Raul Larios

Will longest waterfront park in the U.S. survive?

Hrp 5The Hudson River Park (HRP) in the West Side of Manhattan runs five miles long — from Tribeca, Greenwich Village and Chelsea all the way north to Hell’s Kitchen and Clinton.  It is the longest waterfront park in the United States.  But it is not a city or state park; therefore, it does not receive any government money for its maintenance and operations.

HRP is supposed to finance itself, which it has done since its creation — by way of commercial leases and private fundraising.  Unfortunately, its operating costs have ballooned in recent years due to deteriorated pier pilings, collapsed bulkheads and damage caused by Superstorm Sandy.  For Fiscal Year 2013, HRP is projecting a $7 million deficit to pay for these critical capex and maintenance repairs, which would rise to a whopping $9 million annual deficit by 2022.

But the Park won’t make it that long, because unless something is done immediately to cover these projected deficits, HRP will run out of money by FY 2017.  Due to this precarious financial situation, many concerned neighbors, residents, donors, community leaders, real estate developers and elected officials have come together to find ways to help the Park regain its path towards self-sustainability.

One idea that is being pursued by the non-profit organization Friends of Hudson River Park (FOHRP), is the creation of a “Neighborhood Improvement District” (or NID — http://www.hrpnid.org/), which would use the same legal structure and funding mechanism allowed under the City’s Business Improvement District legislation.  FOHRP invited me to join the Steering Committee for the creation of this NID nearly two years ago.

Under our proposal, commercial and residential owners closest to the Park would pay a small annual property assessment.  With nearly 100 million square feet of built real estate next to the Park, this tiny charge would actually raise about $10 million per year.  The money would be collected by the City’s Department of Finance along with the City’s annual property taxes.  However, the NID money would not be comingled with the City’s general funds; instead, it would be transferred directly (and fully) to the NID.

After two years of surveys, consultations, analysis and debate — we are at that stage in the project where we must formally disclose to anybody interested (as required by law) all the details of the draft District Plan.  FOHRP and members of the Steering Committee have held six public meetings (double that required by law) to share the particulars.  But as you can well imagine whenever there is talk of change, or worse yet any type of levy that resembles a tax, there is bound to be opposition.

Here is a well-written article that recently appeared in The Villager that lays out quite succintly the arguments against the NID (http://www.thevillager.com/2013/02/21/is-nid-really-needed-and-who-asked-for-it-anyway/).  FOHRP asked me to respond to it:

================

To The Villager Editor:

I  am responding to Eileen Stukane’s article in the February 21st edition of The Villager, entitled “Is NID really needed, and who asked for it anyway?”

My name is Raul Larios and I serve on the Steering Committee (SC) of the Hudson River Park NID to which Ms. Stukane is referring.  I have no problem with the 1st half of her article; it is factually correct, and I thank her for at least getting her facts straight.  However, I do have a problem with some of her conclusions.  For example, her claim that the “public meetings do not seem to offer a plan in progress but rather, a plan in place” is simply unfair.  The current draft of the District Plan looks quite different from the original one nearly two years ago when I joined the SC.  During that time, the SC has paid careful and deliberate attention to all comments and feedback that have been received prior to, during and after the public meetings.  We have analyzed them, debated them and incorporated many of the suggestions into each successive draft of the Plan.

Case in point are the current proposed boundaries of the NID, which have not yet been finalized mainly because we are still hearing from the community regarding certain pros and cons of different layouts.  In short, the District Plan is NOT in place, and even at this late hour is still a work in progress.  We do hope to finish it in the next couple of weeks since our goal is to submit a finalized version to the City by the end of March.  Until then, we welcome any and all comments.

If you wish, you can email your remarks to me at raul.larios1@gmail.com instead of Friends of Hudson River Park (FOHRP), if that’s your concern.  I will make sure they get heard at the next SC meeting; although I can assure you that FOHRP would never hold back any comments or suggestions for the formation of this NID, even if negative.  In fact, quite the opposite is true —  it’s the good people at FOHRP who constantly bring to our attention any negative feedback for debate and resolution.

Regarding Ms. Stukane’s observation that “the NID Steering Committee…is comprised of 23 members. Of those, 10 are major real estate developers…”, she seems to imply that somehow they are running or controlling the meetings.  Having attended every single meeting since I joined the SC nearly two years ago, I can assure you that nothing could be farther from the truth.  The real estate developers have always been cordial and professional —  but somewhat reserved in their participation.  Most of the debating has transpired amongst the 13 community members, including (by the way) the composition of the Committee.  Technically speaking, the community now has a majority (13 to 10), but we’ve never had to use it because all decisions taken (including revisions to the District Plan) have been unanimous.

