Category: Interviews

The following article contains an overview on Honduras and the impact that COVID-19 has had in different regions country-wide.

Honduras has a population of approximately nine million, and, like most countries, is struggling in many areas due to the pandemic. Honduras has one of the highest rates of COVID-19 infections in the Central American region.

The Honduran government has approved a set of measures that benefit the many affected industries, for example by granting limited economic relief to employees in the tourism and ground transportation sectors.

Regarding tax matters, an extension was granted for the deadline for filing the Annual Transfer Pricing Information Affidavit for the fiscal year 2019, which must be filed no later than 31 July 2020.

All calendar days are declared as non-working days for the period in which the declaration of emergency originated by the COVID-19, except those days that are necessary in order to comply with the obligations.

The deadlines for filing returns and paying sales tax for the months affected by the emergency decreed by the COVID-19 are extended to all taxpayers who have not carried out operations within the same period of the emergency. These will now be filed no later than ten working days after the end of the state of emergency.

Taxpayers who keep all their employees within the period from the declaration of the state of emergency arising from COVID-19 until December 2020, in respect the payment of wages and labor rights and who have not suspended or terminated their employment contracts, will be granted an additional special deduction from their gross income. Such deduction is equivalent to 10% calculated on the payment of wages and salaries in the months during which the state of emergency is decreed, which may be accounted for as a deductible expense for income tax purposes in the 2020 fiscal period. This benefit will not apply in cases where the employer terminates or suspends employment contracts.

On the labor law practices, COVID-19 has changed the normal operations from the government and private entities. As in other regions, ‘the new normal’ is the work from home solution, known as ‘Home Office’. Even though Honduras has no specific laws for Home Office, unlike many other countries, the Honduran Government issued an emergency decree which authorizes Home Office as a possibility to deliver work. This not only applies to private companies, but also to public employees. Honduran Law defines Home Office as the activity that is developed outside the facilities of the employer, using the information and communication technologies for the development of the work. Employees of any public or private entity can perform their work totally or partially at a distance from their workplace.

The obligations of employers and employees remain the same according to the Honduran Labor Code.

The return to work in Honduras has been very slow. An economic and labor reactivation has been established for specific periods of time of 45, 60 and up to 75 days divided into three regions distributed according to the amount of contagion by COVID-19. However, this may vary depending on the amount of contagion in such areas. Every Sunday since mid-March 2020, the Honduran government has issued curfews for one or two weeks, allowing only specific companies to operate normally with the now customary protocols.

Soon, Honduras will – on a provisional basis – apply a model that allows a percentage of employees to work from home and others to continue working from the office to protect the general population and promote savings in the operating expenses of employees, such as office supplies and utilities.

We also expect an increasing number of labor disputes in the Labor Administrative Offices due to the loss of jobs, which will likely generate direct intervention by the Supreme Court. Also, an increasing number of civil procedures is expected in relation to contractual breaches, especially in the real estate sector.

Even though this will be the biggest recession in Honduran history and it will definitely have strong effects on private entities, this will be an opportunity for the country and for foreign investors to navigate into more modern and improved industries and technologies such as telecommunications, digital marketplaces, cybersecurity, programming and technology, education, medical services, product distribution, convenience stores/supermarkets and a more modern agro-business sector. With local or foreign companies investing in these areas, Honduras will generate more job opportunities, and government incentives are expected to this effect.

Work related to debt restructuring has also increased in Honduras due to the resulting economic implications of the current situation. We expect a substantial number of companies to file insolvency and liquidation procedures. We have been advising clients in strategies that can support business continuity at all levels, on an integrated basis, with our other service lines covering all aspects of a business operation.

EY Law has not stopped working amid the devastating impact of the pandemic in Honduras. Our firm has applied Home Office for many years in this country and our timely implementation of the best technology has been a key issue to the success of our business and our clients in this difficult time.

See more from EY at: www.ey.com

Some readers may know that González Calvillo has uninterruptedly partnered with The Legal 500 in sponsoring the Private Practice Powerlist: US-Mexico for several years. Looking back, each of the issues from 2017 onwards contained widely distinct business messages from our firm, ranging from record-breaking transactional work and law firm profits on 2017, to the forced adaptation of the Mexican economy to geopolitical changes in 2018, and finally the stagnation of our economy in 2019 due to a series of erratic decisions by President Andres Manuel Lopez Obrador and his administration. Market uncertainty and increasing concerns for investors were well underway at the outset of 2020. But cliché as it may be, nothing could have prepared anyone for what was about to happen this year.

Here we are, then, in the midst of 2020, facing what is now clearly the most severe global economic debacle since the Great Depression, let alone the vast human tragedy. By the time we write these words, we already know Mexico will not fare well from COVID-19. While developed countries across Asia, Europe and North America have already installed rescue and recovery plans of inconceivable dimensions -mostly aimed at saving small business who are primary sources of employment-, our government has opted to stay stale, basically. Experts have already pointed to the potential loss of Mexico’s investment grade by 2021, likely depending on the results of the midterm legislative elections coming next summer.

So where does this leave us lawyers besides working from home during many months? Well, this depends on whether one sees the glass half full or half empty.  Truth be told, our profession has been and continues to be one of sustained privilege; most of us have been able to continue serving our clients and attending each of our affairs without serious interruption and mostly seamlessly. All from the safety of our homes.

All of a sudden, a hefty chunk of clients to law firms were forced to alter their strategies, radically. The legal industry had to adapt swiftly to new needs; the experience accumulated in years of deal-making had to be abruptly applied to helping longstanding clients, with many of whom we have developed close friendships, survive. Those firms lucky enough to have invested in insolvency litigation and restructuring are now beyond busy. Sadly, expectations are that there will be an incalculable number of bankruptcies in Mexico as a consequence of the virus, exponentiated by the lack of robust economic assistance directives and support by the current administration.

