Transparency of the Regulatory System

Laws and regulations most relevant to foreign investors are enacted and implemented at the national level. Most ministries and agencies make draft regulations available for public comment. El Peruano, the state’s official gazette, publishes regulations at the national, regional, and municipal level. Ministries generally maintain current regulations on their websites. Rule-making and regulatory authority also exists through executive agencies specific to different sectors. The Supervisory Agency for Forest Resources and Wildlife (OSINFOR), the Supervisory Agency for Energy and Mining (OSINERGMIN), and the Supervisory Agency for Telecommunications (OSIPTEL), all of which report directly to the President of the Council of Ministers, can enact new regulations that affect investments in the economic sectors they manage. These agencies also have the remit to enforce regulations with penalties varying by sector, with information on enforcement published. Enforcement actions can be appealed through administrative processes. Regulation is reviewed on the basis of scientific and data-driven assessments, but public comments are not always received or made public.

Accounting, legal, and regulatory standards are consistent with international norms. Peru’s Accounting Standards Council endorses the use of IFRS standards by private entities. Public finances and debt obligations, including explicit and contingent liabilities, are transparent and publicly available at the Ministry of Economy and Finance website: https://www.mef.gob.pe/es/estadisticas-sp-18642/deuda-del-sector-publico 

International Regulatory Considerations

Peru is a member of regional economic blocs. Under the Pacific Alliance, Peru looks to harmonize regulations and reduce barriers to trade with other members: Chile, Colombia, and Mexico. Peru is a member of the Andean Community (CAN), which issues supranational regulations – based on consensus of its members – that supersede domestic provisions. Peru follows International Food Standards – CODEX Alimentarius (food safety), World Organization for Animal Health (OIE), and International Plant Protection Convention – (IPPC) guidelines for Sanitary and Phytosanitary (SPS) standards. When CODEX does not have limits or standards established for a product, Peru defaults to the U.S. maximum residue level or standard. Peru’s system is more aligned with the U.S. regulatory system and standards than with its other trading partners. Peru notifies all agricultural-related technical regulations to the World Trade Organization (WTO) Technical Barriers to Trade (TBT) committee.

Legal System and Judicial Independence

Peru uses a civil law system. Peru’s Civil code includes a contract section and a General Corporations Law that regulates commercial aspects of companies. Peru has a civil court responsible to solve conflicts or discrepancies that might arise between companies. Companies can also access conflict resolution services in civil courts for conflicts and litigations for which a legal claim has been filed. Peru has an independent judiciary. The executive branch does not interfere with the judiciary as a matter of policy. Regulations and enforcement actions are appealable through administrative process and the court system. Peru is also in the process of reforming its justice system, led by the National Justice Board which began operating in January 2020. This board replaced the former National Magistrates Council. The new institution is charged with establishing the selection processes for judges, appointments, evaluations, and disciplinary actions.

Laws and Regulations on Foreign Direct Investment

Peru has a stable and attractive legal framework used to promote private investment both from domestic and foreign entities. The 1993 Peruvian Constitution includes provisions that establish principles to ensure a favorable legal framework for private investment, particularly for foreign investment. A key principle is equal treatment to domestic and foreign investment. Some of the main private investment regulations include:

• Legislative Decree 662 that approves foreign investment legal stability regulations,
• Legislative Decree 757 that approves the private investment growth framework law, and
• Supreme Decree 162-92-EF that approves private investment guarantee mechanism regulations

Peru’s legal system is available to investors. All laws relevant to foreign investment along with pertinent explanations and forms can be found on the ProInversion website at: http://www.ProInversion.gob.pe/modulos/LAN/landing.aspx?are=1&pfl=1&lan=9&tit=institucional 

Competition and Anti-Trust Laws

The Institute for the Protection of Intellectual Property, Consumer Protection, and Competition (INDECOPI) is the GOP agency responsible for reviewing competition-related concerns of a domestic nature. Peru passed a mergers and acquisitions (M&A) control law in November 2019. The law requires INDECOPI to review and approve M&As involving companies, including multinationals, that have combined annual sales or gross earnings over $146 million in Peru and if the value of the sales or annual gross earnings in Peru of two or more of the companies involved in the proposed M&A operation exceed $22 million each. Pending Congressional review, the law enters into force in August 2020.

