have reportedly been occasions where companies complain that bidding requirements have been shaped to favor ‘preferred’ contractors and that such contractors at times take part in forming the bidding requirements (ICS 2015). Two-thirds of surveyed firms believe corruption is widespread in procurement managed by national authorities, while more than half believe that procurement managed by local authorities is marred with corruption (European Commission, Feb. 2014). Companies complain that funds are sometimes diverted due to corruption and that public officials show favoritism towards well-connected companies and individuals when deciding upon policies and contracts (GCR 2015-2016). The government has implemented a set of measures to control corruption in the procurement sector, including the compulsory online publication of small contracts and the use of centralized procurement for a range of services. The rate of published tenders in Latvia is one of the highest in the EU (OECD, Feb. 2015).
Ugis Magonis was recently dismissed as the head of the state-owned company Latvijas Dzelzcels after being arrested and put into custody for allegedly accepting a bribe of EUR 500,000 in connection with a tender to buy four locomotives. Latvijas Dzelzcels bought the four engines from Skinest Rail, owned by a wealthy Estonian businessman, Oleg Ossinovski, for EUR 8 million. Two of the four engines were not functioning. Ossinovski had himself bought the four engines from an Estonian state company for EUR 2 million (LSM, Aug. 2015). Companies are recommended to use a specialized due diligence public procurement tool to mitigate corruption risks related to public procurement in Latvia.
Latvia has established a comprehensive anti-corruption legal framework, which the government has failed to effectively implement in practice (HRR 2014). The Criminal Law of Latvia criminalizes active and passive bribery, extortion, attempted corruption, money laundering and bribery of foreign officials. On Prevention of Conflict of Interest in Activities of Public Officials strictly regulates the employment of public officials and contains compatibility provisions. The law also expands the scope of the term ‘state official’ to include the leadership of state-controlled enterprises, board members and company councils of businesses having government capital over 50% (ICS 2015). Gifts are strictly regulated, and only diplomatic and official gifts are permitted when a public official is performing his/her official duties. The Law on the Prevention of Money Laundering and of Terrorist Financing (unofficial translation) is another legislation related to combating corruption. The Public Procurement Law regulates procurement and provides for the obligatory use of centralised procurement, the publishing of small procurements and administrative sanctions for the violation of procedures (EUACR 2014). After the amendment of the Code of Administrative Violations, officials can be sanctioned for procurement violations that do not amount to criminal offenses (OECD, Aug. 2015). Whistleblower protection is considered poor (NiT 2015). The Criminal Law criminalizes bribery in the private sector and the bribery of public sector employees who are not considered public officials (e.g. medical staff) (NIS 2011). The Political Parties Funding Law seeks to limit private sector interference in political party activities.
Latvia is a party to the Council of Europe Criminal Law Convention on Corruption and the Council of Europe Civil Law Convention on Corruption. It has also ratified the United Nations Convention against Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Freedoms of speech and of the press are guaranteed by Latvia’s constitution, and the government generally respects these rights. The media covers a large sphere of political ideas in a competitive media environment. Although libel is criminalized, cases, where journalists face criminal charges, are rare (FotP 2015). The Freedom of Information Law stipulates public accessibility to government information, and the government usually respects this right and provides information upon request (HRR 2014). Journalists have occasionally faced attacks or harassment, and the case of journalist Grigorijs Nemcovs’ murder in 2010 remains unresolved; Nemcovs was the publisher of the newspaper Million that focused on political corruption (FitW 2015). No cases of attacks were reported in recent years (FotP 2015). Latvia’s press environment is described as ‘free’ (FotP 2015).
Latvian law provides for freedoms of assembly and association, and these rights are generally respected by the government (HRR 2014). Nevertheless, Latvian civil society remains small and weak (BTI 2014). Latvia’s accession to the European Union allowed civil society to obtain a formal role in state decisionmaking. The country experienced an increase in civil society’s activities against corruption in its first five years after EU accession (NISA 2011). Some state institutions in Latvia have initiatives to involve NGOs in government operations (NiT 2015).
- World Economic Forum: Global Competitiveness Report 2015-2016.
- World Bank & IFC: Doing Business 2016.
- US Department of State: Investment Climate Statement – Latvia 2015.
- Freedom House: Freedom in the World – Latvia 2015.
- Freedom House: Freedom of the Press – Latvia 2015.
- Freedom House: Nations in Transit – Latvia 2015.
- OECD: Improving public sector efficiency for more inclusive growth in Latvia, August 2015.
- OECD: OECD Economic Surveys Latvia, February 2015.
- LSM.LV: ‘Latvia may have bought ‘useless’ locomotives as part of corruption scandal’, 12 August 2015.
- Bertelsmann Foundation: Transformation Index – Latvia 2014.
- US Department of State: Country Report on Human Rights Practices for Latvia 2014.
- Freedom House: Freedom in the World – Latvia 2014.
- Eurobarometer: Special Eurobarometer 2014.
- World Economic Forum: The Global Enabling Trade Report 2014.
- Knowyourcountry.com: Risk and Compliance Report – Latvia 2014.
- European Commission: EU Anti-Corruption Report – Latvia 2014.
- Transparency International: Global Corruption Barometer 2013.
- European Commission: Businesses’ Attitudes Towards Corruption in the EU 2013.
- Transparency International: National integrity System Assessment – Latvia 2011.