Regarding Ms. Stukane’s complaint that “three — only three — residential owners” sit on the Committee, let me assure you that it’s not from lack of trying.  The SC reached out to dozens of owners, but for one reason or another, only three decided to join.  Had I known that Ms. Stukane loved the Park so much, I would have reached out to her personally.

Regarding Ms. Stukane’s allegation that “rather than planning a neighborhood improvement district mostly with prominent real estate developers, and then informing residents after the fact, the NID could have truly been a grassroots movement”, I want to let you know that I personally dragged representatives from FOHRP to nearly a dozen well-attended neighborhood and Community Board events, as well as to one-on-one meetings with individual residents in Chelsea, Clinton and Hell’s Kitchen.  The same has been the case with my colleagues on the SC who live in the Village and Tribeca.

So the answer to the questions posed by Ms. Stukane is that the NID is in fact really needed financially, and it’s the community who is asking for it.

Thank you for the opportunity to set the record straight.

March 2, 2013 Posted by | New York | , , , , , , , , , , | 2 Comments

Will Fracking Be Approved in New York?

200,000+ comments against frackingThis is a tough one to answer.  On the one hand, there are reasons to be optimistic.  As you may remember from my blog post last month, New York law offered a 30-day period for public comment on the proposed regulations that would govern hydrofracking.  The response was overwhelming.  Over 200,000 comments were submitted, many of them in paper format, which means that the Department of Environmental Conservation (DEC) was inundated with hundreds of boxes.

Moreover, on the day of Gov. Cuomo’s State of the State address (January 9, 2013), about 1,500 anti-fracking activists descended on the Empire State Plaza in Albany to urge Gov. Cuomo to ban hydrofracking.  See a short video of the rally here: http://www.youtube.com/watch?v=tfcqzJ7iGTo.  I’m told that this was one of the largest demonstrations (ever!!) in Albany history.

On the other hand, there are many indications that the approval for hydrofracking is signed, sealed and merely waiting delivery.  Consider the following facts:

1.  At the very outset of the review process, DEC gave the natural gas industry access to DEC’s early draft on proposed rules, regulations and permit language, thereby giving the drillers a golden opportunity to influence the re-drafting of the provisional language.  In one blatant example, according to the Environmental Working Group (EWG), industry lawyers tried to “weaken testing requirements for radioactive pollution that might run off of drilling sites during heavy rains.”

In response to the allegations of misconduct, DEC stated that there was nothing illegal about their behavior.  That in fact, access was necessary to meet DEC’s “obligations under state law”.

But according to EWG, “nowhere in the law does it say regulators must share detailed rule proposals or specific permit language with the drilling industry outside of the public’s eye, behind closed doors…  [And] nowhere in the law does it say regulators must engage in preferential treatment and leave it up to public interest groups to file records requests [under the Freedom of Information Law] to reveal how the Department’s draft plan could be so tilted toward the drilling industry.”

2. DEC took the unusual step of choosing another Cuomo-controlled state agency, the Department of Health (DOH), to review DEC’s internal analysis on the potential health impacts – instead of a totally independent non-governmental evaluation.  Moreover, this examination is happening in total secrecy (the Cuomo administration has refused multiple requests to make the DEC’s health review public).

3. DEC has already issued its revised regulations, even BEFORE the completion of DOH’s health review or the release of the final version of DEC’s Supplemental Generic Environmental Impact Statement (SGEIS).  The way some cynics see it, the Dept. of Environmental Conservation does not really care what the Dept. of Health or the scientific community have to say about the SGEIS…because DEC has already made up its mind.

4. According to EWG, at least one member of Gov. Cuomo’s inner circle (top advisor Lawrence Schwartz) stands to profit from the approval of fracking.

5. According to a Siena College poll last month on the question of allowing hydrofracking in New York, public opinion is pretty evenly split (44% against; 40% in favor, 16% undecided).

6. The January 9th anti-fracking demonstration in Albany (one of the largest in history), barely got any media coverage.

7. And most telling of all, Gov. Cuomo did not say anything against hydrofracking in his State of the State address last month, as thousands outside clamored for its total ban.

Given points 1 – 7 above, do YOU think that the review process has been fair, transparent or science-based, as promised by Gov. Cuomo?  Do you think (as some cynics do) that the decision to approve hydrofracking has already been signed and sealed, and is merely awaiting the required date by law to be delivered?

Speaking of dates, DEC is expected to release its Environmental Impact Statement by February 13.  Once the SGEIS is released, DEC can start issuing permits.  Only Gov. Cuomo can stop the process.