Expropriation and Compensation

Congress passed a law streamlining expropriation procedures in August 2015. The Peruvian Constitution states that Peru can only expropriate private property based on public interest, such as public works projects or for national security. In order to expropriate, Congress is required to pass a legislative decree, although a law implemented in 2020 allows for fast track expropriation of lands tied to 52 projects in Peru’s National Infrastructure Plan. The government has expressed its intention to comply with international standards concerning expropriations. Peruvian law bases compensation for expropriation on fair market value.

Illegal expropriation of foreign investment has been alleged in the extractive industry. A U.S. company alleged indirect expropriation due to changes in regulatory standards. Landowners have also alleged indirect expropriation due to government inaction and corruption in ‘land-grab’ cases that have, at times, been linked to local government endorsed projects.

Dispute Settlement

• ICSID Convention and New York Convention

Peru is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and to the International Center for the Settlement of Investment Disputes (ICSID convention). Disputes between foreign investors and the GOP regarding pre-existing contracts must still enter national courts, unless otherwise permitted, such as through provisions found in the PTPA. In addition, investors who enter into a juridical stability agreement may submit disputes with the government to national or international arbitration if stipulated in the agreement. Several private organizations – including the American Chamber of Commerce, the Lima Chamber of Commerce, and the Catholic University – operate private arbitration centers. The quality of such centers varies and investors should choose arbitration venues carefully.

The PTPA includes a chapter on dispute settlement, which applies to implementation of the Agreement’s core obligations, including labor and environment provisions. Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, admission of special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes compliance through consultation and trade-enhancing remedies. The Agreement also encourages arbitration and other alternative dispute resolution measures for disputes between private parties.

• Investor-State Dispute Settlement

The PTPA provides investor-state claim mechanisms. It does not require that an investor exhaust local judicial or administrative remedies before a claim is filed. The investor may submit a claim under various arbitral mechanisms, including the Convention on the Settlement of Investment Disputes (ICSID Convention) and ICSID Rules of Procedure, the ICSID Additional Facility Rules, the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or, if the disputants agree, any other arbitration institution or rules. Peru has paid previous arbitral awards; however, a U.S. court found in one case that Peru altered its tax code prior to payment, thus reducing interest payments.

In 2011, a claimant filed an arbitral challenge against Peru stemming from the alleged failure by the state to undertake agreed-upon environmental remediation at a mining facility. The arbitration was dismissed in 2016 on grounds of jurisdiction.

In February 2016, a U.S. investor filed a Notice of Intent to pursue international arbitration against the GOP for violation of the U.S.-Peru Trade Promotion Agreement. The investor, which refiled its claim in August 2016, holds agrarian land reform bonds that it argues the GOP has undervalued.

In September 2019, a U.S. investor filed an arbitration claim against the GOP over alleged interference over environmental permitting and contractual issues for a hydro power project.

In February 2020, a claimant filed an arbitration claim against Peru for violation of the U.S.-Peru Trade Promotion Agreement regarding a tax and royalty dispute between its mining subsidiary and Peru’s tax authority SUNAT.

There is no recent history of extrajudicial action against foreign investors.

• International Commercial Arbitration and Foreign Courts

The 1993 Constitution allows disputes among foreign investors and the government or state-controlled enterprises to be submitted to international arbitration. The Supreme Court ruled in 2005 that all arbitration awards are final and are not subject to appeal.

Bankruptcy Regulations

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract. However, administrative bankruptcy procedures under INDECOPI have proven to be slow and subject to judicial intervention. Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one to two years. Peru does not criminalize bankruptcy. World Bank’s 2019 Doing Business Report ranked Peru 90th of 190 countries for ease of “resolving insolvency.”

Peru does not have a holistic action plan or national standards for responsible business conduct (RBC). Peru has prioritized implementing the UN Principles on Business and Human Rights. The Human Rights and Business Working Group is pressing Peru to join the Voluntary Principles on Human Rights and Security Initiative as part of its work towards implementing the UN Principles. Many multinational companies already adhere to high standards for RBC. Several independent NGOs monitor and promote RBC, notably Peru 2021. These organizations are able to work freely. Standards for conduct on environmental, social, and governance issues are implemented through sector-specific regulation. In some regions, lack of capacity hinders the government’s ability to enforce regulations. In February 2011, INDECOPI adopted the Peruvian Technical Regulation of Social Responsibility ISO 26000 that serves as a voluntary guide to CSR activities.

