Archive for the ‘Wikileaks Cables that matter in Switzerland’ Category


Wednesday, September 14th, 2011

ID     10MADRID190
DATE     2010-02-19 00:00:00
ORIGIN     Embassy Madrid
TEXT     S E C R E T SECTION 01 OF 05 MADRID 000190



E.O. 12958: DECL: 02/18/2030



Classified By: Charge d’Affaires Arnold A. Chacon for reasons 1.4 (b) and (d)

1. (SBU) Summary. Secretary Napolitano met with European Union (EU) Justice and Home Affairs (JHA) ministers January 21-22 in Toledo, Spain, and achieved trans-Atlantic consensus to improve aviation security. Her attendance at the plenary meeting led to the issuance of a U.S.-EU Joint Declaration on Aviation Security that outlines several actions for the two
sides to take (available at 1264119013710.shtm). Secretary Napolitano also held ten bilateral discussions, during which she discussed bilateral issues and underscored her core Aviation Security message.

2. (SBU) Summary Continued. Following the thwarted terrorist attack over Detroit on December 25, 2009, Spanish Interior Minister Alfredo Perez Rubalcaba, acting on behalf of the rotating EU Presidency, invited Secretary Napolitano to attend this ministerial. He recognized that the event could serve as a useful platform for having the EU address current terrorist threats and the need for the U.S. and EU to work together more closely on aviation security. In addition to the ministers of the 27 EU Member States, also attending were outgoing European Commission Vice President Jacques Barrot, EU Counterterrorism Coordinator Gilles de Kerchove, Chairman of the European Parliament’s Civil Liberties, Justice and
Home Affairs Committee Juan Fernando Lopez Aguilar, plus representatives of the three non-EU Member States of the Schengen Zone (Iceland, Norway, and SWITZERLAND), representatives of the three candidate countries for EU membership (Croatia, Macedonia, and Turkey), and the leaders of Europol and Frontex. DHS delegation is listed in para 20.

End Summary.

Bilateral with Spain – Rubalcaba

3. (C) Host Spanish Interior Minister Alfredo Rubalcaba, in an early, brief meeting with Secretary Napolitano and U.S. Ambassador to Spain Alan D. Solomont, warned that European media attention had centered on the lack of EU consensus on whole body image (WBI) scanning machines. To avoid diverting attention away from DHS objectives, he suggested avoiding the issue.

Plenary Session

4. (SBU) Rubalcaba asserted that the attempted Christmas Day attack compelled him to invite Secretary Napolitano to the meeting because there was nothing more important to discuss. He added that aircraft remain a “priority target” for al-Qaida (AQ) and that the plot demonstrated the need to perfect cooperation and the exchange of and analysis of information. He said he wanted to use the Secretary’s presence to send a message to the world regarding the political unity and firm will of the U.S. and EU to work together.

5. (SBU) In her address to the plenary, Secretary Napolitano emphasized that terrorism is a global threat that requires a multinational response and that access to one airport can endanger the entire international airport system. Secretary Napolitano reviewed the facts of the Detroit case, shared lessons learned from the subsequent Presidential Review, described the recent international travel of the DHS Deputy Secretary, and outlined four areas of focus: 1) information collection and analysis; 2) information sharing and collaboration in passenger vetting; 3) international security standards, including coordination of international assistance to help all countries achieve those standards; and 4) development and deployment of next generation aviation security technologies.

6. (C) Barrot praised the “new spirit of cooperation” in transatlantic relations and suggested international terrorism can only be defeated if the U.S. and the EU work together. To this end, he indicated the two sides will collaborate to build the CT capacity of third-countries most at-risk of terrorism. Barrot cautioned that if aviation security were increased, then the EU will need to build public support for these additional measures and will need to reassure its citizens on how data is collected and that their privacy is respected. He also urged the U.S. to provide details on the December 25 lessons learned, including “what information was used and what was not used, so we can improve” capabilities.

7. (C) De Kerchove stated that the Detroit plot confirms that civil aviation remains a key target of international terrorists. He called for not just increased information sharing, but increased analysis to connect the dots of all this information. He concurred with Rubalcaba that the Christmas incident broke new ground in that an AQ regional franchise had attempted an attack outside its own region and also agreed that terrorists were trying to use new operatives about whom the West had little information. De Kerchove emphasized the importance of countering the radicalization and recruitment of terrorists (particularly returnees from Afghanistan, Pakistan, and Somalia) and suggested that – due to a variety of events in the past several months – the USG is seeing that the threat of terrorism does not just come from outside U.S. borders. He voiced his support for the use of biometrics and EU collection and analysis of Passenger Name Records (PNR), encouraged the EU to speed up its study on the use of WBI, and urged a quick mandate for negotiations on a U.S.-EU information sharing and data protection agreement.

8. (C) Lopez Aguilar welcomed DHS readiness to work closely with the EU and recalled Secretary Napolitano’s November, 2009 visit to the European Parliament (EP) in Brussels. He stressed the need for the United States to protect privacy and civil liberties and to provide judicial redress as a part of its data sharing with the EU. He underscored the EU’s commitment to the free movement of persons and highlighted the EP’s role – under the new Lisbon Treaty – in bilateral agreements negotiated between the EU and the United States.