Therefore, please write him to let him know what YOU want.  His address is:

The Honorable Andrew Cuomo / Governor of New York State / State Capitol Building / Albany, NY  12224

In addition, the group “New Yorkers Against Fracking” set up a toll free line that will connect you directly with Gov. Cuomo’s office in Albany that is tabulating calls for and against hydrofracking.  The number is 866-584-6799.

You CAN make a difference: start by writing AND calling Gov. Cuomo directly, and then by telling your friends, family and acquaintances to do the same.  Simply forward this blog post to your social networks on LinkedIn or Facebook via the share buttons below.  But you must act NOW because time is running out.

Good luck and thank you!!

Until next month…

February 1, 2013 Posted by | New York | , , , , , | 5 Comments

Don’t F**ck with New York!

Dont Frack with New York 3Some of you might remember that about a year ago, I wrote a blog post about the pros and cons of hydraulic fracturing in New York State.  After some extensive research, followed by a long conversation with Assemblyman Richard Gottfried, Chair of the Health Committee at the State Assembly in Albany, I became convinced that the environmental risks to New Yorkers far outweigh any economic benefits. You can read the post here: (https://raullarios.wordpress.com/2012/01/12/new-yorkers-do-you-think-hydro-fracking-is-bad-for-your-health-3/)

Coincidentally, shortly after my blog post, Governor Cuomo extended the 4-year old moratorium on fracking in New York, to allow for a more in-depth assessment of the impact to our health.  This extension was applauded by most everybody except, of course, the oil and gas industry.  And they are mad!

The industry has been flexing its very powerful lobbying muscle and putting incredible pressure on Governor Cuomo to start to move things their way.  And they are getting some results:

Consider, for example, that the state agency responsible for drafting the regulations to oversee the fracking process were it to be approved (the New York State Department of Environmental Conservation, or DEC) took the unusual step of choosing another Cuomo-controlled state agency, the Department of Health (DOH), to review the DEC’s internal analysis on the potential health impacts — instead of a totally independent non-governmental evaluation.

Moreover, this examination is happening in total secrecy (the Cuomo administration has refused multiple requests to make the DEC’s health review public).

To make matters even worse, it seems that the Dept. of Environmental Conservation doesn’t really care what the Dept. of Health or anybody else might have to say because the DEC has already issued its revised regulations, BEFORE the completion of the DOH’s health review or the release of the final version of the DEC’s massive environmental impact study initiated in 2008.  Apparently, the Cuomo administration is beginning to buckle under the intense lobbying pressure.

Fortunately, New York law requires a 30-day period for public comment on proposed regulations that would govern fracking.  The clock started ticking in mid-December, so you only have until 5pm, January 11, 2013.  If you live in New York and believe that fracking could be detrimental to your health and that it should be banned in our state, but you don’t know exactly what to do or say during this 30-day public comment period that expires January 11th, here is a great website that can help you: http://www.frackaction.com/2012/12/12/lets-make-some-comments/ .

Or you can use the comments that I have personally submitted to the DEC website.  I’m making them available in the “Reply Section” below.  Feel free to copy the ones that make the most sense to you, and submit them under your name.

You can submit your comments to the following DEC website: http://www.dec.ny.gov/energy/76838.html

Or you can mail them to:

Attn: Draft HVHF Regulations Comments
New York State Department of Environmental Conservation
625 Broadway
Albany, NY 12233-6510

Take action NOW because this will probably be your last chance to make a difference on hydraulic fracturing in New York State!  Governor Cuomo is expected to make a decision by Feb. 27.

Happy New Year!!

January 2, 2013 Posted by | New York | , , , , , | 3 Comments

Republican Party, won’t you please meet America’s Latinos

Congressman Luis Gutierrez (D-IL)

About a week after President Obama’s re-election victory, Congressman Luis Gutierrez (D-IL) took to the floor of the House of Representatives with the purpose of re-introducing the Republican Party to the Latinos who so overwhelmingly rejected Mitt Romney’s solution to the immigration issue (“self-deportation”).  These are the same Latinos who tipped the election in Obama’s favor by delivering the key battleground states of Colorado, Nevada and Florida.  Here is a copy of Congressman Gutierrez’s humorous, yet powerful speech:

By Rep. Luis V. Gutierrez (D-IL)

“I would like the Republican Party to meet America’s Latinos.

It’s hard to meet us all at once, because there are more than 53 million of us, but let me tell you a little bit about who we are and what we do.

Most Latinos are citizens.  In fact, many of us have been here for many generations.  We live all over the United States, and our population is growing fast.

In fact, every single year, 500,000 young Latino citizens turn 18 and become eligible to vote.  Of Latinos under the age of 18 — Ninety-three percent are citizens.

In this election, 1 in 10 voters were Latinos.  In another decade, some analysts predict, we will be 25% of the voting age population.