Given its importance to the Peruvian economy, the extractives sector has been a governmental priority for promoting RBC. Supreme Decree No. 042-2003-EM promotes social responsibility in the mining sector, encouraging local employment opportunities, support to communities’ projects, development activities, and purchase of local goods and services. The decree requires mining companies to publish an annual report on sustainable development activities. The Ministry of Energy and Mines has a guidebook for community relations, as well as public information on social measures related to the mining and energy sectors. On February 15, 2012, Peru was listed as a compliant country under the Extractive Industries Transparency Initiative (EITI), as the GOP and extractive industries openly publish all company payments and government revenues from oil, gas, and mining. Peru is one of two EITI-compliant countries in Latin America. Peru is, however, at risk of being suspended from the compliant country category for failing to comply with two EITI observations of the 2019 validation process. Peru received a prior notice from the international EITI board for the delay in presenting the Seventh EITI Conciliation Report 2017-2018, which should have been delivered by December 2019. The deadline has been extended until June 30, 2020 and, if unmet, might result in Peru’s suspension.

Peru continues to implement its National Strategy to Combat Forced Labor, which emphasizes the state’s role to protect and promote labor rights. The plan simultaneously prioritizes building capacity and empowering vulnerable groups to transform their environment and enforce their rights. The plan addresses both medium and long-term multi-sector plans to eliminate or reduce conditions that enable forced labor. Despite these efforts, the government did not effectively enforce labor laws in all cases. Child labor (particularly in informal sectors), forced labor, and employers engaging in antiunion practices remain significant problems.

In February 2013, the superintendent of the Lima Stock Exchange published the Code on Good Corporate Governance for Peruvian Companies, developed in conjunction with thirteen public and private entities including the Ministry of Economy and Finance. The document outlines shareholder protections.

ProInversion serves as the National Point of Contact (NCP) for the OECD Guidelines for Multinational Enterprises (MNE), to which Peru is an adherent. The NCP participates in activities with the CNP OECD Network located in 50 countries and is in permanent coordination with the OECD Responsible Business Conduct working group. The NCP participated in the OECD Business Responsible and NCP OECD network meetings in Paris in December 2018. The NCP also co-hosted with the OECD an international workshop in Lima in November 2019 on best Latin American practices for investment promotion and sustainable development. The workshop included investment promotion agency experts from Latin America, government representatives from investment and development areas, and business representatives. The NCP also held several workshops throughout 2018 such as the Responsible Mining and OECD Directives in Cajamarca (August 2018) and the Peru Investment Climate and Directives for OECD businesses in Cusco (October 2018). Peru is currently in the adhesion process to the OECD Codes of Liberalization of Capital Movements and of Current Invisible Operations and is the first country in doing so outside of an OECD access process.

It is illegal in Peru for a public official or employee to accept any type of outside remuneration for the performance of his or her official duties. The law extends to family members of officials and to political parties. Regulations published in March 2017 aim to limit conflicts of interest. In 2019, Peru made the irregular financing of political campaigns a crime, carrying penalties up to eight years jail time.

Peru has ratified both the UN Convention against Corruption and the Organization of American States Inter-American Convention against Corruption. Peru has signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has adopted OECD public sector integrity standards through the GOP’s National Integrity and Anticorruption Plan. The Public Auditor (Contraloria) is the responsible government agency for overseeing proper procedures in public administration. In January 2017, the GOP passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if its subsidiaries acted under authorization.  Penalties include an indefinite exclusion from government contracting and substantially increased fines. The Public Auditor also began implementing audits of reconstruction projects that run in parallel to the project, rather than after project implementation, in an effort to improve transparency. It is also running parallel audits to the different government actions at all levels (central, regional, and local) to combat the COVID-19 crisis.

U.S. firms have reported problems resulting from corruption, usually in government procurement processes and in the judicial sector, with defense and police procurement generally considered among the most problematic in spite of the PTPA’s stipulations and Peru’s Government Procurement Law (Legislative Decree No. 1017, DL 1017, one of several laws passed with the specific intention to implement PTPA). Transparency International lowered Peru’s ranking to 101st out of 180 countries in its 2019 Corruption Perceptions Index from 105th in 2018.

