Nicaragua is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 21 February 2020
In February 2020, Nicaragua made a high-level political commitment to work with the FATF and GAFILAT to strengthen the effectiveness of its AML/CFT regime. Since the completion of its MER in July 2017, Nicaragua has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including by increasing the use of financial information in the investigation and prosecution of ML offenses and fixing its legal framework for criminalizing TF. Nicaragua will work to implement its action plan, including by: (1) developing a more comprehensive understanding of its ML/TF risk; (2) more proactively seeking international cooperation to support ML investigation, especially with the aim of identifying and tracing assets with confiscation and repatriation purposes; (3) conducting effective risk based supervision; (4) taking appropriate measures to prevent legal persons and arrangements from being misused for criminal purposes, and ensure that accurate and up to date basic and beneficial ownership information is available on a timely basis.
Compliance with FATF Recommendations
The latest follow-up to the Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Nicaragua was undertaken in 2019. According to that Evaluation, Nicaragua was deemed Compliant for 4 and Largely Compliant for 23 of the FATF 40 Recommendations.
US Department of State Money Laundering assessment (INCSR)
Nicaragua is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Nicaragua is not a regional financial center but remains vulnerable to money laundering as a transit country for illegal narcotics. Factors that increase the risk for financial abuse and international organized crime include the current socio-political crisis, law enforcement corruption, the deterioration of democratic institutions, and the politicization of AML/CFT regulators.
The Government of Nicaragua reports technical progress in its AML/CFT and Financial Analysis Unit (FAU) regulatory frameworks in 2019. However, the government’s lack of political will to fight corruption and organized crime, and the ineffectiveness of its regulatory bodies, remain hindrances to regional security efforts.
The areas of greatest concern include the government’s unwillingness to investigate sanctioned individuals and its decision to harbor high-profile former foreign officials accused of corruption and money laundering. Its potential to domestically weaponize AML/CFT laws for use against political opponents is particularly dangerous. On October 4, 2018, FinCEN issued an advisory warning U.S. financial institutions of the increasing risk that proceeds of Nicaraguan political corruption may enter or pass through the U.S. financial system.
Nicaragua is subject to financial sanctions imposed by the European Union (EU), Council Regulation (EU) 2019/1716, on 14 October 2019.
On 27 November 2018, the US issued an Executive Order blocking property of certain persons contributing to the situation in Nicaragua in response to the political situation in that country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 22
World Governance Indicator – Control of Corruption 13
Rampant corruption within Nicaragua's political circles impairs the functioning of state institutions and limits foreign investment. International companies report widespread favoritism and impunity among public officials. The judicial system functions under heavy political pressure, and courts are susceptible to corruption and manipulation by politicians and criminal organizations. High-risk areas for bribery include Nicaragua's tax and customs sectors, where the application of regulations and procedures is arbitrary and is plagued by extortion, facilitation payments and kickbacks. Nicaragua's anti-corruption legislation is comprehensive and addresses all major forms of corruption; including bribery, abuse of office, facilitation payments and gifts to public officials. Nevertheless, the law is not enforced effectively, allowing for pervasive corruption and creating a challenging business environment for foreign companies. For further information - GAN Integrity Business Anti-Corruption Portal
Nicaragua, the poorest country in Central America and the second poorest in the Western Hemisphere, has widespread underemployment and poverty. Textiles and agriculture combined account for nearly 50% of Nicaragua's exports.
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) has been in effect since April 2006 and has expanded export opportunities for many Nicaraguan agricultural and manufactured goods.
In 2013, the government granted a 50-year concession to a newly formed Chinese-run company to finance and build an inter-oceanic canal and related projects, at an estimated cost of $50 billion. The canal construction has not started.
Agriculture - products:
coffee, bananas, sugarcane, rice, corn, tobacco, cotton, sesame, soya, beans; beef, veal, pork, poultry, dairy products; shrimp, lobsters
food processing, chemicals, machinery and metal products, knit and woven apparel, petroleum refining and distribution, beverages, footwear, wood, electric wire harness manufacturing, mining
Exports - commodities:
coffee, beef, gold, sugar, peanuts, shrimp and lobster, tobacco, cigars, automobile wiring harnesses, textiles, apparel, cotton
Exports - partners:
US 56.5%, Mexico 10.7%, Venezuela 5.4%, El Salvador 4.3% (2015)
Imports - commodities:
consumer goods, machinery and equipment, raw materials, petroleum products
Imports - partners:
US 19.9%, Mexico 14.9%, China 10.6%, Venezuela 7%, Costa Rica 7%, El Salvador 5.7%, Guatemala 5.6%, Netherlands Antilles 5.5% (2015)
Investment Climate - US State Department
The Government of Nicaragua is actively seeking to increase economic growth by supporting and promoting foreign investment. The Government emphasizes its pragmatic management of the economy through its model of consensus and dialogue with private sector and labor representatives. A key draw for investors is Nicaragua’s relatively low-cost and young labor force, with approximately 75 percent of the country under 39 years old. Additionally, the country’s relative physical safety compares favorably with other countries in Central America.
To attract investors, Nicaragua offers significant tax incentives in many industries, including mining, and tourism. These include exemptions from import duties, property tax incentives, and income tax relief. The country has a well-established free trade zone regime with major foreign investments in textiles, auto harnessing, medical equipment, call centers, and back office services. The construction sector has also attracted significant investment, buoyed by major infrastructure and housing projects. The country’s investment promotion agency, ProNicaragua, is a well-regarded and effective facilitator for foreign investors.
In August 2015, the Government of Nicaragua resolved the last of the property claims disputes covered under Section 527 of the Foreign Relations Authorization Act, ending a twenty-year period of waiver reviews and potential aid restrictions. Although the waiver cases have been resolved, the Embassy continues to hear accounts from U.S. citizens seeking redress for property rights violations that were not covered by this legislation and has raised concerns to the Nicaraguan government about the infringement of private property rights affecting U.S. citizens. The Embassy continues to advocate that the Government resolve all outstanding property claims and improve its overall investment and business climate.
Weak governmental institutions, deficiencies in the rule of law, and extensive executive control can create significant challenges those doing business in Nicaragua, particularly smaller foreign investors. Many individuals and entities raise concerns about customs and tax operations in particular. Large-scale investors and firms with positive relations with the ruling party are advantaged in their dealings with government bureaucracy. There is a widespread perception that the judicial sector and police forces have been politicized and are subject to external influence. Additionally, the important presence of state-owned enterprises and firms owned or controlled by government officials reduces transparency and can put foreign companies at a disadvantage.
American and other property rights holders have voiced concerns over the proposed inter-oceanic canal across Nicaragua. In 2013 the Government of Nicaragua granted the Hong Kong Nicaragua Development Group (HKND) a 100-year concession to build the proposed canal with no competition and no opportunity for public comment. The Nicaraguan law that grants the canal concession states that property owners will be paid at “cadastral value,” which U.S. investors fear will be below fair market value and in violation of the Nicaraguan government's obligations under the Free Trade Agreement between the United States, Central America, and the Dominican Republic (CAFTA-DR). The U.S. Embassy in Managua has reminded the Nicaraguan government of its obligations under CAFTA-DR as well as the need for an open and transparent process.
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