9. (C) Ministers of many of the 33 European countries also addressed the plenary, most in support of increased cooperation with the United States, as the Secretary outlined. A primary subject of conversation, however, became the consensus toward establishment of an EU PNR collection and analysis capability. UK officials later confirmed that they, Spain, France, and others had cooperated before the plenary to achieve consensus on the idea. Denmark, Estonia, France, Germany, Spain, the Netherlands, Portugal, Slovenia, and the UK all spoke in favor. None opposed outright, although Belgium (and Slovenia, to a lesser degree) sounded notes of caution.

Bilateral with Spain – Caamano

10. (C) Justice Minister Francisco Caamano stressed that finding the balance between protecting civil liberties and increased aviation security is key. He identified three priorities – SWIFT, PNR and the U.S.-EU agreement on information exchange – and stated that the common denominator for the successful resolution of all three issues is “full protection” of citizens’ data. Caamano said he will testify before the EP the week of January 25 to defend the temporary SWIFT agreement and ask for a renewal. On PNR, he identified Germany, the Netherlands and “some Nordic countries” as having “high standards” on data protection. Caamano said that Spain is doing everything in its power during its EU Presidency to seek a mandate as quickly as possible for the European Commission to begin negotiations with U.S. on exchanging information.

Bilateral with Germany – de Maiziere

11. (S/NF) Interior Minister Thomas de Maiziere was enthusiastic about U.S. “multilateralism” as evidenced by the Secretary’s attendance at the ministerial and her intention to hold additional aviation security meetings with counterparts in other parts of the world. He was familiar with recent threat information that noted the possibility of terrorists using children,s articles to introduce bombs into airplanes. He was not familiar, however, with proposed U.S. efforts in response to enable TSA to use explosive detection equipment on U.S.-bound flights. De Maiziere expressed concern about travelers who transit the EU, particularly those en route to the United States. He said the EU did not screen them and so was dependent on the efficacy of screening carried out in dozens of countries. “They can enter the EU, meet with people, buy things in airports, do other things, and leave” without an EU official ever interacting with them, he lamented. De Maiziere said he also considered electronic boarding passes to be security vulnerabilities.

Bilateral with Germany – Leutheuser-Schnarrenberger

12. (C) Privacy advocate and new Justice Minister Sabine Leutheuser-Schnarrenberger opened the meeting by referring to the German debate about “naked scanners” (i.e., WBI). She said she and de Maiziere did not always agree and that human dignity had to be protected. Sounding skeptical, she said the United States seemed to always want more data but she was “not sure you get the security you want; we cannot have total security.” Turning to the bilateral (“Prm-like”) Agreement to Prevent and Combat Serious Crime (PCSC), she warned that “it won’t be ratified” and said she and de Maiziere would shortly send (another) letter to Secretary Napolitano and Attorney General Holder, now asking for a definition of “serious crime.” DAS Koumans urged such discussion take place during negotiation of the implementation text, but she refused. Secretary Napolitano stressed that the differences between us were too small to prevent cooperation, underlined the two sides could not go backwards, offered to provide information on redress, and pledged to send to Berlin DHS Chief Privacy Officer Mary Ellen Callahan, who had met previous Justice Minister Zypries.

Bilateral with the United Kingdom (UK)

13. (S/NF) Home Secretary Alan Johnson hailed Secretary Napolitano’s coming to Toledo and her intervention in plenary. He said the UK would soon increase its use of WBI as “part of the solution” and that the following day (Friday, January 22) the UK might raise its security threat level to “severe,” the second-highest rung. He reviewed his decision the previous week (week of January 11, 2010) to cancel non-stop flights from Sana’a, Yemen, to London/Heathrow and said the flights would not resume without UK officials pre-vetting travelers in Sana’a. He offered to share the information UK officials learn in Sana’a. Secretary Napolitano responded that the USG had discussed terrorist travel information sharing with Yemen and that the United States and the UK should cooperate as they both sought to address security challenges in Yemen. Turning to the Christmas day attempted attack, Secretary Napolitano asked hypothetically whether the UK would have provided the USG with alleged perpetrator Abdulmutallab,s data if the UK had refused his visa on counterterrorism grounds. Johnson replied “No, but we should.” He also said there was information the USG should have told the UK and the USG should have watchlisted Abdulmutallab. Secretary Napolitano urged the two sides collaborate on sharing visa revocation data.

Bilateral with France

14. (S/NF) Interior Minister Brice Hortefeux said al-Qaida in the Arabian Peninsula represented a “big threat” but he claimed that EU and French law constrain the PCSC bilateral information sharing Secretary Napolitano sought. He asked for the derogatory data on the two “No Fly” passengers that had necessitated the 2009 diversion of two Air France Paris-Mexico City flights. He noted that France had no information to suggest the two individuals had ties to terrorism. He commented that he had traveled through U.S. airports and he had concluded that U.S. citizens were more adept at security measures – such as taking off their shoes – than EU citizens, who complained about such procedures. He called WBI “not a silver bullet” and called for more French airport liaison officers in Africa as well as “Profilers” to detected suspicious passengers.

Bilateral with SWITZERLAND

15. (SBU) Justice Minister Eveline Widmer-Schlumpf claimed SWITZERLAND would require two years before PCSC bilateral information sharing could begin due to internal Swiss legal procedures. Secretary Napolitano urged greater speed. DHS Under Secretary Beers asked for Swiss agreement to U.S. initiatives in ICAO, including for greater transparency and the coordination of international assistance.