And here’s a key fact about the more than 16 million Latino immigrants — – they work, and they work hard, often in jobs that are hardest to fill.  Picking grapes and garlic, caring for young children in day-care centers, sweeping and cleaning as janitors in hospitals and office buildings.  You know what else they do? They pay taxes, regardless of their legal status.

Here’s one last fact – Latinos love America.  And, my Republican friends – I promise, in time, you’ll love us too.

I hope this introduction is helpful – but I know it’s a little late.

The Republican Party really met Latinos on Election Day.

At about 11 p.m., when the race was over, pundits, political strategists, and Republican candidates opened their eyes to discover who really lives and votes in the U.S.  It looked like we were watching Columbus stumble across America.

Latino voters?  Who knew?  Demographic changes move as slowly as glaciers, but this one seemed to sneak up on the news media like a sudden thunder-storm.

I’ve been trying to introduce my colleagues in the Republican Party to real Latinos and immigrants for some time.  I’ve worked on bipartisan comprehensive immigration reform bills and stayed at the table to work out a compromise even when all the Republicans left the table.

But the Republican Party seemed much more interested in the imaginary Latinos they tried to use as a wedge issue.  So they crafted messages aimed at the very few Americans who are not offended when Republicans talk about criminals, gang-bangers, freeloaders, and law-breakers whenever they talk about Latinos and immigrants.

The party nominated a Presidential candidate who carried around a to-do list of creative ways to offend Latinos.  Call for more than 10 million people and their families to “self-deport?”  Check.  Celebrate the extreme Arizona approach to immigration laws?  Check.  Threaten to veto the DREAM Act and let hundreds of thousands of young people who have applied for Deferred Action fear for their future?  Check.

Stand with other Republicans and beg for their endorsement when they have called for electrified fencing to keep out immigrants because, quote “that works on livestock”?  Check, check and check.

I believe Election Day was check-mate for the Republican Party’s extreme, unfair and intolerant anti-immigrant policies.

Now, we need to come together to make progress.

In truth, some Democrats have not seen how the electorate in this country has changed either.  Too many Democrats did not see immigration reform as an urgent priority or recognize the need for change in a country that deports 1,000 immigrants a day.

We need to set aside the mistakes of both parties, and do what is right for the American people, including Latinos and immigrants.

We need to invite Democrats and Republicans to sit at a big table to work out immigration reform as soon as possible.

I have suggested that President Obama set up that big table at Camp David and invite leaders from both parties to discuss how we forge the coalition to pass immigration reform.  I think after the Election Day wake-up call, there are more and more Republicans willing to come to the table to negotiate.

We have heard from Republican leaders who want to be at that table.

I know some Republicans want to come to the table because they want the immigration issue off the table.  They want it off the table because they are worried about Democrats running the table in statewide and national elections for the foreseeable future.

Whatever your reason for coming to the table, please come.  Together we can fight for justice for immigrants.  Together we can reestablish the rule of law.  Together we can again make immigration one of the greatest and most defining aspects of American society.  Together, we can make Americans see that we can work together to solve problems.  So please join us and do what’s right for America.”

December 1, 2012 Posted by | New York | , , , , | Leave a comment

Venezuelan Democracy 9, Business 1

The Coat of arms of Venezuela

The Coat of arms of Venezuela (Photo credit: Wikipedia)

Just as I predicted 6 months ago (in my blog post of April 2012), Hugo Chavez won his fourth presidential election in Venezuela, marking this the 9th victory for democracy. The score is now Democracy 9, Business 1.

What? How dare I claim that Democracy has been such a clear winner in Venezuela? Well, yes, just look at the overwhelming numbers in the last 15 years. Chavez has won four presidential elections, most of them by landslide victories. Even in the most recent election last month (which by all accounts is the best performance scored by the opposition, after uniting under 1 single candidate), Chavez won 55% of the vote, taking all but 2 of the 24 Venezuelan provinces.  Turnout was a massive 80.6% of the electorate.

Furthermore, Chavez has won every single referendum (a total of six since his first presidency). The only exception was the 2007 referendum, which sought to amend a whopping 69 articles of the 1999 Constitution, including the abolishment of presidential term limits and the autonomy of the Central Bank. This referendum also sought to grant the President the power to declare an unlimited state of emergency. In other words, President Chavez was seeking to become the first elected Monarch of Latin America, with absolute power.

The people of Venezuela wisely rejected the referendum, but just barely (51% to 49%), and in my opinion, it’s the only victory scored by Venezuelan Business since Chavez came to power. However, this victory was partially reversed in the 2009 referendum, which was far more focused — on the abolishment of term limits for President, State Governors and City Mayors. With a huge turnout of 70.3% of the electorate, it passed 54.9% vs. 45.1% against.

