Transparency of the Regulatory System
The Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and other laws cover broad areas including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private sector associations or nongovernmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations, but not always and sometimes with for very limited time lapses. Proposed laws are typically published as drafts for public comment, though not always, and the complexity of the subject is not necessarily taken into account.
Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with greater administrative and financial independence from the executive branch. Colombia has completed its transition to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.
Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org/ and Colombia’s website http://colombia.eregulations.org/ ). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.
International Regulatory Considerations
Since 2013, Colombia has been following a roadmap for accession to the, OECD. Colombia is part of the WTO, and the government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Regionally Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR) and the Pacific Alliance.
Legal System and Judicial Independence
Colombia has a comprehensive legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has a commercial code and other laws covering broad areas including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. Regulations and enforcement actions are appealable through the different stages of legal court process in Colombia.
Laws and Regulations on Foreign Direct Investment
Colombia has a comprehensive legal framework for business and FDI which incorporates binding norms resulting from its membership in the Andean Community of Nations as well as other free trade agreements and bilateral investment treaties. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Superintendence of Industry and Commerce (SIC), the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, except for the SIC’s efficient exercise of judicial functions, the judicial system in general remains hampered by time-consuming bureaucratic requirements and corruption.
Presidential Decree 119 of January 26, 2017 updated the regime (Decree 1068 of 2015) for foreign investments to increase competitiveness, export to more destinations worldwide, and promote investment by Colombians abroad. Among the main changes are the facilitation of several procedures for investors and the improvement of mechanisms for the Central Bank (Banco de la Republica), the tax authority (DIAN) and other authorities to supervise investment inflows. The decree also eliminates deadlines and unnecessary classifications of registration by type of investment. The new regime also revised the concept of “resident” and “nonresident” for tax related purposes. To be considered a resident, investors must remain in national territory for 183 days during calendar year, including days of entry and exit of the country. Also, every foreign investor must have a representative in Colombia with legal powers to comply with tax and exchange rate rules and to satisfy other requests for information. The Central Bank will be issuing implementing regulations for the new regime, which has a transition period of six months.
Competition and Anti-Trust Laws
The SIC is Colombia’s national competition authority and has been strengthened over the last five years by adding additional personnel, including economists, and lawyers. The SIC issued landmark anti-competitiveness fines in 2015, including against a sugar cartel. More recently the SIC has sanctioned a rice cartel, three of the biggest telecommunication companies in the region, and truck transport operators for anticompetitive practices. The SIC has imposed sanctions totaling approximately USD 400 million on around 400 individuals and companies in the last four years for unfair competition practices. In 2016, the SIC sanctioned cartels operating in the sectors of baby diapers, soft paper and notebooks, imposing fines of over USD 150 million. The SIC also sanctioned several sectors for violations of consumer rights such as misleading advertising or noncompliance with warranty agreements including telecommunications, furniture and home appliances, tourism, technology, automotive and construction.
Expropriation and Compensation
Article 58, numeral 4 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property. For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation. The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.
ICSID Convention and New York Convention
Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The new National and International Arbitration Statute (Law 1563), modeled after the United Nations Commission on International Trade Law (UNCITRAL) Model Law, took effect in October 2012.
Investor-State Dispute Settlement
Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that the parties are domiciled in different countries, the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled, the subject matter of the arbitration involves the interests of more than one country, and the dispute has a direct impact on international trade. The law lets parties set their own arbitration terms including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards. However, some progress has been made on the number of professionals and arbitrators with ample experience on trade transnational transactions, arbitrage centers with cutting edge infrastructure and administrative capacity (around 340 arbitration and conciliation centers across the country) and courts that progressively more accepting of arbitration processes. The Chamber of Commerce of Bogota handles 75 percent of all arbitration cases in the country; all arbitration tribunals in total handle around 600 cases a year.
There were four pending investment disputes in 2016, one of which went to court in 2007 and is still under dispute. The case that went to court, which started in 1994, involves a U.S. marine salvage company. The company has sued the Colombian government through for not allowing it to access its property in Colombian territory on grounds of national patrimony protection, a process that resulted in a Colombian Supreme Court decision in 2007, but has not yet been resolved. The second case involves a U.S plane allegedly abandoned in Colombian territory in 2010. The U.S. owner has been trying to claim his property since 2012. Colombian authorities maintain that the plane is now the property of the Colombian government, according to national regulations on abandoned aircraft and have requested to U.S. authorities to deregister the aircraft as it has become Colombia’s property. The third case involves a U.S. citizen alleging lack of restitution for land seized by the government in the course of an investigation into a prior owner. The last case involves a U.S. agro-industrial company that acquired state land in Colombia; the Colombian government asserts the land was acquired in violation of state lands law. The case is still pending resolution.
Separately, a Spanish energy company which is the majority owner of a Colombian utility company initiated arbitration proceedings before UNCITRAL in March 2017 after the government ordered the liquidation of the electricity supplier. The company asserted that the move constituted expropriation without compensation, though the government cited mismanagement, an inability to service its debts, and failure to provide reliable electricity to the northern coast of Colombia as justification for its actions.
According to the Doing Business 2017 report, the time from the moment a plaintiff files the lawsuit until actual payment and enforcement of the contract averages 1288 days, the same as in 2016. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The new Code of General Procedure that entered into force in June 2014 also establishes an oral proceeding which is carried out in two hearings, and there are now penalties for not ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2017, Colombia improved three positions in the enforcing contracts category of the report, from 177 to 174.
International Commercial Arbitration and Foreign Courts
Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process when new legislation based on the UNCITRAL Model Law was adopted. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading to many foreign companies to include international arbitration clauses in their contracts.
Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy. Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option. Now, inventories are valued, creditors’ rights are taken into account, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was again revised in 2010 to make proceedings more agile and flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating. Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass fifty percent of their assets value entered into force.
Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders including foreign equity shareholders, and holders of other financial contracts, including foreign contract holders, are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2017 report, Colombia takes an average of 1.7 years—the same as OECD high income countries—to resolve insolvency; the average time in Latin America is 2.9 years.