Bilateral with the Netherlands

16. (C/NF) Justice Minister Ernst Hirsh Ballin said the privacy issue is central to the resolution of U.S.-EU issues such as SWIFT and PNR. Secretary Napolitano described the EU’s false notions, popularized in the media, of centralized U.S. databases. Hirsh Ballin called for greater efforts to prevent terrorism by combating radicalization. Turning to the Christmas day attempted attack, he hailed U.S.-Dutch cooperation but said “we may not agree with you on whether or not the device would have exploded” and asked whether U.S. agencies have any additional information concerning what the alleged perpetrator did (e.g., with whom he may have met) at Amsterdam’s Schiphol airport. Secretary Napolitano said the investigation is ongoing.

Bilateral with Sweden

17. (C/NF) Justice Minister Beatrice Ask lamented the upcoming elections in Sweden and said the party coalition made it hard to achieve PCSC bilateral information sharing. She said Sweden would “do what we can.” Secretary Napolitano asked whether Sweden could begin with an informal agreement before a subsequent ratification and asserted that the information sharing under the PCSC was not invasive of privacy. Ask replied that the privacy issue necessitated the formality of Parliamentary ratification and commented that a global security solution would include ships and trains. Secretary Napolitano responded that al-Qaida focused on aircraft.

Bilateral with Denmark

18. (C/NF) Secretary Napolitano told Justice Minister Brian Mikkelsen that it was time for Denmark to agree to U.S. Federal Air Marshals (FAMs) on U.S. flag flights to and from  Denmark. He replied he agreed and he had spoken that morning (January 22) with Transport Minister Lars Barfoed, who had met the previous day with U.S. Ambassador Fulton. Fulton had provided Barfoed with documents and answers to Barfoed’s questions, so Mikkelsen said he was optimistic, but the decision was Barfoed’s. Mikkelsen emphasized that guns are sensitive subject in Denmark. Secretary Napolitano warned that Denmark could not continue to be the only EU country not permitting FAMs. Mikkelsen said he had recently agreed to the extradition of a Danish citizen to the United States, a decision which had generated much negative publicity. On an optimistic note, he said the bilateral PCSC would be ratified within a month.

Next Steps

19. (SBU) DAS Koumans met January 22 in Madrid with de Kerchove as well as EU Commission and Spanish interlocutors to discuss implementation of the Joint U.S.-EU Declaration. The meeting planned concrete actions to achieve before the U.S.-EU Ministerial Troika to be held in Madrid April 8-9. The group agreed to meet again in March in Brussels.

20. (U) DHS Delegation:

Secretary Napolitano Chief of Staff Noah Kroloff Under Secretary and Senior Counselor Rand Beers Assistant Secretary for Public Affairs Sean Smith Deputy Assistant Secretary for International Affairs Mark Koumans TSA Chief of Staff Art Macias DHS Liaison to the Spanish Interior Ministry Lisa Lopez

21. (U) The DHS Delegation has cleared this cable.


DE RUEHMD #0190/01 0501417
P 191417Z FEB 10


ADDED     2011-09-04 04:04:13
STAMP     2011-09-04 04:04:13
TWEETS     0



Monday, September 5th, 2011

ID     10MAPUTO104
DATE     2010-02-04 00:00:00
ORIGIN     Embassy Maputo


E.O. 12958: N/A

Openness to Foreign Investment

1. Mozambique encourages foreign direct investment. CPI, the government’s Investment Promotion Center, seeks to bring investors to Mozambique and should be an investor’s primary
contact with the government. CPI is particularly interested in increasing investment in the central and northern regions of the country in order to address large regional development

Contact information for the Investment Promotion Center
(CPI) is as follows:
Investment Promotion Center (CPI)
Rua da Imprensa, 332 (ground Floor)
Caixa Postal 4635, Maputo
Tel: (258) (21) 313310/75 or (21) 313295/99
Fax: (258) (21) 313325
E-mail: cpi”at”

2. Mozambique’s Law on Investment, No. 3/93, dated June 24, 1993, and its related regulations govern foreign investment. Additional amendments were passed on July 21, 1993, Decree
No. 14/93, and on August 8, 1995, Decree No. 36/95. The law and amendments generally do not make distinctions based upon investor origin, nor do they limit foreign ownership or control of companies. The lengthy registration procedures can be problematic for any investor — national or foreign — but those unfamiliar with Mozambique and the Portuguese language face greater challenges. Working with a local consulting firm or partner familiar with the requirements will facilitate the registration process. CPI assists both local and foreign investors in obtaining licenses and permits. However, in general, large investors receive much more support from the government in the business registration process than small and medium-sized investors.

3. Government authorities must approve all foreign and domestic investment requiring guaranties and incentives provided by the Investment Law and its regulations. Currently CPI handles the approval process for both foreign and domestic investors. The final approval is granted by the following government entities: 1) The Provincial Governor for domestic investment up to USD 100,000; 2) The Minister of Planning and Development for domestic investment exceeding USD 100,000 and foreign investment up to USD 100 million; and
3) The Council of Ministers for any investment project exceeding USD 100 million and those involving large tracts of land (5,000 hectares for agricultural investment and 10,000 hectares for livestock and forestry projects. The minimum investment threshold for tax and import incentives is USD 50,000.