But not all is lost. In addition to insolvency work, we are proactive witnesses of the notable uptick in revenue stemming from our technology practice group. Big-Tech companies, led by GAFAM, have evidenced that the world is accelerating towards technological solutions in most if not all of the components of our daily lives; the NASDAQ index is trading at all-time highs while fintech and ‘app’ companies are showing no signs of deceleration. Who had heard about Zoom just a few months ago? This appears to be welcome news for fund formation, private equity and M&A generally. Even during the pandemic, there have been substantial transactions announced between traditional banking institutions and technology companies, unimaginable just a few years back. Most of these deals imply considerable regulatory hurdles, so law firms carrying demonstrable sophistication and experience in banking, securities, pension funds and insurance are likely to be involved to sort these obstacles. Given the size of some of these deals and the potential competitive overlapping effects that they may have on the relevant markets, antitrust counsel to help navigate these challenges becomes critical.

It seems humanity is not likely to disappear as a consequence of this sad episode. If we concede to this premise, then we can safely assume that demand will pick up on homes, schools, and entertaining generally; leisure travel is already on the rise. In addition, valuations on infrastructure assets have been impacted in ways that can hardly be described. Those investors with longer horizon expectations are probably pleased to detect business opportunities in this jurisdiction that had not been available in decades. This is where solid real estate and hospitality legal teams can and should be tapped. We are especially optimistic on tourism prospects, where substantial investment has been made in our country and, with some long-term tweaks perhaps, it will be back stronger than ever. All of these enterprises typically come paired with strict ESG principles so expert advisors on these issues are additive to transaction outcomes.

We are optimistic, then, as we have been since our firm was founded. We may be working from home and may have had to learn a few tricks to safeguard full team communication and 24/7 availability, but interestingly we have had a chance to share more of our personal side with our team members, both colleagues and co-workers, and make it less a mechanical machine and more a human organization. We have learned and gained from each other in ways we never thought possible. We hope this ultimately derives in enhanced working experiences with our clients, to whom we are devoted. 

See more from González Calvillo at www.gcsc.com.mx

Sanitary and economic crises are challenging Chile’s modernization. Great leadership to guide Chile in combining the right experiences from the past and adapting the country to new demands and reality will be needed to overcome social and economic difficulties Chile is currently facing.

Chile is generally regarded as South America’s most stable and prosperous country, renowned for competitiveness, political stability, economic freedom, and low perception of corruption. Its market-oriented economy, based on a neo-liberal model implemented in the 70’s, is characterized by a high level of foreign trade, open market policy and sound financial institutions and policy. Chile is member of the OECD, being the only South American member (together with Brazil) with a GDP worth USD$282.3bn, and a GNI of USD$15,010, similar to countries like Poland or Croatia. It has the second-lowest tax burden in the OECD and the government maintains a tight rein on fiscal spending, ensuring the highest credit rating among the major economies of Latin America. It is an active member of the Pacific Alliance, the principal regional multilateral trade platforms, and has bilateral free trade agreements with basically all of the major economies in the world.

Being primarily a mining-based economy, Chile enjoyed for several years high economic growth figures of about 5%. Growth rates were, pre-COVID-19 , between a more modest 2% and 4% and similar rates are expected for 2021.

Chilean economic policies favor foreign investments. FDI increased by 63% from USD$7bn to USD$11bn in 2019, sustained by investment in utilities, mining and services. FDI stocks reached USD$268bn, a rise of more than USD$100bn if compared to 2010. Investments are mainly oriented towards mining, finance and assurance, transportation, energy and manufacturing.

The coronavirus crisis and simmering discontent over inequality in a neo-liberal economic model have forced the conservative government under President Sebastian Pinera to adopt measures that both allow for political reforms and stimulate the economy. It announced a constitutional referendum which will be held in October, which may lead to a new model that minimizes social disparities and equalizes the distribution of wealth, and is in the process of implementing a fiscal stimulus package worth USD$11.8bn (4.7% of GDP) to increase productivity and innovation in key sectors.

The stimulus package covers, among other things, increased investment in infrastructure, implementing protective measures to protect workers against a loss of income, providing support through tax measures and the creation of social funds and state backed credits. In parallel, the parliament just adopted a controversial reform, not backed by the government, allowing citizens to have 10% of their pensions savings paid out as emergency coronavirus aid and is discussing legislation prohibiting utilities companies to cut basic services (water, gas, electricity and internet) in case of non-payment by their clients. The Central Bank of Chile, for its part, reduced the fiscal policy interest rate to 0.5% and announced an increase of its bond purchase program of USD$4bn as well as measures loosening regulatory credit requirements.

An injection of over USD$8bn is projected into water and other infrastructure, including short-term projects worth USD$150m starting in 2020. The projects include road maintenance, the building of irrigation systems, drinking water facilities, hospitals, ports, airports, and inland water management systems. Most of these projects will be carried out through private or public concessions and the Ministry of Public Works has already initiated the first tenders in the public health care sector worth USD$2.5bn.

The temporary tax measures, loosened credit requirements and government reliefs include, amongst others: 0% stamp tax rate for credit, financial and refinancing transactions (until October 2020); expenses incurred in Covid-19 related measures will be deductible for income tax purposes; deferral of VAT payable with 0% interest; deferral of annual income tax payment for small and medium sized companies; early return on income tax; deferral of payment of real estate tax; deferral of mortgage backed loans; flexibilization of loan maturities for small and medium-sized companies; increase of the credit capacity of the National Bank to mainly support citizens and micro businesses; creation of a social fund for micro businesses; state support to finance credits for micro businesses; and subsidies and socials fund for citizens without formal employment and unemployment insurance.