During the January 2020 congressional elections, 74 candidates had ongoing criminal proceedings for alleged corruption (Andina). Of the 25 regional governors elected in 2018 regional elections, at least five were under preliminary investigation or had been convicted of corruption-related charges. Eleven of the elected Congress representatives have completed sentences for various crimes and seven had judicial investigations pending for corruption-related crimes. A study published in August 2017 counted 395 investigations of corruption or trials against current or former governors, with 30 percent of the cases in the regions of Pasco, Tumbes, and Ucayali. It also identified 1,052 investigations of corruption or trials against 530 current or former mayors, with Lima leading the list with 109 cases (10.4 percent of the total). https://plataformaanticorrupcion.pe/wp-content/uploads/2017/07/INFORME-CORRUPCION-SOBRE-GOBERNADORES-Y-ALCALDES.pdf 

Corruption in Peru is widespread and systematic, affecting all levels of government and the whole of society, which, until recently, had developed a high tolerance to corruption. Cases of grand corruption have significantly increased in recent years, including embezzlement, collusion, bribery, extortion or fraud in the justice system, politics and public works, involving high level authorities or key public officers who abuse their public power for private gain. Corruption has become more rampant, malign and pervasive in public procurement, due to weak control and risk management systems, lack of ethical or integrity values in some public officials (and society), lack of transparency and accountability in procurement processes, social tolerance of corruption, with little or no enforcement. This has led to Peruvian participation in regional cases like Odebrecht, but also in public and private sector corruption related to conflict of interests, nepotism, abuse of discretion, favoritism, and illegal contributions, as well as illicit financing of political interests, candidates and processes. This embedded dynamic has eroded trust, credibility and integrity of public entities and engendered mistrust in the private sector. As a result, Peru has increasingly become home to criminal and transnational enterprises such as drug trafficking, money laundering, illegal logging and mining, and human trafficking, among others.

collusion, bribery, extortion or fraud in the justice system, politics and public works, involving high level authorities or key public officers who abuse their public power for private gain. Corruption has become more rampant, malign and pervasive in public procurement, due to weak control and risk management systems, lack of ethical or integrity values in some public officials (and society), lack of transparency and accountability in procurement processes, social tolerance of corruption, with little or no enforcement. This has led to Peruvian participation in regional cases like Odebrecht, but also in public and private sector corruption related to conflict of interests, nepotism, abuse of discretion, favoritism, and illegal contributions, as well as illicit financing of political interests, candidates and processes. This embedded dynamic has eroded trust, credibility and integrity of public entities and engendered mistrust in the private sector. As a result, Peru has increasingly become home to criminal and transnational enterprises such as drug trafficking, money laundering, illegal logging and mining, and human trafficking, among others.

In December 2016, Brazilian company Odebrecht admitted in a settlement with the United States, Brazil, and Switzerland that it had paid $29 million in bribes in Peru between 2004 and 2015. In 2017, the Peruvian Government issued an emergency decree restricting the sale of Odebrecht assets to ensure payment of corruption-related reparations. In May 2018, the Peruvian Government formally filed a request with the United States to extradite former President Alejandro Toledo (2001-2006) who resides in the United States, for allegedly laundering over $20 million in Odebrecht bribes in exchange for facilitating Odebrecht’s winning bid to build the Inter-Oceanic Highway. High-ranking officials from the last four Peruvian administrations have also been investigated in connection with the Odebrecht scandal, including former presidents. Under Odebrecht-related investigations, local giant Credicorp also confessed irregularly financing the 2011 campaign of Keiko Fujimori, including through illicit cash above amounts allowed by law.

The future of President Vizcarra’s signature political and anti-corruption reform agenda, which was opposed by the last congress in 2019 leading to its dissolution and new legislative elections, looks uncertain. With limited support in congress, a growing economic crisis, and challenges to flattening the COVID-19 curve, and the distraction of upcoming general campaigns in April 2021, Vizcarra can expect a difficult road ahead to push forward his agenda. Though he remains popular, Vizcarra has reiterated he will not stand for reelection and the field potential presidential candidates is wide open. The handoff to a new administration remains on schedule for July 2021.

Resources to Report Corruption

Susana Silva Hasenbank
Secretary of Public Integrity of the Prime Minister Office and General Coordinator
High Commission to Fight Corruption (CAN)
Jr. Carabaya Cdra. 1 S/N – Lima,
(51) (1) 219-7000, ext. 7118
ssilva@pcm.gob.pe

General Comptroller’s Office

Jr. Camilo Carrillo 114, Jesus Maria, Lima
(51) (1) 330-3000
contraloria@contraloria.gob.pe

Contact at “watchdog” organization (international, regional, local, or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Samuel Rotta
Executive Director
ProEtica, the Peruvian chapter of Transparency International
Calle Manco Capac 816, Miraflores, Lima
(51) (1) 446-8581, 446-8941, 446-8943
srotta@proetica.org.pe