4. The World Bank’s “Doing Business in 2010” report indicates that entrepreneurs can expect to go through at least 10 identifiable steps to launch a business that according to the World Bank lasts, on average, 26 days. Overall, the ease of starting a business in Mozambique is ranked at 96 out of 183 countries, up from 143 in 2009. This improvement is due to the elimination of minimum capital requirements to start a business and reforms to trading across borders.

5. To date Mozambique’s privatization program has been relatively transparent, with open and competitive tendering procedures in which both foreign and domestic investors have participated. Most remaining parastatals are in public utilities, making their privatization more politically sensitive. While the government has indicated an intention to take on partners in most of these utility industries, progress on privatization has been slow. The Millennium Challenge Corporation maintains a list of indicators in the areas of Ruling Justly, Investing in People, and Economic Freedom, which can be found at mbique.pdf

Conversion and Transfer Policies

6. Currency is freely convertible at banks and exchange houses. Foreign exchange retention accounts are permitted for 100 percent of foreign exchange earnings without formal justification. These may be used to purchase imports. Investment registration and repatriation procedures must be followed to repay foreign loans and for the repatriation of invested capital, profits and dividends. Delays are uncommon beyond those typical for administrative processing in a developing country.

Expropriation and Compensation

7. Private property was nationalized throughout Mozambique in 1975 following independence from Portuguese colonial rule. After Mozambique’s turn away from socialism in the 1980s,
citizens had a period of time to reclaim residential property. The government retained commercial property, but later sold it off as part of its privatization efforts. All but a handful of religious properties that were nationalized have been returned; negotiations are ongoing for the remaining few. It is worth noting, however, that there is no private ownership of land in Mozambique; all land is owned by the state.

8. While there have been no significant cases of nationalization since the adoption of the 1990 Constitution, Mozambican law holds that “when deemed absolutely necessary for weighty reasons of national interest or public health and order, the nationalization or expropriation of goods and rights shall (result in the owner being) entitled to just and equitable compensation.”

Dispute Settlement

9. In December 2005 the National Assembly approved major revisions to the commercial code – the result of a collaborative effort starting in 1998 between the Mozambican government, the private sector and donors. The previous commercial code was from the colonial period, with clauses dating back to the 19th century, and did not provide an effective basis for modern commerce or resolution of commercial disputes. The revised code is generally viewed as a very positive development. The new Commercial Code went into effect July 1, 2006.

10. To date the judicial system has been largely ineffective in resolving commercial disputes. Instead most disputes among Mozambican parties are either settled privately or not at all. Pro-worker regulations mean that “hiring and firing” of workers is exceedingly difficult in Mozambique.

11. In February 1999, the National Assembly legally recognized Alternative Dispute Resolution, which provides for foreign investors to have access to arbitration. The Center for Commercial Arbitration, Conciliation and Mediation (CACM), which is supported by USAID, offers commercial arbitration. CACM has two locations – one in Maputo and a second in the central city of Beira. CACM does not, however, deal directly with labor issues. From 2009, CACM will also do labor issues mediation and arbitration. For disputes between international and domestic companies, the law closely follows UNCITRAL, the United Nations Commission of International Trade Law. For domestic arbitration, the law is formulated to cover a wide range of potential disputes, including non-commercial issues. In 2009, a government decree authorized labor disputes to be mediated by CACM.
Mozambique acceded in mid-1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. For disputes between American and Mozambican companies where a violation of the nations’ Bilateral Investment Treaty (BIT) is alleged, recourse via international ADR under the BIT may also be available. Investors who feel they have a dispute covered under the BIT should contact the US Embassy Economic Section.

Performance Requirements and Incentives

12. Mozambique is generally in compliance with WTO Trade-Related Investment Measures (TRIM) obligations. A variety of tax incentives exist to encourage direct foreign investment, which vary according to the region of the country and the nature of the investment but often include a 50 to 80 percent reduction in taxes. After the end of the period of tax reductions, additional benefits, which vary according to the location of the investment, are available. For example, investment in new or rehabilitated projects benefit from a 50% reduction in Corporate Tax Rates during the period necessary for recovering the investment, which may not exceed 10 years. For investments in the provinces of Niassa, Cabo Delgado, and Tete, the reduction is 80% of the normal rates. After the end of the period of tax reductions, additional benefits, which vary according to the location of the investment, are granted. Special tax benefits are granted to investors for the rehabilitation or expansion of operating projects. For a five-year period, an immediate 100% write-off is allowed for investments in new equipment and in the construction of civil installations and agricultural infrastructure. Customs exemptions are possible for the importation of capital equipment and raw materials. To
qualify, a minimum investment of USD 50,000 and pre-approval from CPI are required. However, a handling fee of 1% is charged on all goods, irrespective of the goods being exempt from the payment of any import duties of the duty applicable to 0% goods. The government grants special fiscal, labor and immigration arrangements to companies operating in designated Rapid Development Zones. Rapid Development Zones include the whole of Niassa Province, Nacala District, Ilha de Mocambique, Ibo Island and the Zambezi river valley.
Investments in these zones are exempt from import duties on certain goods, from real property transfer tax and are granted an investment tax credit equal to 20% of the total investment (with a right to carry forward for five years).
There are also incentives for companies in industrial free zones.

13. Specific performance requirements are built into mining concessions and management contracts, and sometimes into the sale contracts of privatized entities. Investments involving
partnerships with the government usually include milestones that must be met for the investor’s project to continue.