In addition, and in order to generate additional resources to the State, opposition deputies of the opposition presented a draft constitutional reform that would allow to establish a capital tax, a project currently under discussion in Congress and which has received strong criticism from experts, taking into account the lack of clarity of the tax to be established, lack of clarity in the determination of the associated tax base and the effects that taxes of this kind have generated in legislation, and that are associated with wealth and capital flight.

Employment and security related measures adopted or underway include: temporary unemployment insurance; the possibility for an employer and employee to agree on a suspension of the labor relationship or reduction of the work hours with a proportional reduction of the salary, cases in which the affected employees access to the benefits of their unemployment insurance; suspension of working contracts in case of a mandate by the competent authority with access to the same benefits; safety obligations to assure the health and wellbeing of the employees. New regulation on ‘teleworking’ (Law N° 21.220) was adopted regulating remote work and work by technological means, establishing rights and duties for workers and employers. The adopted measures have been a relief for employers and employees, as they intend to prevent the termination of the labor contracts and the increase of unemployment, and numerous companies has applied those measures. However, projections show that the companies will not be able to reintegrate all the suspended employees, and will have to dismiss them, in which case their unemployment insurances will be depleted, as they already make use of them during the suspensions.     

On the other hand, aid to large corporations has been difficult. Latam Airlines Group, Latin America’s largest air carrier, sought bankruptcy court protection in New York after the COVID-19 pandemic grounded flights across the region. The government has been reluctant to come to the rescue, very much like other governments in the region, although discussions are ongoing. These discussions seem to stall government support to other large corporations as well.

The implementation of these measures and the direct effects of the economic slowdown on businesses are providing legal practices with a vast stream of advisory work. Additional work comes from significant legislation or legal modifications. Most noteworthy, on a fiscal level, is the adoption in February of law N° 21.210, modernizing the tax legislation. It is aimed to grant certainty to taxpayers regarding audit processes, the possibility of conducting out-of-court transactions in respect of ongoing litigation, and the digitization of processes, among other things. Moreover, it introduced a new tax on digital services provided by suppliers residing abroad, so that depending on the tax quality of the local beneficiary of the service, these will be affected by either VAT (at a rate of 19%) or withholding tax. At the income tax level, a number of amendments are being made, the most relevant being the following: corporate tax of 27% for large companies and 25% for small and medium-sized companies under a simplified income determination system;  the is the possibility for small companies of opting for a ‘pass-through’ system, so that the rents generated by the company are taxed directly at the level of its owners. Other modifications relate to changes to the concept of accepted expenditure for tax purposes; incorporation of legal definitions for the determination of the possible establishment of a permanent establishment in Chile; the establishment of a new entity to support and guide taxpayers; and incorporation of a new tax or contribution applicable at the regional level for certain investment projects.

Other recent or upcoming modifications include a recent update of banking regulations, modernization of the criminal code, and strengthening of anti-trust and anti-corruption regulation, amongst others. In parallel, there is a growing emphasis on compliance, corporate governance, data protection and data privacy, stimulating companies and the business community to adopt higher standards of corporate governance and business ethics. 

See more from Schwencke & Cia at: www.schwenckecia.com

It is not news that the role of in-house counsel has become increasingly demanding and complex. The flip side to that is that the in-house counsel role has become even more strategic, challenging and stimulating than it was 5 or 10 years ago.

We live in a world which is much more regulated than it was a few years ago, which moves and reacts at a much faster pace than before, in a world where the risks (legal, reputational and others) that general counsel has to help manage, mitigate and protect from are several and diverse in nature.

Below, in summarized form, is an attempt to describe some of the most relevant themes sitting atop of the agenda of general counsel across the country.

Data privacy and cybersecurity issues

The Brazilian GDPR, or LGPD, will soon come into force. At the time of writing, the Brazilian Congress is still debating whether to bring LGPD into force on August 2020 or postpone its enactment to May 2021.

In any event this is a concrete fact in the horizon of all businesses and their legal departments. To the extent these businesses are subsidiaries of companies subject to European or US data protection laws less adaption to comply with local regulations will be required, but at the very least some compliance effort will be necessary.

Beyond LGPD, cybersecurity and electronic fraud in general are increasingly seen as by in-house legal teams, which are called upon to deal with all aspects and repercussions of security breaches of companies’ electronic systems, from a data privacy, consumer and/or criminal law perspective.

Fake news

When we hear the expression ‘fake news’ we usually think of it purely in the political context. The truth is that a number of professionals and business are attacked by producers of fake news everyday with an aim to harm their reputation and gain undue market advantage for competing businesses. In Brazil this huge new problem is compounded by the additional difficulty that the crimes of slander, libel etc and their penalties were designed for a time when fake news would spread by analog means, and thus the potential of harm was smaller. Currently there is a bill of law dealing specifically with the issue of fake news being analyzed by Brazilian Congress and the Brazilian Supreme Court is conducting an investigation on the subject.

Tax Reform

With the Brazilian Federal Government and Congress refocusing on the legislative reform after being sidetracked by COVID-19, the first item on the agenda is the Tax Reform. Each of the Federal Government and Congress have proposed and are supporting different bills of law addressing the tax reform. Until this situation is resolved and a common project negotiated it is unclear if, when and how the reform will shape up.

The new tax rules will be a challenge for everyone until fully understood by market agents and interpreted by the administrative and judicial courts. Some of the changes being potentially contemplated are substantial and can have a significant impact on businesses. The legal and business community are paying close attention to the matter and lobbying for the positions they advocate. The Tax Reform will keep both in-house and external counsel busy for quite a while, before and after the approval of the new rules.