I know what you’re thinking…that Chavez won by voting fraud. Well, this has been the claim since his very first election. However, it doesn’t really matter that most elections and referenda since Chavez’s rise to power were observed and ratified by the Organization of American States and the Carter Center, negating the allegations of voting fraud.

Far more important to you (the foreign investor seeking investment opportunities in Latin America) should be the realities of modern-day Latin American politics. The poor, the masses (Chavez’s political base) no longer need to rely on a military revolution Cuban-style to rise up against their perceived oppressors. They can now do it democratically, Chavez-style.

The impact to your investments could be disastrous. Just take a look at Venezuela, where nationalization and expropriations are quite common. In fact, the business climate has gotten so bad that Venezuela now ranks nearly in last place (#180 out of 185 nations) in the World Bank’s Ease of Doing Business rankings.  You stand a better chance at successfully managing a subsidiary in Iraq (#165), or even Afghanistan (#168).

Worse yet, Chavez is committed to exporting his revolution (think back to Bolivia, Ecuador, Nicaragua and Honduras during his previous terms) — and he will try to do so again during the next six years.

His political movement (“Chavismo”) is real and democratically legitimate, and it will be with us for many years to come. Your foreign direct investment will be at risk in any Latin American country where its elected government is not serious about social justice. Therefore, in addition to the usual business metrics that you use, your due diligence must also include a thorough analysis of the country’s political parties after they have come to power in recent history. Besides favorable business policies, did they also invest in affordable housing and in high-quality, low-cost health care & education for the masses? What policies did they actually implement towards alleviating income inequality? What was the level of corruption during their administrations? Etc., etc.

The answers to these public policy questions will tell you whether your investment will be safe short AND long-term, as government reigns change hands. Even if the current political party in power is good to foreign investors, you want to know whether the socio-economic conditions that they leave behind could give rise to a Chavez-type revolution in the near future…at the ballot box…in the very next presidential election.

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November 1, 2012 Posted by | New York | , , , , , , | 2 Comments

Looking for Affordable Housing (to rent or buy) in Manhattan?

As most of you who follow my blog know, I write primarily about business topics pertaining to Latin America.  However, from time to time, I do deviate from that subject to write about significant developments that impact my other community, the West Side of Manhattan in New York City.  As Co-Chair of the Community Board 4 Budget Task Force and as a sitting member of the Clinton/Hell’s Kitchen Land Use committee, I am delighted to inform you that two affordable housing projects are finally seeing the light of day in my neighborhood, the “Gotham West” (1,240 rental units) and the “Park Clinton” (96 co-op units).  Here are the highlights:

Affordable Apts. for RENT: “The Gotham West”
Gotham Organization, Inc. is developing almost an entire city block between West 44th & 45th Streets and 10th & 11th Avenues.  Known as the Gotham West, this LEED project includes approximately 1,240 rental units housed in 4 buildings, a 200 space below-grade parking garage and  approximately 17,000 square feet of retail.  Over the last several years, Gotham has worked with the City of New York, Community Board 4,  and the City’s governing agencies to rezone the site from manufacturing to residential use.

The development will include a 31-story tower located on 11th Avenue with approximately 700 units as well as neighborhood retail and  below-grade parking.  Adjacent to the tower, another mid-rise building will house 297 affordable housing units available to low, moderate and middle income families.  Further east towards 10th Avenue, two 14-story buildings will be situated atop a platform over Amtrak train tracks and will include an additional 243  units of affordable housing.

The buildings are being constructed through the Inclusionary Housing Program of the City’s Housing Preservation and Development department, with financing provided by the New York State Housing Finance Agency.  “Inclusionary housing” refers to the creation of permanently affordable housing as a result of zoning mechanisms (such as re-zonings, text amendments, zoning variances, etc.) that allows real estate developers to build highly profitable, market-rate residential projects.  In the case of Gotham West, 682 units (out of 1,240 total units) will be permanently affordable!!

For example, fifteen studios will be offered for as little as $494 per month, 14 one-bedrooms for $533 and 9 two-bedrooms for $648 per month.  Please visit www.West45Lottery.com for details on the size, rent and income requirements of all 682 permanently affordable units.  Applications must be postmarked by November 13, 2012.

Affordable Apts. for SALE: “The Park Clinton”
The Park Clinton is a new 96-unit middle-income cooperative building located on 52nd St. between 10th and 11th Aves.  It will provide one and two-bedroom apartments that will be priced to be affordable for New Yorkers with incomes between  approximately 80% of Area Median Income (AMI) and 195% AMI (which today ranges from under $45,000 to just over $160,000, depending on household size).