14. In August 2009, Decree 43/2009 created Gazeda, the Special Economic Zones Office. Both Gazeda and CPI support and assist investors, however Gazeda focuses its activities on the Beluluane Industrial Free Zone in Maputo Province and the Nacala Special Economic Zone, in Nampula Province. The two zones allow exemptions from customs duties and value added taxes on imports of equipments and raw materials for use within the zones.

15. Note: The process of obtaining a visa and related work permits for foreign workers in Mozambique is lengthy and overly bureaucratic. The Ministry of Labor must approve the employment of foreigners. The Ministry of Interior’s immigration department issues a DIRE (a work permit/identification card) once the Ministry approves the application. Assistance through a local lawyer, consulting firm or an individual familiar with the process will facilitate obtaining necessary work permits. In 2009, the Ministry of Labor began enforcing a quota system which requires the number of foreign employees to be no larger than 10 percent of a company’s workforce, depending on the overall size of the company. Foreign nationals found that the bureaucratic process and documentary requirements inherent in requesting or renewing work authorizations through the Ministry of Labor were exceedingly difficult. Some
investments, covered under separate “mega-project” agreements are exempted from these quotas; however, in some cases the Ministry of Labor arbitrarily required the same companies to comply with foreigner quota regulations.

Right to Private Ownership and Establishment

16. The legal system recognizes and protects property rights to building and movable property. Private ownership of land, however, is not allowed in Mozambique. Instead the government grants land-use concessions for periods of up to 50 years, with options to renew. The government at times has granted overlapping land concessions. Essentially, land-use
concessions serve as proxies for land titles; however, they are not allowed to be used as collateral. Land surveys are being carried out throughout the country to enable individuals to register their land concessions. This process is moving slowly and will not provide any real legal protection to investors for some time to come. The Mozambican banking community uses property other than land, such as cars and private houses, as collateral. Investors should be aware of the requirement to obtain endorsement of their projects in terms of land use and allocation at a local level from the affected communities.

Protection of Property Rights

17. The inefficient nature of the Mozambican judicial system makes protection of property rights extremely problematic. Pirated copies of audio, videotapes, DVDs and other goods are
sold in Mozambique.

18. The National Assembly passed a copyright and related rights bill in 2000. This bill, combined with the 1999 Industrial Property Act, brought Mozambique into compliance with the WTO agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS). The law guarantees the security and legal protection of industrial property rights, copyrights and other related rights. In addition, Mozambique is a signatory to the Bern Convention on International Property Rights, as well as the New York and Paris conventions.

19. Over the last four years private sector organizations have been working together with various government entities on an IPR task force team in an effort to combat intellectual property right infringement and related public safety issues. The task force has successfully acted on IPR infringement issues, highlighting a successful private/public partnership.

Transparency of the Regulatory System

20. Investors face a myriad of requirements for permits, approvals and clearances, all of which take a significant amount of time and effort to obtain. The difficulty of navigating the system creates space for corruption, and bribes are often requested to facilitate transactions.

21. Regulations in the areas of labor, health and safety and the environment are routinely not enforced, or are enforced randomly to generate revenue from fines. In addition, civil servants have at times threatened to enforce antiquated regulations that remain on the books to obtain favors or bribes.

22. The government is aware of the problems and has launched a donor-funded effort to streamline procedures. The new Commercial Code that went into effect July 1, 2006, is seen as a step forward in combating many of these issues.

23. Changes to laws and regulations are published in the National Bulletin. Public comments to proposed new laws and regulations are usually limited and input may come from a few private sector associations, such as CTA. CTA is the organization that officially represents the interests of a wide number of private sector business associations.

——————————————— —–
Efficient Capital Markets and Portfolio Investment
——————————————— —–

24. Mozambique has a small capital market of fourteen commercial banks, of which four dominate the market. The banks compete for important clients and deposits. Access to credit for the private sector remains difficult and expensive — interest rates for commercial loans are generally around 22 percent per year. Housing loans are around 15 percent per year. Access to capital in the rural areas is constrained by the fact that land leases cannot serve as collateral. Various entities, such as the Aga Khan Foundation, Banco Opportunidade and Novo Banco, offer micro-credit financing programs to partially fill this need.

26. The Mozambican Stock Exchange, founded in October 1999, was started with less than USD 5 million in capitalization. Although a fundamental instrument for the raising of finance by companies, to date the exchange’s principal listing is Cervejas de Mocambique. The capital base requirement for listing is USD 1.5 million.

Competition from State Owned Enterprises

27. Current state owned enterprises have their origin in the socialist period directly following Mozambique’s independence in 1975. State owned enterprises are divided into two groups, those wholly owned by the state and those partially owned by the state. Each enterprise is subordinate to a specific ministry. There are a variety of state owned enterprises that compete with the private sector. The state-owned company, Telecomunicacoes de Mocambique (TDM), Aeroportos de Mocambique (ADM), Electricidade de Mocambique (EDM) and Portos e Caminhos de Ferro de Mocambique (CFM) have a monopolies on certain industries. Some of these state-run enterprises benefit from state subsidies. The state is actively involved in the operations of some of these enterprises.

