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Middle East & North Africa

Yemen risk report

Updated:

Corruption is rampant in Yemen. The political upheaval the country has been witnessing since 2011 has further exacerbated challenges for companies. Patronage networks and practices of nepotism severely impede the investment climate as businesses often find it difficult to navigate the inner workings of competing centers of authority without taking on a local partner. The government has put anti-corruption laws in place; however, provisions do not cover all forms of corruption. Practices such as passive bribery and extortion are excluded. Bribery and gifts are widespread practices in Yemen.

Judicial system Very high risk

Judicial corruption results in a high anti-corruption compliance risk. Bribes and irregular payments are often exchanged to obtain favorable court decisions (GCR 2014-2015). In addition, the judiciary is weak, subject to political interference and lacks resources (HRR 2015; BTI 2016). The institution is further undermined by the incapacity and, at times, reluctance of the government to enforce court orders (HRR 2015). This situation is further exacerbated in rural areas, where traditional elites settle legal disputes (BTI 2016). The enforcement of commercial law is also hampered by bribery and patronage systems (ICS 2014). Court procedures experience long delays (ICS 2014).

On a more positive note, however, some cases have demonstrated the ability of the courts to act against the wishes of the ruling elite. In one example, both the administrative court (in 2013) and later an appellate court (in November 2014) declared the presidential decree appointing the new board of the national anti-corruption body as void (BTI 2016).

Businesses find the courts unable to challenge government regulations or settle commercial disputes (GCR 2014-2015). On average, enforcing a contract takes 645 days at a cost of 30% of the claim (DB 2016). Yemen is a member of the International Center for the Settlement of Investment Disputes (ICSID) but is not a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Police Very high risk

Corruption is pervasive among police. Abuse of office and impunity within the country's security apparatus is widespread, and the government does not have effective mechanisms in place to investigate offenses (HRR 2015). The ongoing civil conflict in Yemen has had damaging ramifications for security as a whole in the country. Security institutions in rebel-occupied areas operated with impunity, and civilian oversight on these agencies deteriorated as the conflict grew (HRR 2015). Companies do not find the police to be reliable in enforcing the law or in protecting them from crime (GCR 2014-2015).

Public services Very high risk

Public services in Yemen, in general, have collapsed with the development of the conflict (Public Finance International, Nov. 2015). Corruption is widespread in public services and, consequently, is a very high risk. Petty corruption is present in every government office in Yemen (HRR 2015). Almost two-thirds of businesses expect to induce officials to issue operating licenses through offering them gifts, and most companies expect to give gifts to officials just to "get things done" (ES 2013). Acquiring public utilities is also problematic for businesses as bribes and irregular payments are regularly exchanged (ES 2013).

Land administration Very high risk

Corruption is a major constraint for businesses dealing with the land authorities. More than two-thirds of companies expect to give gifts to officials in return for a construction permit, and property rights are poorly protected, a direct result of corruption in the judiciary (ES 2013; GCR 2014-2015; BTI 2016). On average, it takes 6 procedures and 19 days to register property in Yemen (DB 2016).

Tax administration Very high risk

The tax administration carries a high corruption risk: Bribes and irregular payments are very often exchanged when meeting with tax officials (GCR 2014-2015). There are widespread reports of tax officials extorting bribes through intimidation (Know Your Country, 2016). Tax officials extract bribes from companies by under-evaluating assessments and then pocketing the difference (ICS 2014). In addition, two-thirds of businesses expect to give gifts to tax officials during meetings (ES 2013). No internal mechanisms exist to investigate corruption in the tax administration (Know Your Country, 2016). Tax laws are applied inconsistently, posing a competitive disadvantage for Yemen (ICS 2014). Likewise, tax liability is unclear and is thus arbitrarily assigned and then negotiated (Know Your Country, 2016). On average, paying taxes in Yemen requires 44 procedures (DB 2016).