Community Board 4 residents (which rougly encompasses the areas from West 14 Street to 59 Street and from 8th Avenue to the Hudson River) will be granted priority for half of the units.  This means that if you are currently a rental tenant in Chelsea, Clinton or Hell’s Kitchen (and you financially qualify to purchase one of these coops), you will be given the opportunity to do so over other applicants who currently live elsewhere.

For example, eight 1-bedrooms will be sold for $128,500 and seven 2-bedrooms for $152,000.  Please visit www.theparkclinton.com for details on the size, income, assets and purchase prices of all 96 units.

These two buildings have been in the planning stages for years.  During that time, many meetings were held between the developers and the Land Use committee on which I sit, to work out the details.  So I’m ecstatic to see both of these projects finally take off.  Occupancy is estimated for 2013.

October 1, 2012 Posted by | New York | , , , , | Leave a comment

Is Peru a Safer Investment After Debt Upgrades?

Peru, South America (courtesy andix.com)

S&P and Moody’s recently upgraded Peru’s debt.  Does this mean that it is truly safer to invest there?

It cannot be denied that the business climate in Peru has improved many fold.  It is a welcome consequence to the recent evidence that President Ollanta Humala (elected in June 2011) appears to be keeping his promise to the international community that most (if not all) business-friendly policies of previous administrations will be honored, especially the 1993 constitutional guarantee that foreign investors shall receive the same treatment as nationals.  With this assurance of stable macroeconomic policies, foreign investors are flocking into Peru to take advantage of the many attractive investment opportunities.

However, do not ignore the fact that nearly half of Peru’s population continues to live in abject poverty. Despite the economy having grown over 8% annually over the past 5 years and inflation hovering at low rates for almost 10 years, most government efforts to alleviate social and economic inequality have failed.  According to some critics, these failures are due to the meager efforts from the last two administrations.

In the long-run, this deep inequality may be extremely dangerous to your Peruvian subsidiary’s financial health.  If it is not addressed effectively, such widespread poverty could easily set the stage in the next election for an extremist President, who may adopt expropriation or nationalization policies against foreign-owned assets, such as is happening right now in neighboring Bolivia.

If you choose a direct foreign investment in Peru (such as a factory, infrastructure, mining, etc.), you will be “all in,” so to speak, by the time of the next election in 2016, and thus highly vulnerable to political risk.  So pay close attention to President Humala’s commitment and success (or failure) in bringing about some social justice in the next couple of years.

In addition, be forewarned that according to the World Economic Forum Global Competitiveness Report 2012-2013, excessive red tape and corruption are the two most problematic factors for doing business in Peru.  Moreover, according to the report, government officials routinely hand out contracts only to “the well-connected”.

In fact, most companies consider the occurrence of irregular payments and bribes in Peru as very common, especially in the process of obtaining business licenses.  Foreign subsidiaries, in particular, struggle with Peru’s extensive bureaucracy, and thus often resort to the use of “facilitation payments”, or to the hiring of local agents who promise to “expedite” their business transactions.  This can also be detrimental to your subsidiary’s financial health.

Remember that companies can be held accountable for the corrupt behavior of their hired agents.  So be sure to conduct rigorous and extensive due diligence on potential local partners and agents when doing business in Peru.

Fortunately, all of the above problems and challenges have not gone unnoticed by public and private Peruvian organizations soliciting your investment dollars.  They have attempted many remedies, with limited success.  However, there is one attempt that really stands out — the private investment agency ProInversion, which was established as a ‘one-stop shop’ government institution for current and potential investors.  I don’t have personal experience in working with them, but I hear that the program is managed professionally and transparently.

ProInversion has successfully completed several privatizations of state-owned enterprises, as well as natural resource concessions.  Here is a link to their current schedule of projects (current as of August 20, 2012) http://www.proinversion.gob.pe/0/0/modulos/JER/PlantillaSector.aspx?ARE=1&PFL=0&JER=4588

As a foreign direct investor, you may want to consider registering with ProInversion in order to obtain some sort of guarantee that you will be able to repatriate your capital, profits and royalties — even after the 2016 elections.

I hope you find this post helpful.  I welcome all comments related to your experience on doing business in Latin America.

September 10, 2012 Posted by | New York | , , , , , | Leave a comment

How Do You Protect Yourself and Your Company From Top Corruption Risks in Latin America?

Local police and customs agents are the top corruption risks in Latin America, according to 439 business executives who responded to a 2012 survey of companies doing business in 14 Latin American countries.  The survey was conducted by U.S. law firms Miller & Chevalier and Matteson Ellis Law, with extensive collaboration from 12 Latin American law firms.  (This post is being re-blogged with permission from the author — Mr. Matt Ellis of Matteson Ellis Law, PLLC.  Its original length was edited for brevity.  You can obtain a copy of the complete survey here):

“…two areas of government were seen to create consistent concern for executives in almost every country surveyed – customs and police. Almost two-thirds of respondents rated these government functions as having “significant corruption” in the countries in which they have experience.

