Transparency of the Regulatory System

The government does not have transparent policies to establish clear “rules of the game.” Legal, regulatory, and accounting systems exist but implementation is opaque. The government does not foster competition on a non-discriminatory basis. In fact, the Ortega regime maintains direct control over various sectors of the economy to enrich its inner circle. Ortega also controls the judicial system and there is no expectation of fair and objective rulings. Investors regularly complain that regulatory authorities are arbitrary, negligent, or slow to apply existing laws, at times in an apparent effort to favor one competitor over another.

The executive branch retains ultimate rule-making and regulatory authority. In practice, the relevant government agency is empowered to levy fines directly. In some instances, the prosecutor’s office may also bring enforcement actions. These actions are widely perceived to be controlled by the executive branch and are neither objective nor transparent.

NGOs and private sector associations do not manage informal regulatory processes. There have not been recent regulatory or enforcement reforms.

There is no accountancy law in Nicaragua. International accounting standards are not a focus for most of the economy, but major businesses typically use IFRS standards or U.S. GAAP. The national banking authority officially requires loans to be submitted using IFRS standards.

Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. Drafts are commonly not published on official websites or available to the public. The legislature is not required by law to give notice. The executive branch proposes most investment legislation; the Sandinista party has a supermajority in the National Assembly and seldom modifies such legislation.

Nicaragua publishes regulatory actions in La Gaceta, the official journal of government actions, including official summaries and the full text of all legislation. La Gaceta is available online. There are no effective oversight or enforcement mechanisms to ensure the government follows administrative processes.

Public finances and debt obligations are not transparent. The Central Bank has increasingly refused to publish key economic data starting in 2018, including public finances and debt obligations. The Central Bank published limited data in 2020 as a condition of funding from the International Monetary Fund. There is no accountability or oversight.

International Regulatory Considerations

All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. However, authorities willingly flout the national regulatory system, and investors claim that some customs practices violate CAFTA-DR provisions.

Nicaragua is a signatory to the Trade Facilitation Agreement and reported in July 2018 that it had implemented 81 percent of its commitments to date; however, Nicaragua’s trade facilitation progress remains beset with bureaucratic inefficiency, corruption, and lack of transparency. Nicaragua is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade of draft technical regulations.

In 2020 the government passed amendments to the “Consumer Protection Law” to treat financial services as a basic good and forbid commercial banks operating in Nicaragua from refusing financial services without a reason recognized in Nicaraguan law. If implemented, this provision could threaten commercial banks’ capacity to enforce international anti-money laundering compliance measure, avoid criminal or suspicious transactions, or meet their contractual or other legal obligations to implement international sanctions laws.

Legal System and Judicial Independence

Nicaragua is a civil law country in which legislation is the primary source of law. The legislative process is found in Articles 140 to 143 of the Constitution. However, implementation and enforcement of these laws is neither objective nor transparent. Contracts are ostensibly legally enforced through the judicial system, but extrajudicial factors are more likely to influence rulings than the facts at issue. The legal system is weak and cumbersome. Nicaragua has a Commercial Code, but it is outdated and rarely used. There are no specialized courts.

Members of the judiciary, including those at senior levels, are widely believed to be corrupt and subject to significant political pressure, especially from the executive branch. The judicial process is neither competent, fair, nor reliable. Regulations and enforcement actions are technically subject to judicial review, but appeals procedures are neither transparent nor objective.

Laws and Regulations on Foreign Direct Investment

Nicaragua has laws that relate to foreign investment but implementation, enforcement, and interpretation are subject to corruption and political pressure. The CAFTA-DR Investment Chapter ostensibly establishes a secure, predictable legal framework for U.S. investors in Central America and the Dominican Republic. The agreement provides six basic protections: (1) nondiscriminatory treatment relative to domestic investors and investors from third countries; (2) limits on performance requirements; (3) the free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a minimum standard of treatment in conformity with customary international law; and (6) the ability to hire key managerial personnel without regard to nationality. The full text of CAFTA-DR is available at http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text .

Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment. It permits 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.) It also establishes national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.

MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at http://www.tramitesnicaragua.gob.ni , which includes detailed information on administrative procedures for investment and income generating operations such as the number of steps, contact information for relevant entities, required documents costs, processing time, and applicable laws. The site is available only in Spanish.

Competition and Antitrust Laws

The Institute for the Promotion of Competition (Procompetencia) investigates and disciplines businesses engaged in anticompetitive business practices but has no effective power. The Ortega regime controls decisions regarding competition.

Expropriation and Compensation

There is a long history of expropriations in Nicaragua and existing cases of the government expropriating property regardless of legal basis. As a result, considerable uncertainty remains in securing property rights (see Protection of Property Rights).