Corporate Social Responsibility (CSR)

28. Larger companies and foreign investors are aware of corporate social responsibility (CSR). Companies practicing CSR tend to set their own standards. As part of some large investment projects, CSR related issues are negotiated directly with the government according to local necessities. For example, some foreign investors are required to relocate populations, build houses, schools and health centers for those displaced by their economic activities.

Political Violence

29. The triple elections — presidential, legislative and provincial — conducted on October 28 occured with only few incidents of localized violence. International electoral observers noted that undue influence exercised by the ruling FRELIMO party resulted in an “unlevel playing field.”
Supporters of the opposition party RENAMO complained of intimidation and arbitrary arrests. Newly formed opposition party MDM was excluded, many say unfairly, from most legislative contests. RENAMO issued complaints of election fraud to several agencies. Nonetheless, and despite some blustering, principally from RENAMO leader Afonso Dhlakama, no violence has ensued.

30. Labor unions lack the financial and institutional capacity to muster effective, coordinated efforts among their members. Protests, when they do occur, rarely turn violent. There have been work stoppages, usually as a result of failure to receive salary owed. As in many capital cities, crime is problematic in Maputo, where carjackings, muggings and armed home  break-ins do occur. An overanxious police force sometimes responds with inappropriate shows of force, lacking the sophistication of resorting to violence only as a last resort. In several instances, the police themselves have been targeted for assassination by organized crime. While acts of violence are not unknown in Mozambique, they have not reached the same scale or frequency as in neighboring South Africa.


31. Mozambique slipped to 130 out of 180 countries ranked on Transparency International’s (TI) 2009 Corruption Perceptions Index (CPI), down from 111th place in 2007, indicating that corruption in the country is “rampant.”

32. The police continued to be poorly paid and due to low wages and poor conditions, some police members tipped off criminals to police operations. Corruption and extortion by police are widespread, and impunity remains a serious problem.

33. Senior officials often have conflicts of interest between their public roles and their private business interests. Bribery is considered a criminal offense in Mozambique, and political declarations have been repeatedly issued denouncing corrupt practices and promising actions against the guilty. Despite this, such actions have been extremely slow in coming, with high-profile arrests of current and former senior government officials on corruption charges beginning in 2008. 48 of 49 corruption charges against Former Interior Minister Almerino Manhenje were thrown out in 2009 however.

34. Over the past several years the United States has been one of the lead donor countries in providing assistance to the government to fight corruption. With US resources, the government set up an Anti-Corruption Unit in the Office of the Attorney General (renamed in 2005 the Central Office for the Combat of Corruption). This body is charged with investigating and prosecuting corruption-related crimes.

35. In 2005 the government passed Decree 22/2005, which created provincial-level offices to combat corruption. Offices were opened in Beira and Nampula, and are in operation. In 2006 documents authorizing the creation of two additional offices in Inhambane and Zambezia provinces, respectively, were submitted; offices will be opened once the Council of Ministers publishes its approval decree.

36. The National Assembly passed an anti-corruption bill in 2004 that updated previous antiquated legislation. Civil society (particularly the media and a few dedicated NGOs) has remained vocal on corruption-related issues, with some support from the US government. One NGO, the Center for Public Integrity, continues to be active in pressuring the government to act against corrupt practices.

37. Mozambique is a signatory to the United Nations Convention Against Corruption.

Bilateral Investment Agreements

38. In December 1998 Mozambique negotiated a Bilateral Investment Treaty (BIT) with the United States. The U.S. Senate ratified the treaty in November 2000, followed by the Mozambican Council of Ministers in December 2004. The US-Mozambique BIT came into effect on March 3, 2005. In June 2005 the US and Mozambique signed a Trade and Investment
Framework Agreement (TIFA) that established a Trade and Investment Council to discuss bilateral and multilateral trade and investment issues. The Council held its first meeting in October of 2006, meeting most recently in 2009. OPIC signed an agreement with Mozambique in 1999, later ratified in 2000.

39. Mozambique has also signed bilateral investment agreements with the following nations Algeria, Belgium, China, Cuba, Denmark, Egypt, Finland, France, Germany, Indonesia, Italy, Mauritius, The Netherlands, Portugal, South Africa, Sweden, SWITZERLAND, The United Kingdom, and Zimbabwe. Double Taxation Treaties have been agreed with Portugal, Mauritius, Italy, and the United Arab Emirates.

40. South Africa is Mozambique’s biggest trading partner. Since 1995 Mozambique has engaged in regular discussions with South Africa to harmonize trade regulations and facilitate cross-border trade and investment. Other countries with significant investment in Mozambique include the United Kingdom, India, China and Portugal. The United States is a relatively minor trading partner, but continues to be a substantial source of FDI.

OPIC and Other Investment Insurance Programs

41. The Overseas Private Investment Corporation (OPIC) is an independent U.S. government agency that can assist with project finance, through loans or loan guaranties, and political risk insurance in Mozambique, up to a total of USD 400 million for projects with U.S. involvement.

42. Mozambique is a member of the Multilateral Investment Guarantee Agency (MIGA), part of the World Bank Group.


43. The estimated work force is approximately 9.6 million, out of a total population of 21 million. However, only approximately 16.4% are in salaried positions. In 2008 the government increased the country’s minimum wage by 20% in the industry and services sectors and by 26% in the agriculture sector, making the new minimum wage for industry and services  approximately USD 89 a month and the minimum wage for agricultural workers approximately USD 54 a month. These increases were slightly above reported inflation. This minimum wage applies only to those working in the formal sector; those working in the informal sector may earn significantly less. Many people work several jobs to earn a sufficient income and often grow corn and vegetables on a small plot of land for personal consumption. Approximately 80% of the labor force works in agriculture, 6% in industry and 13% in services. Current estimates place nationwide adult literacy levels at under 50%, with most of the literate Mozambicans living in urban centers.