The reasons for this finding are complicated. Although customs and police officials at higher levels can certainly create corruption risk (the Bizjet enforcement action appears to have involved payments to relatively high-level Mexican Federal Police), these risks are most often associated with lower-level officials – like traffic police and port officials. These officials often have lower levels of education. Their wages are low. They are often required to seek rent through other sources, like bribe requests, to bring in enough money to support their families and cover basic needs. These areas of government are often described as less formal and more unprofessional.

But these facts do not change the reality that petty corruption can be just as insidious to the development of a country as can grand corruption. It can also be just as disruptive to business. These facts also do affect the expectations of ethical practices placed on companies operating in the region. To comply with laws like the Foreign Corrupt Practices Act (FCPA), employees must always refuse bribe requests.

What are the implications of this finding for FCPA compliance programs? When working in Latin America, compliance practitioners would be wise to tailor their programs to be particularly robust in responding to customs and police risk. Here are just a few tips.

– Make sure you have written policies that include facilitating payments and duress and extortion, which are common to petty corruption.

– Know the local terminology for corruption. Knowing words like mordida in Mexico and propina in Brazil will help you track and identify issues when they occur and train your teams to avoid them.

– Design training role-plays to include examples of petty corruption. What do you do when the policeman pulls you over and refuses to let you go without a payment?

– Be particularly careful with the third parties (ie, customs agents) you use in these areas. Due diligence on dispachantes, gestores, and other support is essential. Do not stop there – ongoing monitoring and testing is just as important.

– Build customs delays into your business plans. In many countries, delays will happen. You can be sure of this. But the pressure for an employee to make a payment is much less when your business model expects a wait.

– Do not give police a reason to pull you over. For example, make sure your company cars are fully compliant – that your licenses and registration are updated, and that the tail lights are working. Periodically train your drivers on road safety.

– Have communications mechanisms in place so employees can seek compliance feedback in real-time when issues arise. Your local compliance officer surely has a cellphone and can be called in the middle of the night.

– Make sure your teams know who is and is not a foreign official for purposes of the FCPA. Are private companies used by a government to scan containers at a port?

– Spend extra time in your compliance audits on reviewing transactions related to police and customs. Petty cash disbursements are a good place to start.

– Use the FCPA as a shield. When a bribe request is made, tell the policeman or customs agent that you do not want to be rude, but you simply cannot make the payment. If you did, you would lose your job.

– Be ready to wait. Delays are often the corrupt official’s best friend. The policeman might make you wait at a checkpoint until he decides to finally let you go. Bring a book.

Of course, the mechanisms you devise to respond to risk will depend on your company’s specific risk profile. A risk assessment is a necessary first step to any compliance program. The above suggestions are only a few things that I have seen companies do successfully in the region. Moreover, do not forget that customs and police create only some of many corruption risks in the region, albeit critical ones.”

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication.  For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

@2012 Matteson Ellis Law, PLLC

Author: Matt Ellis

August 4, 2012 Posted by | New York | , , | 4 Comments

Want to do Business in Latin America? Part 3 – Chile…

After recent allegations that Walmart was involved in a $24 million bribery scheme in Mexico, I decided to write a blog series about potential corruption risks that blind side so many people wanting to do business in Latin America.

In this part 3, we’ll look at another one of the causes of potential fraud: the lack of order and/or transparency in bankruptcy proceedings.  In some Latin American and Caribbean (LAC) countries, there are no established procedures to manage insolvencies.  In these nations, if a borrower defaults on a loan, lenders initiate a mad rush to liquidate the encumbered assets as quickly as possible.  These liquidation auctions are called “remates” and are chockfull of dubious processes.

Even worse, it does not matter what event triggered the default, or if the default could be cured with just some extra time, the likely result will be liquidation for pennies on the dollar — but only a privileged few get to do the buying.  You may be asked for bribes to join that elite group.  If you are a direct creditor or debtor, you may be pressured for bribes to steer the liquidation process one way or the other.  But probably not if you’re involved indirectly (through stocks or bonds), because you stand next to a zero chance of recovering anything.  So forget about investing in distressed securities in these countries!

In other LAC nations, there may exist an “orderly” bankruptcy system, but be careful that it’s not corrupted.  Even in Chile, which has long led Latin America in the rule of law and transparency, fraud scandals in insolvency proceedings were quite common as recently as a just few years ago.  And their system was not even run by the public sector (a typical facilitator of corruption in Latin America).  In an attempt to keep government (and politicians) out, Chile long ago “privatized” their bankruptcy proceedings.  Unfortunately, the privatization was poorly conceived and was thus vulnerable to corruption.