Restructuring

Another challenge/opportunity for in-house counsel is the current situation of financial distress for many businesses provoked by the COVID-19 pandemic. This should allow for exposure on the renegotiation of the company’s debts, and sometimes in the Brazilian processes of Recuperação Extra-Judicial and Recuperação Judicial (respectfully pre-packaged reorganization and court-supervised reorganization), hopefully negotiating with the creditors and approving it with the court, as the case may be, the restructuring plan for the company. Conversely, when in-house counsel is employed by a business that is capitalized and seeking acquisitions/consolidation or debt acquisition opportunities, in-house counsel can exercise their legal creativity to the maximum.

We expect the next couple of years to present plenty of these opportunities, which we know come at a heavy cost for many in-house counsel because it generates the pressure to lay-off part of the team, the fear to lose one’s job and all the mental distress that comes with these situations.

Anticorruption

Since the enactment of the Brazilian anticorruption law in 2013 and the beginning of Operation Car Wash, anticorruption compliance and prevention has been at the forefront of the agenda of most businesses and legal departments in Brazil. This is a trend which came to stay and became part of the day to day of in-house counsel, sometimes adding people to the general counsel’s team and more often simply adding regulatory complexity and responsibility in cases where organizational structures do not provide for a separate integrity/anticorruption function lead by another professional.

The state of ESG (environment, sustainability, governance) in Brazil

The discussion around ESG is still in its very early stages in Brazil, certainly less advanced than in the US or Europe. Nevertheless, after the latest annual letter to investors from the CEO of BlackRock and the endorsements that ESG policies have received by a representative group of CEOs of a number of S&P 500 companies, the finance and business world may be coming to realize the size of the environmental threat not only to our health and planet but also to the economy.

When one recognizes the pressure being exercised on the Brazilian Government in light of the illegal burning and deforestation that is taking place in the Amazon, and the strong reaction of world leaders and private investors – both foreign and domestic – it becomes clear that the environment and sustainable practices, together with good governance, are a much bigger concern than ever before for businesses, their customers and, consequently, the general counsel and her team.

Privatizations, concessions and the new role of the BNDES

Another interesting development we are observing stems from the new role attributed to the National Economic and Social Development Bank – BNDES by finance minister Paulo Guedes.

BNDES in the past would finance, through debt and equity instruments, a huge portion of all infrastructure build-out in Brazil plus virtually all its large corporates. This has changed and BNDES is rapidly divesting of various equity stakes it held in publicly-held companies, state owned or not. The most recent example was a block trade of Vale’s shares for R$8.1bn (approximately US$1.5bn) on 4 August 2020, arguably the largest block trade in Latin America’s history.

Additionally, BNDES is in charge of executing the Federal Government’s privatization program and assists, whenever called upon, Brazilian States and Municipalities with their own privatization, concession and PPPs programs. This is an interesting development which provides in-house and outside counsel alike with ample opportunities.

Similarly, PETROBRAS continues to divest from a number of assets, providing for opportunities both on the acquisition and potential buyers’ finance sides.

New and not so new preoccupations of general counsel

Given the increased pressure to deliver more with less resources, general counsel in Brazil have embraced innovation in general, and technology in particular, from within their own company and also from their vendors, be it a law firm, a legal service provider, a Big Four or a lawtech. Competition has never been so intense, but at the same time there are more opportunities to innovate and create new needs that clients did not know they had.

Diversity is another big item on most general counsel’s agenda. Nothing new, obviously, but relevant, especially in an environment where not only women face challenges, but where the LGBTI+, the black and mulato and purely economically disadvantaged populations are given much less opportunity. It is important to acknowledge that the largest companies and law firms have made good progress in the last few years, which is encouraging. However, there is still a lot to be done.

Two other topics frequently mentioned by general counsels are (i) mental wellness related issues in their companies, in their teams and in the profession, and (ii) pro bono legal work. General counsel are trying a number of measures to keep their people happy and healthy at work and this seems to be a fairly high priority for many of them.

Pro bono became more widespread in Brazil in the last decade and many of the more sophisticated firms run more or less structured pro bono programs. Interestingly, very few general counsel based in Brazil seem to take this into consideration in their hiring decisions compared to their foreign counterparts. We expect this to change and to become more important to them going forward. We certainly hope so as it would be a movement in the right direction.

The changing needs of in-house counsel and the challenges they face inside the company

This article would be incomplete without mentioning the current needs of general counsel and their teams in the challenges they face daily in delivering to their internal clients and other stakeholders of their businesses.

We continue to hear that law firms still tend to think more about what is good for them instead of for their clients. We continue to hear that law firms do not listen, do not innovate and do not engage in true dialogue with their clients as to what their needs are and how they can collaborate together. Conversely and to be fair, we sometimes hear the same speech from managing partners of other firms: that the majority of general counsel do not engage in true dialogue with their firms as to what their needs are and how they can collaborate together.

It seems that someone ought to take the initiative of this conversation. Considering that law firms are the service providers in this relationship and usually well paid to deliver solutions, we are of the opinion that law firms should overcome their old ways and their fear to get in front of the client somewhat vulnerably because they will not have all the answers, venture out of their comfort zone and take the first step. Whoever does that earnestly, consistently and diligently has a much higher chance of success at developing a closer and more meaningful relationship with its clients.  

*The author would like to acknowledge the contributions made to this article by his partners, for which he is very grateful.

See more from Veirano Advogados at: www.veirano.com.br/midia

According to official figures, Nicaragua has maintained a growth rate of 4.7% and 4.5% in 2016 and 2017 respectively. However, due to the social and political unrest that the country has experienced since April 2018, the economy has slowed down. According to the Central Bank of Nicaragua, for 2018 the economy contracted by 5.016%.