44. Although the contracting of Mozambican workers is unrestricted, contracting of foreign workers by national or foreign entities, including administrators and representatives of foreign companies, is subject to the authorization of the Ministry of Labor. Foreign workers must possess professional qualifications and may only be contracted where there are no Mozambicans with such qualifications or their number is insufficient. All investments must specify in the investment project proposal the number and category of Mozambican and foreign workers to be employed.

45. The establishment of wages and other forms of compensation to be paid to the employee are not subject to control. However, the labor legislation provides for a minimum wage of USD 50 to 90 per month depending on the industry sector. Employers are obliged by law to pay a social security tax assessed at 7% of the employees’ wages. A maximum of 3% of this is deductible from the employee’s salary, while the remaining 4% is met by the employer. Foreign resident workers may be exempt if they can demonstrate participation in an alternate social security scheme.

46. Labor unions created during the socialist years of the 1970s and 1980s remain weak and are disengaging themselves from the ruling party, FRELIMO. Total membership among Mozambique’s fourteen unions is close to 200,000 persons. Labor unions are exerting pressure on the government to maintain extremely pro-worker provisions in labor legislation, although they are showing flexibility on major issues. The minimum wage, decided every year, remains a major concern for the unions. Potential investors should be aware that severance payments and other benefits can be costly. Despite the introduction of a new labor law in 2007, the labor market remains rigid and an impediment to business.

47. Mozambique is a signatory to the International Core Labor Standards.

Foreign Trade Zones / Free Trade Zones

48. The government issued Decree No. 61/99 on September 21, 1999, establishing industrial free zones (export processing zones). The decree set up an Industrial Free Zone Council, which approves companies as industrial free zone enterprises, thereby providing them customs and tax exemptions and benefits. There are three essential requirements for Industrial Free Zone status: job creation for Mozambican nationals, the exportation of at least 85% of annual production, and a minimum investment of USD 50,000. The decision to grant Industrial Free Zone status lies with the Mozambican Council of Ministers and is conditional on the proposal creating 500 permanent positions for Mozambican employees, of which each company operating with the Industrial Free Zone must employ at least 20 of these employees. Almost all industries, with the exception of prospecting and exploration of natural resources, processing of raw cashew nuts and national seafood, including prawns, can be authorized under an Industrial Free Zone status.

49. Industrial Free Zone developers enjoy an exemption from customs duties, VAT and tax on the importation of construction materials, machinery, equipment, accessories, accompanying spare parts and other goods destined for the establishment and operation of the Industrial Free Zone.

50. Free zone concessions are granted for a renewable period of 50 years. Mozambique’s large export-oriented investment projects of recent years, such as MOZAL and SASOL, operate as
industrial free zones. There is no requirement for free zone companies to be located at specific sites.

51. In addition, Special Economic Zones can be established on a case-by-case basis with the objective of developing specific geographical areas that benefit from exemption from custom duties and taxes, a free “off-shore” type foreign exchange regime and special labor and immigration regimes. A special tax and custom regime has been created for the Zambezi Valley until 2025.

Foreign Direct Investment (FDI) Statistics

52. Historical Data: The government established the Investment Promotion Center (CPI) in 1985. From January 1, 1990 through December 31, 2009 CPI approved a total of 3,297 projects (both foreign and national). CPI reported over USD 8 billion in FDI was approved for 861 projects in 2009.

53. From 2005 to 2009 the largest projected FDI investor was the United States with over USD 5 billion in 15 approved projects. The second largest was Portugal with almost USD 800 million in 127 projects. The third largest was Norway with USD 742 million in 2 projects, the fourth largest was South Africa with USD 424 million in 318 projects. China was the fifth largest FDI investor with USD 175 million in 41 projects.

54. Many of these approved projects turned out to be smaller than planned or not implemented, however, while other projects are not reported to CPI at all. For these reasons, approved projects do not represent the actual FDI for any given year.



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ADDED     2011-09-05 13:09:26
STAMP     2011-09-05 13:09:26
TWEETS     0



Monday, September 5th, 2011

DATE     2010-02-05 00:00:00



E.O. 12958: N/A


1. International Narcotics Control Board President Sevil Atasoy announced the appointment of Jonathan Lucas (Seychelles) as Secretary of the INCB and Chief of the INCB Secretariat on February 3. Lucas succeeds Koli Kouame (Ctte d’Ivoire) who retired from the organization on January 31. Prior to his appointment as Secretary of INCB, Lucas served as the Regional Representative of the United Nations Office on Drugs and Crime (UNODC) in Pretoria. He is expected to take up his new assignment in Vienna on March 22. END SUMMARY


2. Lucas has been an “international diplomat” his entire professional career. Following work early on in his career as a Consultant with the International Labour Organization (ILO) in
SWITZERLAND, Lucas joined the United Nations in 1984 as Associate Social Affairs Officer. He continued serving in various capacities, including Legal and First Officer for the policy-making organs of the United Nations International Drug Control Programme, and Senior Programme Management Officer in the Office of the Executive Director/Director-General of the then Office on Drug Control and Crime Prevention/United Nations Office at Vienna. More recently he has served as Secretary of the Commission on Narcotic Drugs, and Secretary of the Commission on Crime Prevention and Criminal Justice. Lucas holds a Master’s degree in Political Science from Acadia University, Canada, and a Ph.D. degree in International Law/Economics from the Graduate Institute for International Studies (IUHEI), Geneva, SWITZERLAND.

