Transparency of the Regulatory System
By law, the full text of draft regulations should be made available for public review, and regulatory agencies should give notice of proposed regulations in public meetings where consultations can take place. All proposed regulations should be published on a unified website: http://www.consultoria.gov.do/ . In practice, however, these actions do not always occur. Moreover, the scope of the website content is not always adequate for investors or interested parties.
On the 2017 Global Innovations Index, the Dominican Republic ranks 104 out of 127 for regulatory environment and 73 out of 127 for regulatory quality. The World Economic Forum’s 2017-18 Global Competitiveness report ranked the Dominican Republic 115th out of 137 countries in efficiency of the legal framework in challenging regulations, and 117th in burden of government regulations.
The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally-recognized professional accounting organization and has authority to establish accounting standards in accordance with article 31 of Law 479-08, which also declares that financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally (as amended by Law 31-11). The ICPARD and the country’s stock market regulator (Superintendencia de Valores) require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).
Law 42-08 from 2008 established he National Commission for the Defense of Competition (Pro-Competencia), an agency to improve and enforce competition laws. Private sector contacts note that significant public pressure is required for Pro-Competencia to take action. Efforts to establish the rule of law in many sectors of the economy have been impeded, or in some cases, soundly defeated by special interests. For example, in 2008, the government refused to enforce a court ruling to halt an illegal blockade of a U.S. business by disgruntled ex-contractors. As another example, in 2013, the Dominican government rescinded permits for an American-owned tourism and real estate development and declared large swaths of their land as a national park. In 2015, several U.S. investors cited the Dominican government’s repeated failure to pay compensation for or return expropriated land, even though valid court orders had been obtained. Some investors, both Dominican and foreign, consider that influence through political contacts can trump formal systems of regulation.
Legal System and Judicial Independence
The legal system of the Dominican Republic is civil law and is based on the Napoleonic code. On October 23, 2007, Decree No. 610-07 placed the Directorate of Foreign Commerce of the then-Secretariat of State for Industry and Commerce (DICOEX) in charge of commercial dispute settlement, including disputes related to the Investment Chapter of CAFTA-DR. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.
The country is divided into 11 Judicial Departments, each one headed by a Court of Appeals with jurisdiction over civil and criminal matters in 35 Judicial Districts. See website http://www.poderjudicial.gob.do/poder_judicial/organizacion_judicial/organizacion_
judicial.aspx . Each Judicial District has a court of first instance. Justices of the Peace handle small claims, certain traffic accidents, landlord-tenant disputes, and other matters. There are also specialized courts with jurisdiction over labor cases, disputes involving registered land, cases involving minors, and administrative matters. The Supreme Court is the highest court, with jurisdiction to handle most appeals from the courts of appeal, and first instance jurisdiction in criminal matters involving certain high-level government officials. The Constitutional Tribunal, created in 2010, rules on the constitutionality of laws, decrees, and treaties and decides cases involving constitutional questions.
According to the Constitution, the Judicial Branch is independent of the other branches of the State. The right of access to justice is a constitutional right granted by Article 69 of the Constitution. It provides that every person, including foreigners, has the right to appear in court.
Some investors complain of long wait times for a decision by the judiciary. The Civil Procedure Code dates from 1884, and there have been few modifications. The resolution of a civil case normally takes 2-4 years, although some take significantly longer. Some investors have complained that the local court system is unreliable, biased against them, and that special interests and powerful individuals are able to use the legal system in their favor. Regardless of whether they are located in a free-trade zone, multiple companies have asserted that they have problems with dispute resolution, both with the Dominican government and with private-sector entities. U.S. firms indicate that corruption on all levels – business, government, and judicial – impedes their access to justice to defend their interests. Several large U.S. firms have been subjects of injunctions issued by lower courts on behalf of distributors with whom they are engaged in a contract dispute. These disputes are often the result of the firm seeking to end the relationship in accordance with the contract, and the distributor using the injunction as a way of obtaining a more beneficial settlement. These injunctions often disrupt the U.S. companies’ distribution activities, resulting in severe negative impact on sales. In order to effectively engage in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.
The World Economic Forum’s 2017 Global Competitiveness report ranked the Dominican Republic 130th out of 137 countries in judicial independence and 112th in efficiency of the legal framework in settling disputes. On the Global Innovations Index, the Dominican Republic ranked 89 out of 127 countries for rule of law.
Laws and Regulations on Foreign Direct Investment
The Export and Investment Center of the Dominican Republic (CEI-RD), which aims to be a one-stop-shop for investment information, registration, and investor after-care services, maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/ ).
Competition and Anti-Trust Laws
There is no government agency that reviews transactions for competition-related concerns (whether domestic or international in nature); however, the government’s National Commission for the Defense of Competition (ProCompetencia) is responsible for promoting and defending competition by fostering best practices.
Expropriation and Compensation
There are dozens of outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of expropriation cases. Most, but not all, expropriations have been used for infrastructure or commercial development. In most cases, claims have remained unresolved for many years. Typically, investors and lenders have not received prompt payment of fair market value for their losses, and subsequent enforcement has been difficult even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or the government has recognized a claim. In other cases, lengthy delays in compensation payments have been blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. The procedures to resolve expropriations lack transparency and, to a foreigner, may appear to be antiquated. Few examples exist where government officials have been held responsible for not paying a recognized claim or not paying the claim in a timely manner.
Discussions at the U.S.-Dominican Trade and Investment Council meetings in October 2002 prompted the Dominican government to establish procedures under a 1999 law to issue bonds to settle claims against the Dominican government dating from before August 16, 1996, including claims for expropriated property.
ICSID Convention and New York Convention
In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (ICSID, also known as the Washington Convention), but has not ratified it. In 2002, the Dominican Republic became signatory to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Investor-State Dispute Settlement
The Dominican Republic has entered into several bilateral investment treaties, most of which contain dispute resolution provisions that submit the parties to arbitration. The Dominican Republic is a signatory to CAFTA-DR and is thus bound by the investment chapter of CAFTA-DR. There is currently one pending investor-state case filed against the Dominican Republic under CAFTA-DR.
The Embassy is aware of at least 26 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations. The investors range from large firms to private individuals and the disputes are at various levels of legal review.
International Commercial Arbitration and Foreign Courts
Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08.
Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention, to which the Dominican Republic is a party. There are complaints that the court process is slow and that domestic claimants with political connections have an advantage.
The Restructuring and Liquidation of Business Entities and Merchants Law (Law 141-15) was signed by President Medina on August 18, 2015, and took effect 18 months after it was signed. The law allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings. The law orders the creation of new courts with exclusive jurisdiction to hear all matters regarding the insolvency process, contemplates the appointment of conciliators, verifiers, experts, and employee representatives, allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims, stipulates civil and criminal sanctions for non-compliance, and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997.
Nearly two years after the law’s signing, specialized bankruptcy courts have not yet been established. However, the Supreme Court designated two lower courts and appeals courts to hear bankruptcy cases. The national juridical school is in the process of training judges on bankruptcy.