Despite this, Nicaragua offers significant tax incentives in many industries, including import duty exemptions, property tax incentives and income tax relief. The country has a well-established free trade zone regime with significant foreign investments in textiles, car harnesses, medical equipment, call centers and back-office services. The construction sector has also attracted significant investments, driven by large infrastructure and housing projects, as well as by the telecoms sector, resulting in increased coverage of mobile telephony and broadband.

In reference to the current crisis derived from the arrival of COVID-19, the State of Nicaragua has not issued pronouncements or decreed the application of labor measures. For this reason, the employment sector has been implementing the tools or measures established by the Labor Code for events of force majeure and that affect the survival of workplaces. The main measures are:

1. Collective suspension of employment contracts.
2. Individual suspension by mutual agreement for a specified period.
3. Cancellation of employment contracts as a result of the company’s request for definitive cease.
4. Partial hiring to continue operations with a minimum of workers.
5. Bilateral vacation enjoyment agreement between employer and worker.
6. Reduction of shifts. The employer may decide on a shorter working day without a salary reduction.

Additionally, telecommuting is largely being applied despite the fact that it is not regulated by current labor legislation. Telecommuting can be implemented taking into consideration the same minimum rules and rights and guarantees for the benefit of workers established in local laws.

When it comes to the post-pandemic job market opportunities, it is very difficult to be able to predetermine Nicaragua’s short-term future. Many companies have been reducing operations. Despite this, the Government of Nicaragua has not decreed any special regulation, nor has it been made known if there is a plan to alleviate the situation in the short or medium term.

There are companies that, having access to information technologies, have been able to adapt and face new challenges. E-commerce platforms are in high growth due to their legal possibilities to operate in the local market.

In the financial sphere, the board of directors of the Superintendency of Banks and other Financial Institutions (SIBOIF), issued a statement in June establishing temporary conditions that financial Institutions can grant to debtors of all types of credits in all sectors of the economy.

The temporary conditions range from:

• The deferral of payments.
• Extending the original payment term.
• Granting grace periods of up to 6 months for principal and interest.
• Conducting an assessment of an individual case based on the institution’s internal policies.

This is subject to certain classification criteria of the portfolio or debt. All requests for temporary conditions have to be made before 31 December 2020.

Additionally, the crisis has forced the business sector to adopt e-commerce modalities and measures, which are not particularly regulated in local legislation. However, the legal basis of e-commerce is found in the political constitution on the principles of the right to protection and respect for privacy and freedom of business, that serve as a basis for contractual parties to freely agree on their contracts, provided that they do not contravene express law, morality or good customs.

In this sense, despite the fact that Nicaragua does not have legislation related to e-commerce, anyone who wishes to undertake contracting and activities related to e-commerce will have this possibility with public limitations, such as those related to consumer rights and data privacy.

The rights of consumers are regulated in Law No. 842 ‘Law for the Protection of the Rights of Consumers and Users’ and its regulations, contained in Executive Decree No. 36-2013. The protection of personal data is regulated in Law No. 787 ‘Law on Protection of Personal Data’ and its regulations, contained in Executive Decree No. 36-2012.

In the current circumstances, from the contractual standpoint, it is favorable to incorporate and apply the ‘rebus sic stantibus’ principle within the clause of the contracts in force and those that will be formalized in the future, since the crisis has had a direct impact on economic stability and compliance of contractual obligations. This leads to reviews of the repercussions and effects that the pandemic may cause to each of the contractual parties, with the objective of avoiding breach of contracts and finding healthy alternatives to face contractual obligations, particularly in service and lease contracts.

At EY LAW Nicaragua, we are currently advising all those companies and investors to adjust to changes in the current times and providing our support in advising and accompanying them in all legal and regulatory processes related to the above aspects.

See more from EY at: www.ey.com

This article contains an overview of the impact that COVID-19 has had around various sectors of the Dominican legal market, as well as some of the legal solutions that have emerged to tackle the crisis that the pandemic has brought with it.

Firstly, it should be recalled that the Dominican Republic has traditionally been characterized at the international level by its strengths in trade, the service sector, the tourism industry and agricultural production, but it has also positioned itself in recent years as the fastest growing economy in Latin America – being at the same time one of the most important economies in all of Central America and the Caribbean according to various indicators. This has been achieved on the back of its industries and the Free Trade Zone sector, which generate about 60% of the country’s exports and have a great impact on local employment.

However, the impact of COVID-19 in the Dominican Republic has been felt in a very negative way in several of the industries that have traditionally served as a pillar for the national economy, especially the tourism sector, which has been the worst hit by the pandemic.

The Central Bank, through the Monthly Indicator of Economic Activity (IMAE for its initials in Spanish) indicated the reality of the various industries in terms of their economic performance for the period January-May 2020 compared to the same period of the previous year, noting that the industries most affected were: hotels, bars and restaurants (-42.6%), construction (-23.2%), mining (-16.3%), transport and storage (-11.0%), free zones (-9.8%) and local manufacturing (-7.8%). On the other hand, the sectors that have established positive markers according to this indicator are the following: health (12.4%), financial services (10.5%), agriculture (5.2%), real estate activities (5.0%), communications (4.1%) and energy and water (2.0%).

In this sense, the Dominican legal community has had several challenges in terms of how to face the crisis and provide the different markets with the relevant legal solutions to mitigate the impact that COVID-19 may have in the various productive sectors of the country.

Labor advisory services have been among the most in-demand legal services today as a response to the uncertainty caused by the unprecedented scenario in which the pandemic has put Dominican workers. In our country, as in most of the international community, telecommuting practices and the suspension of employment contracts have increased, and, consequently, brought a mechanism of legal procedures that allow for the proper management of work in accordance with the law and the established processes.