For example, since private-sector receivers were appointed by bankruptcy judges (and not the creditors), receivers would routinely bribe judges to assign them the larger cases with the big fees.  Another problem was that both parties (creditors and debtors) would routinely get slammed with exorbitant receiver expenditures (with the court’s blessing) because there was no fixed schedule of fees.

The process of reforming Chile’s privatized bankruptcy system began during the administration of socialist Ricardo Lagos (2000 – 2006).  By the end of his term, the entire privatized system was overhauled.  In today’s Chile, it is the creditors who appoint private-sector insolvency receivers (instead of the courts), but only from a pool of candidates who have no prior commercial relationship with either the creditors or debtors.  In addition, potential receivers must have a university degree, 5 years of business experience, and pass regular testing to get (and keep!) their license.  Furthermore, a fixed schedule of fees was introduced to prevent abusive billing.  Finally, the new law revamped the Bankruptcy Commission – granting it with real power to oversee, test, license and discipline private receivers.

It is these kind of pro-active, anti-corruption measures taken by Chile that ranks it best in Latin America (and #22 out of 183 countries), according to Transparency International‘s annual corruption index.  Note that a ranking of 22 puts Chile’s transparency and accountability on a par with the United States!!  Keep this in mind as you plan your company’s expansion into Latin America.

Until next month, I look forward to all your comments!

July 3, 2012 Posted by | New York | , , , , | 9 Comments

Want to do Business in Latin America? Part 2 – Peru…

Peru, South America (courtesy andix.com)

Recent allegations that Walmart was involved in a $24 million corruption scheme in Mexico prompted me to begin writing a blog series on the perils of doing business in Latin America; perils that blind-side many Americans and Canadians wanting to do business there.  This series will focus on the better countries in which to do business.

Of course, the term “better” is highly subjective.  By better, I mean those countries in Latin America where it is relatively easy to incorporate an American or Canadian subsidiary, buy land, obtain construction permits, register property and assets, obtain bank financing, enforce contracts and/or trade across borders.  “Better” does not necessarily mean that there will be more market demand for your products or services.

In fact, the opposite may be true.  For example, when I worked in the wealth management industry, I personally did a lot more business in the “worse” countries.  That’s because local residents wanted to avoid the many in-country risks for their hard-earned money.  Those dangers could range from corrupt police forces and big banks laundering drug money, to organized kidnapping gangs and crooked government officials.  In an effort to minimize those dangers, my clients would keep their money in the United States with the bank I worked!!

In part 1, I wrote briefly about the 3 Spanish-speaking Latin American & Caribbean (LAC) nations that have surpassed the American territory of Puerto Rico in ease of doing business: Chile, Peru and Colombia.  I then focused on Colombia, and the many excellent opportunities there.  In this part 2, I want to explore Peru.

According to the World Bank’s 2012 ‘Ease of Doing Business’ rankings, Peru stands at #41 (out of 183 countries).  This score is pretty good relative to the rest of the LAC region.  It can be attributed to progress in several areas, such as taxation and shareholder protections.

But the most important improvement in Peru’s business landscape in recent years occurred with the reform of the collateral laws for bank financing.  Before 2006, it was almost impossible to create and register on a timely basis security interests over non-fixed, short-term property (such as inventory, accounts receivable, commercial fishing boats, taxi fleets, etc.).  There were over 20 types of security interests and 17 government registries for different kinds of assets.  The process was long and costly for lenders.

And that was just the beginning.  When a borrower actually defaulted on a loan, the procedures for the lender to seize and sell the asset were a nightmare. The judicial process could take so long (usually 18 to 24 months) that by the time the lender’s security interest could be executed, often the asset had depreciated to nothing.  So it’s understandable why banks would either not lend money against short-term assets, or charge exorbitant interest rates.

By May 2007, a new legal framework consolidated the 20 different types of pledges into 1 guarantee, and the 17 old registries into one unified system.  Thanks to this new law, almost any type of moveable asset can now secure a loan and this has spurred more lending (registrations have jumped from about 100 per month prior to the reforms to well over 5,000 per month).

This is good news for borrowers.  However, there are some flaws with the new procedures.  Unfortunately, they are outside the 600-word limit of this article — perhaps next month.  In the meantime, if you intend to use your Peruvian subsidiary’s non-fixed assets as collateral with a local bank, be sure to retain good legal counsel that is well-versed in this relatively new law.

June 4, 2012 Posted by | New York | , , , | Leave a comment

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