During the ongoing crisis, multiple landowners reported land invasions by government-affiliated actors. Landowners were sometimes able to resolve these invasions through government connections or bribes. In instances where the government actually claimed legal right to the land, offers of compensation—if any—are calculated on cadastral value, which vastly underestimates the actual value of the land. Ortega declared on numerous occasions that the government would not act to evict those who had illegally taken possession of private property.

There is generally no credible due process for land expropriations. Conflicting land title claims are abundant and judicial appeal in these cases is very challenging. Since 2018, the government has used proxies and its control over the judicial and executive branches to use land seizures to punish opposition actors and enrich government insiders. In 2020, the government increased seizures of property based on coercive tax bills.

Dispute Settlement

ICSID Convention and New York Convention

Nicaragua is a member of the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). It signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards in 2003. There is no specific domestic legislation providing for enforcement under the ICSID Convention or 1958 New York Convention.

Investor-State Dispute Settlement

CAFTA-DR establishes an investor-state dispute settlement mechanism. An investor who believes the government has breached a substantive obligation under CAFTA-DR or that the government has breached an investment agreement may request binding international arbitration in a forum defined by the Investment Chapter in the Agreement. There have only been two official claims or disputes by U.S. investors under CAFTA-DR, the most recent in April 2021. Both cases are still pending before the ICSID. Many U.S. investors reported customs and other procedures that they allege are not compliant with Nicaragua’s obligations under CAFTA-DR. Businesses operating in Nicaragua say the investor-state dispute settlement mechanism does not represent a viable means of due process to enforce CAFTA-DR obligations due to the high expense and likelihood of becoming a political target. Many companies facing Nicaragua’s noncompliance with CAFTA-DR simply pay the fines or increased taxes.

Embassy Managua is unaware of any instances of local courts recognizing and enforcing arbitral awards issued against the government. Given the judiciary’s lack of independence and vulnerability to political pressure, it is unlikely the courts would recognize such a judgment.

Investors should be aware that the government can take adverse action against them at any given time with limited basis or recourse. However, it does not appear that foreign investors have been targeted due to nationality.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) is not common, and many Nicaraguans companies are unfamiliar with the practice. The Mediation and Arbitration Law (2005/540) is based on the UNCITRAL model law and established the legal framework for ADR. The Nicaraguan Chamber of Commerce and Services (CCSN) founded Nicaragua’s Mediation and Arbitration Center. CCSN conducts trainings and other events to promote the value of ADR and encourage its use. Arbitration clauses are included in some business contracts, but their enforceability has not been tested in Nicaraguan courts.

The Embassy is unaware of any local courts that have enforced foreign arbitral awards. In general, enforcement of court orders is frequently subject to non-judicial considerations. The Embassy is unaware of any recent domestic decisions involving investment disputes with state-owned entities (SOE).

Bankruptcy Regulations

Bankruptcy provisions are included in the Civil and Commercial Codes, but there is no tradition or culture of bankruptcy in Nicaragua. Companies simply close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving creditors unprotected. Creditors typically attempt to collect as much as they can directly from the debtor to avoid an uncertain judicial process or give up on any potential claims. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization and do not provide equitable treatment of creditors.

President Daniel Ortega and his wife and Vice President Rosario Murillo dominate Nicaragua’s highly centralized, authoritarian political system. Ortega is serving in his third consecutive term as president after the Ortega-controlled Supreme Court ruled that a constitutional ban on the re-election of a sitting president was unenforceable. Ortega’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich him and his inner circle.

These abuses of power came to a head in April 2018 when Ortega’s security forces killed over 300 peaceful protesters. Government tactics included the use of live ammunition, snipers, fire as a weapon, and armed vigilante forces. Protesters built makeshift roadblocks and confronted the national police (NNP) and parapolice with rocks and homemade mortars. The ensuing conflict left over 325 dead, thousands injured, and more than 100,000 exiled in neighboring countries. Hundreds were illegally detained and tortured. Beginning in August 2018, the Ortega government instituted a policy of “exile, jail, or death” for anyone perceived as regime opponents. It amended terrorism laws to include prodemocracy activities and used the legislature and justice system to characterize civil society actors as terrorists, assassins, and coup-mongers. Political risk has increased dramatically as a result, and the future of the country’s political institutions remains very uncertain.

The NNP presence is ubiquitous throughout Nicaragua, including with randomized checkpoints. Excessive use of force, false imprisonment, and other harassment against opposition leaders—including many private sector leaders—is common. On March 5, 2020, the United States sanctioned the NNP for its human rights abuses against the people of Nicaragua.

Widespread dissatisfaction with Ortega’s authoritarian rule continues. Elections are scheduled for November 2021, and Ortega plans to compete for a fourth consecutive presidential term, raising doubts whether the Ortega regime will permit elections that are free and fair. The Department of State’s Bureau of Consular Affairs advises that travelers reconsider travel to Nicaragua due to limited healthcare availability and arbitrary enforcement of laws.