On the other hand, as far as trade is concerned, there has been an accelerated transition to e-commerce and the use of digital platforms. Both public and private institutions have adapted to the digital trade model, promoting modern tools such as the use of electronic signatures and online payment systems that contribute to the agile development of trade practices without the need for physical contact or transport to the distributor.

An unfortunate aspect of the crisis in the economic and social sphere is the inevitable insolvency of single-owner businesses and small- and medium-sized enterprises due to the lack of liquidity generated by the suspension of business, and the consequent drop in sales. These businesses developed a negative cash flow, paying employees, suppliers and other fixed expenses, without incurring any – or little – income.

Faced with this reality, the first steps that businesses can take are to invest more capital, if possible, or turn to bank financing to help pay for the drop in sales. However, if none of these options is feasible, then corporate restructuring should be considered as a solution so that businesses can reorganize without having to cease operations. In this regard, we count with the Law 141-15 on Restructuring and Liquidation of Companies and Natural Persons that entered into force in 2017, and that availing to its provisions is a highly feasible and currently required option to face the economic crisis, allowing, among other things, the restructuring of businesses facing economic difficulties, with a process leading to a reduction in the liability burden to enable the business to continue its operations, thereby benefiting its creditors and employees.

Finally, with regard to future options in the context of private investment, the Law on Public-Private Partnerships (PPPs) was recently enacted in the country, which seeks to facilitate the development of infrastructure and services of social interest, by channelling private sector funds to finance infrastructure and projects that contribute to the country’s sustainable development. PPPs have the potential to become one of the main mechanisms of support and cooperation for the reconstruction of the country’s economy, as they enable budgetary constraints to be addressed in a more timely manner, the execution and operation of works and services by the private sector, as well as diversifying the range of public services and infrastructures, allowing the incorporation of innovations and new initiatives in the sector, among other advantages.

At EY Law, we have the knowledge, experience and different lines of services aimed at meeting the legal needs that may be had in any of the aspects addressed in this article. We have innovative solutions and proposals that favor the development of an excellent business climate at local and international level, based on good business practices, ethics and responsibility with an integral and multidisciplinary team. 

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Though not exactly a household name, Sergei Magnitsky has come to symbolize the American and Western efforts to combat foreign corruption and money laundering across the globe. Understanding these recent efforts is critical for general counsel operating in international markets.

Sergei Magnitsky was a Russian tax accountant who worked closely with one of Russia’s largest foreign investment firms. Magnitsky eventually uncovered a highly complex $230m fraud, whereby Russian officials used forged documents to claim ownership in the foreign fund and then sued the Russian government for millions in ‘overpaid taxes’, upon which the Russian courts speedily agreed and ‘repaid’. Magnitsky sued the Russian state and paid dearly: he was arrested at home in front of his children, imprisoned, contracted gall stones and pancreatitis, and was eventually beaten to death. What followed was an aggressive series of anti-corruption measures by the United States, the first of which included the Sergei Magnitsky Rule of Law Accountability Act of 2012. Commonly referred to as the Magnitsky Act, the law imposed economic sanctions on Russian officials thought to be responsible for his assassination.

So why is this so important for general counsel?  First, the scope. The original iteration of the Magnitsky Act froze Western assets of specific Russian oligarchs and officials, including finances and real estate, and also barred entry into the United States. But the Magnitsky Act has since evolved far beyond the borders of Russia. On 23 December 2016, the United States passed the Global Magnitsky Human Rights Accountability Act (Global Magnitsky Act), which authorizes the president to impose economic sanctions on human rights abusers and corrupt government officials anywhere in the world.

Second, the Magnitsky Act and its global successor are about money, which is enforced on the international stage through economic sanctions. Economic sanctions are used by the United States to accomplish foreign policy and national security goals. The administration and enforcement of these sanctions are delegated to the Office of Foreign Assets Control (OFAC), a financial intelligence agency that operates under the US Department of the Treasury. Basically, economic sanctions are imposed on countries, governments or individuals that are hostile to US interests. The Cuban embargo and the Iran nuclear-related sanctions are probably the most famous examples of these sanctions. OFAC regulates activity within the Global Magnitsky Act and Magnitsky Act under 31 C.F.R. Parts 583 and 584, respectively.

General Counsel must therefore maintain a basic understanding as to how these laws operate in practice. An individual or entity sanctioned under the Magnitsky Act or the Global Magnitsky Act is summarily included in the Specially Designated Nationals and Blocked Persons (SDN) List, a ‘blacklist’ maintained by OFAC. This occurs after an administrative investigatory process where the subject individual or entity has very limited opportunities, if any, to intervene in order to avoid being sanctioned.

Once an individual or entity is blacklisted by OFAC, all of its assets in the United States, or in possession or control of US persons, are blocked and cannot be dealt with in any way. A Magnitsky sanction is the equivalent of a blanket prohibition to engage in any transactions with the sanctioned individual or entity. These sanctions can be seen already, for example, in Latin America. In 2018, the United States used these sanctions to target government officials in Latin America, most recently against Nicaraguan officials of the Ortega regime (including Ortega’s wife, Vice President and First Lady Rosario Murillo) accused of committing serious human rights violations during the recent anti-government protests where hundreds of Nicaraguans where killed. And in 2017, the parent company for famed jeweler Cartier reached a $334,800 civil settlement with the United States after it shipped jewelry to Shuen Wai Holding Limited, an entity in Hong Kong that had been added to the SDN list in 2008. In 2018, OFAC added 17 Saudis to the SDN list following the killing of Washington Post journalist Jamal Khashoggi.