Customs administration Very high risk

The customs sector carries a high risk of corruption. Levels of transparency at the borders are very low, and irregular payments and bribes are regularly exchanged when dealing with customs officials, although, corruption is more widespread when importing than when exporting (GETR 2014). The major challenges the customs administration contends with are the lack of a clear system of valuation, incomplete implementation of the UN’s Automated System for Customs Data (ASYCUDA), and the absence of corruption investigation mechanisms (Know Your Country, Feb. 2016). Businesses should also beware of rising security risks at ports as many have been gripped by violence since the outbreak of the war in 2011 (Reuters, Mar. 2016).

Public procurement Very high risk

Companies operating in Yemen's public procurement sector face a very high risk of corruption. Bribes and irregular payments are often involved in the process of awarding contracts and licenses (GCR 2014-2015). Officials view foreign investment in Yemen as a means for personal enrichment, so companies should be extremely diligent when investing (ICS 2014). Favoritism is another widespread problem among government officials, who often allocate contracts to well-connected companies; the government has a long history of awarding large public contracts to companies owned by persons close to the ruling elite (GCR 2014-2015; ICS 2014). Public contracts are seldom tendered, and when they are, processes are opaque (ICS 2014). Reportedly, government ministries employ reasons such as "time constraints" to justify uncompetitive bidding or sole sourcing contracts (Know Your Country, Feb. 2016).

Companies are recommended to use a specialized public procurement tool to mitigate the corruption risks associated with public procurement in Yemen.

Natural resources Very high risk

Corruption is pervasive in Yemen's natural resources sector. Environmental protection regulations are implemented in an inadequate and non-transparent manner (ICS 2014). Exploitation of oil resources has also been a source of rising conflict among political elites (BTI 2016). Foreign investors face unfair competition in the resource sector from state-owned enterprises; fuel imports, for instance, are monopolized by the Yemen Petroleum Company, while other state-owned oil companies compete with the private sector over oil resources (ICS 2014). The ongoing conflict has also added another dimension to corruption risks in the extractive industries, as rebel groups make USD millions by extorting the national oil company and imposing taxes on goods passing through the ports under their control (Breitbart News, Mar. 2016).

According to a UN Security Council Report, former president Saleh and his family, friends, and associates siphoned USD 60 billion from state funds, mostly from fuel subsidy programs (Middle East Monitor, Feb. 2015).

Legislation

Yemen has a legal anti-corruption framework in place, but the exiled government did not implement the relevant laws effectively (HRR 2015). An anti-corruption law criminalizes the active bribery of national and foreign officials but does not explicitly mention passive bribery or extortion. Officials at all ministries, members of parliament, Shura Council members and the president are subject to financial disclosure laws; however, high-ranking officials are immune from prosecution and cannot be put on trial unless a two-thirds majority in Parliament agrees to initiate criminal investigations, a provision that directly contradicts the UN Convention against Corruption (HRR 2015; ICS 2014; BTI 2016). There are no legal provisions for the protection of whistleblowers (ICS 2014). Government officials engage in corruption with impunity (HRR 2015). The Supreme National Authority for Combating Corruption (SNACC) received 100 corruption cases during 2013, yet no sentences were handed down (ICS 2014).

Yemen has ratified the United Nations Convention Against Corruption (UNCAC) but is not a signatory to the OECD Anti-Bribery Convention.

Civil society

Freedoms of speech and press are provided by law but are severely restricted in practice (HRR 2015). The media operates in an extremely difficult environment in Yemen as the civil conflict has decimated security and the rule of law in the country (FotP 2015). Journalists and media outlets contend with pressure from both the government and armed opposition groups, and censorship is common (FotP 2015). Journalists face physical attacks, threats, and interference in their work (FotP 2015). A freedom of information law exists but requires the establishment of an independent agency to handle requests for information, which was not set up prior to the outbreak of the conflict (HRR 2015). Internet censorship is also widespread, and both the state and rebel groups surveilled activities (the latter systematically blocked access to some websites and internet domains) (HRR 2015). The media environment in Yemen is considered "not free" (FotP 2015).

Freedom of association is provided by law, but again, the ongoing conflict has resulted in numerous violations of this right, with rebel groups cracking down on peaceful protestors (HRR 2015). Nonetheless, there are reportedly many NGOs that focus on human rights abuses and corruption (BTI 2016).

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