In light of these enforcement frameworks, here are some of the things that general counsel for companies involved in international business need to be aware of:

Companies engaged in international transactions must exercise great care to refrain from doing business with any individual or entity subject to Magnitsky sanctions. To complicate things further, OFAC has said that, pursuant to its so-called ‘50 Percent Rule’, the sanctions are also applicable to any entities directly or indirectly owned 50% or more in the aggregate by a sanctioned individual or entity. Even if the blacklisted individual or entity does not have an ownership interest in another entity, OFAC has warned that the mere fact that a sanctioned person is representing a non-sanctioned entity (albeit in a non-personal capacity) may lead to a violation.

Companies are strictly liable for violating these sanctions. ‘We did not know’ no matter how sincere, is not a defense. The penalties could be very harsh, including significant fines and imprisonment. Civil penalties of $295,141 or twice the amount of the transaction could be imposed under the Magnitsky Act. The Global Magnitsky Act proscribes penalties of up to 20 years in prison and a $1m fine. The Magnitsky sanctions make for risky business in many areas of the world.

Particular industries could be more susceptible to being identified under the Global Magnitsky Act. One general rule of thumb for identifying at-risk industries is FCPA compliance. Industries susceptible to Global Magnitsky Act violations often mirror those FCPA violations, such as energy, oil and gas, pharmaceuticals, and telecommunications.

Countries with a history of public corruption and human rights abuses warrant heightened scrutiny.

Strong compliance measures ensure adequate prevention and a swift reaction when a violation occurs. Like FCPA compliance, GCs should oversee a risk-based approach tailored to the business operations. And strong compliance begins with comprehensive screening.

Use experienced third-parties. Commercially available screening tools can aid effective screening. Some entities, particularly those owned or represented by a sanctioned individual or entity, can be harder to trace, because their names may not be included in OFAC’s SDN List.

These laws leave little room for error (and zero excuses). Significant investments in a robust compliance program that can conduct the most comprehensive due diligence available, while timely and expensive, will often pale in comparison to the price of violations that could have been avoided. 

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I am a lawyer with a master’s degree in Economic Law and have been working in the telecommunications sector for over 22 years. During these years I have witnessed innumerable modifications and changes in the telecommunications sector, and, at the same time, I have had the privilege of leading Telefónica’s legal team in Colombia from 2004 until today. Telefónica is a Spanish multinational with operations across Latin America in places such as Colombia, Venezuela, Peru, Ecuador,  Brazil, Argentina, Chile and Uruguay.

When it comes to the impact of COVID-19 in Telefónica´s legal team, I have to say that has not been as shocking as you might think at first glance. Indeed, before the COVID-19 outbreak, Telefonica had already implemented mechanisms to reconcile personal and professional life enabling tools such as teleworking one day a week. The COVID-19 pandemic has allowed us to expand such tools and to continue with the day-to-day business in a comprehensive teleworking environment.

Despite finance playing a role, legal also played a massive role with providing support and advice during this time. The finance and legal teams worked together to obtain the required approvals. We did a merger as well. We experienced a lot of challenges during this period. The legal team has done a great job. We have been very cohesive and have been working together, showing a high level of commitment, producing very high quality work.

To monitor the effectiveness of our employees we have set up weekly meetings. Every Monday we have a meeting and divide up the responsibilities we have for that week. At the end of the week we review everything and check in on our work developments and duties. I think communication is the main thing at this time. Not only with our immediate reports, but also checking in with our whole team. Meetings also help us keep in touch on a personal level. It gives everybody the space to explain what they are doing and how concerned they are on a personal level. We try and do some activities to check in on the emotional wellbeing of the team.

However, when doing huge amounts of work, the fact is you cannot be at every meeting all the time, so, you have to relinquish control and empower employees. You have to give them space. We want everybody to be part of the operations of the company. For example, we have adopted different procedures to make us more flexible with reviewing contracts, signing agreements, negotiating, and have adjusted procedures to obtain approvals inside the company. As a result, we became more agile and effective as a team without losing quality. We have improved the way we work from long distance.

I have engaged my team in activities that focus on personal wellbeing. I have tried to strike a balance between focusing on work, without losing focus on life as it is, we are mothers, wives and so on. So, it is important to promote a balanced approach where everything is not just about work. I believe this has emotionally helped our team.

At the beginning of lockdown, we had to do very long hours, but at some point, it became evident that we could not continue that way. At the very beginning we were all committed to supporting all company needs to adjust the operational continuity. Eventually, we realized it was not possible to sustain those working hours. We started to set boundaries and set work times, it was important to respect weekends and lunchtimes.

It is important to acknowledge everything has now gone virtual. As a telecommunication company, we have access to technology to support our work: technological tools for contracts, signing documents, litigation proceedings, virtual hearings. When it comes to legal tech we are not hesitant, we want to keep working and delivering high standards and are committed to moving in the way the company needs.

Specifically for us, Microsoft Teams has been very useful. It is so easy to use, this application allowed us to do our meetings, review documents and share presentations in a simple way. In addition, we have also introduced a contract software called Webdox. This software helps us keep track of all the negotiations and approvals inside the company. It helps us identify the legal areas that we are involved in. Our work as lawyers has a lot to do with negotiations and meetings. We can keep track of the different areas of the company – these are the clients we serve. We have implemented this software to streamline business operations, so we can deliver contracts and services to different parts of the business faster.

When looking at alternate dispute resolution, mediation is always preferred, if that is not possible, we always prefer arbitration over litigation. During this quarantine period, all litigation proceedings were suspended, but arbitration continued virtually, as well as mediation. During this period we reviewed all our litigation and we tried to mediate some of our litigation cases. As a result of this process, we were able to find mediation solutions to some of our litigation cases. As of 1 July, courts opened again.

Basically, all of our contracts have an arbitration clause. In Colombia we have confidence in arbitration and the way justice is provided. Arbitrators tend to be specialised in a particular area and can have more knowledge in a specific field. In contrast, litigation in Colombia can take years. When using arbitration, we are basically fast-tracking cases to get an end result.

Overall, in-house legal teams need to be more business minded and present across all business’ operations. They need to be working hand in hand with different areas of the company. They have to be aware of the legal issues and, also understand the practical business implications of legal decisions. In the future, we have to be more present in the groundwork, be more agile and flexible. We have to be open to redefining the way we work and the way we approach our internal clients.

Nowadays, it is not just about having legal knowledge, it is also about how to approach people and how to achieve goals as a team. It is extremely important to become more business minded – you have to know your company in order to serve them.

This chapter will cover a general description of Panama, taking into consideration several positive and strategic complements that influence the services that may be promoted in different areas such as business, logistics, financial and maritime matters that are seen from a global perspective. In this sense, Panama, as a country with a privileged geographic position that allows it to take advantage of economic competition and worldwide opportunities, is one of the countries with the highest growth and enrichment potential, while offering important benefits for foreign investments.

Panama allows us to provide all the necessary legal services to provide security and tranquillity to a multinational company that decides to establish in our country. For this, aside from our geographical position that allows greater logistic opportunities, we must consider the laws and regulations that make Panama one of the best countries for investment and competitiveness, achieving better profits compared to other countries in the region.   

Panama has special tax regimes with the objective of promoting productive activities in different areas of the country that help generate new jobs and economic growth by giving opportunities for the companies to start operations.

The Panama Pacific Special Economic Area, created by Law 41 of 20 July 2004, establishes a special legal, fiscal, customs, labor, immigration and business regime for the establishment and operation in the Area. This special Area aims to encourage and ensure the free flow and movement of goods, services, and capital, to attract and promote investment and jobs generation.

The companies located in the Panama Pacific Area have several tax benefits such as exemption from income tax on activities encouraged by law, exemption from remittances, interest, and business privilege for services abroad and capital gains, among many other benefits.

We also have Law 57 of 2018 of the Multinational Companies Headquarters (SEM for its acronym in Spanish) that allows a company to maintain its business offices in Panama to provide services to the headquarters and having benefits for both the companies and their executives who come to work in Panama:

• Tax benefits for companies: reduced rate of income tax, exemption from payment of dividend tax on operation notices and; exemption from the payment of the dividend tax, the complementary tax and the branch tax, without distinction that they are from local, foreign or exempt sources, among other benefits.
• Tax benefits for executives: by opting for the SEM (Migration) visa, they may obtain exemption from income tax, exemption from import tax for household goods and exemption from import tax on motor vehicles.

Taking into account the Panamanian migratory system, it is also relevant to point out that the SEM visa allows the headquarters to hire as many expats as necessary for the operation without limitation.  Additionally, it allows the expat to obtain a residence permit for his or her dependents with unlimited renewals and eventually grants the principal a permanent permission to remain that leads to a Panamanian identification document.

As part of the situation that arises from the COVID-19 pandemic, the labor environment has been transformed with various regulations issued under the State of National Emergency decreed by the Executive Branch, covering working hours reduction, labor contract suspensions, among other measures that benefits the employee and helps the employer to reduce the economic impact of the pandemic.

Regarding home office working, Panama has a recently enacted Law No. 126 of February 18, 2020 that regulates the offsite working option, which includes provisions related to the responsibility of the employer for the health and safety of the employees working from home.  The law establishes that teleworkers must be informed of the company’s policies regarding this matter and that a program to supervise and train personnel on health and safety matters must be adopted, as well as a manual of good environmental practices and general socialization.

In addition to the fiscal / tax measures that we have contemplated in previous paragraphs, other measures have also been issued to help alleviate the strong impact on the global economy due to of COVID-19, such as the following measures:

• Decree that grants a term of 120 days, effective once the decree was published, for the payment of any tax to be paid to the General Directorate of Income, without causing interest, surcharges, or fines for late payments.
• Deadlines are extended for the payment of taxes that are caused or must be paid during a period declared as a State of National Emergency, until 31 July 2020. Likewise, the payment of the Property Tax corresponding to the first four-month period of 2020. This, without entailing fines, interest, surcharges for late payment as well.
• Deadlines are extended to file the Tax Returns for fiscal year 2019 until 31 July 2020.
• Deadlines to submit the Transfer Price Report regarding the operations carried out with related parties during the 2019 fiscal period were extended until 30 September 2020.
• Extension of one year of exemption for companies registered with the Micro, Small and Medium Enterprise Authority (AMPYME).
• Extend the deadlines to present the Report of the special payroll 03 corresponding to the fiscal period 2019 until 31 July 2020.

Another important aspect of the Panamanian legal framework is Law 81 from 26 March 2019 regarding the protection of personal data. This law, to be implemented from March 2021, establishes principles, rights, obligations, and procedures that regulate the protection of personal data. Responsibilities for the infractions or faults and sanctions that may take place, among other provisions, are also included. It is very important for all companies established in Panama to make sure that their internal policy regarding this matter complies with the local law and in any case should adjust accordingly before the law comes into effect.

As to money laundering and terrorist financing, in the last 12 months Panama has adopted a series of laws, executive decrees, and other regulations that contribute to compliance with international standards, so it has strengthened it’s position as a safe and collaborative jurisdiction. In addition, it has improved its governmental administrative structure of both financial and non-financial obligated subjects to ensure full compliance of the money laundering and terrorist financing measures, including a legal mechanism to process tax evasion.

At EY Law Panama we can provide detailed legal guidance to help meet the needs that are required in general or more specific aspects of companies established or to be established in Panama, including those related to the consequences of COVID-19. Panama is a country full of opportunities where all the advantages and benefits given should be taken knowing that it provides for entrepreneurship and face the new global economy that we see every day with new challenges and complexities to achieve.

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