3. INCB Secretariat interlocutors, as well as retired U.S. Ambassador Melvin Levitsky (who serves in his personal capacity on the INCB), speak highly of Lucas and are optimistic that he will be a valuable addition to the INCB. UNVIE will continue to work closely with the INCB Secretariat, and will endeavor to cultivate a similarly close and constructive relationship that we enjoyed with former Secretary Kouame. Lucas will have big footsteps to fill, as Kouame proved to be a good custodian of the INCB, advancing the prominence of the Board, while also protecting its integrity. We would not be surprised if Kouame returns soon to the international drug policy arena, perhaps even seeking a seat on the INCB itself during next year’s elections.



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ADDED     2011-09-05 13:09:27
STAMP     2011-09-05 13:09:27
TWEETS     0



Monday, September 5th, 2011

ID     10USNATO41
DATE     2010-01-29 00:00:00
TEXT     S E C R E T SECTION 01 OF 02 USNATO 000041


E.O. 12958: DECL: 01/28/2020

Classified By: D/POLAD Alejandro “Hoot” Baez for reasons 1.4(B)&(D).

1. (S) At the 17 December Verification Coordination Committee Experts Meeting the U.S. secured the following CFE inspections for the 15th year of the residual period beginning 16 March:

Non- Russian Inspections:

– 1 Quota Inspection in Azerbaijan

– 1 Quota Inspection in Ukraine

– 1 Flank Inspection in Ukraine

– 3 Additional Paid Inspections in Ukraine

Inspections in Russia:

– 4 Quota Inspections in the Russian Federation

– 7 Quota Inspections of Objects of Verification (OOVs) eligible for Flank Supplementary Inspections in the Russian Federation

– 7 Supplementary Flank Inspections in the Russian Federation.

2010 VCC Activities Calendar Deconfliction

2. (C) Allies began the VCC Experts meeting by deconflicting the 2010 calendar. Aside from minor administrative corrections, Allies agreed, in principle, not to schedule activities in consecutive weeks for countries that have a limited capability to support incoming teams. As a result, Allies rescheduled activities in Azerbaijan, Bosnia-Herzegovina, Kyrgyzstan, and Serbia to ensure at least a one-week break between activities. The deconflicted calendar has been distributed under AC/319-WP(2009)0006-REV5. (Note. – Georgia was initially identified for rescheduling. However, several Allies noted that Georgia had urged Allies to conduct activities in Georgia and to schedule them early
in the year, presumably to exhaust quotas before Russia has a chance to notify an activity. Therefore, the schedules for activities in Georgia were unchanged. End Note.)

3. (C) Turkey raised the issue of whether Allies should accept invitations from partners for slots as guest inspectors/evaluators if the uncoordinated activity will result in the loss of an opportunity by another Ally. Hungary, Estonia, the UK, France and Belgium argued that Allies should be allowed to accept the invitation since the alternative, to decline the invitation, would mean that NATO would lose all access for that activity. Turkey and Norway countered that, as a matter of principle, Allies should decline such invitations. The Experts Chair (Wiederholtz) announced that this issue would be raised at the next VCC on 21 Jan.

Any Other Business

4. (C) At the beginning of the meeting the Chair (Wiederholtz) announced that Germany had broken silence on AC/319-N(2009)0038, Experts Tasking VD99. According to Wiederholtz, Germany’s statement was that the discussion of issues on improving VD99 was more appropriate for Vienna and not at the VCC. Germany stated they wanted to discuss the
issue at the next VCC meeting. Wiederholtz announced that the IS would raise this issue in the VCC in January.

5. (SBU) Wiederholtz requested that Nations provide initial CFE inspection schedules to the IS by 15 January. Experts would meet the morning of 21 January to deconflict the CFE inspection calendar.

On the Margins

6. (C) Norway (Dalaaker) asked to meet separately with countries holding VD 99 quotas for activities in Russia, Belarus and Kazakhstan. Dalaaker reported that he talked to verification representatives from SWITZERLAND, Austria, Finland and Sweden in an attempt to deconflict NATO’s activities in the aforementioned countries of interest. (Note. At the November VCC , Allies agreed, in principle, to schedule their inspections to these countries during periods of military activity. By refraining from inspecting these countries until Summer/Autumn – the periods in which these countries habitually conduct major training exercises – Allies risk losing inspection opportunities to partners. Finland, Sweden, SWITZERLAND and Austria are the partner countries most likely to conduct an inspection in these countries. End Note.) Dalaaker reported that Austria and SWITZERLAND were not planning to conduct inspections in Russia. Finland and Sweden plan on conducting activities in Russia and Belarus, but Finland was open to informal
coordination and Sweden was planning no activity until October. SWITZERLAND was planning an inspection to Kazakhstan sometime before expected Allied inspections. Dalaaker suggested that Allies should consider offering inspection slots to Finland or Sweden, and indicated that he would keep Allies informed of any additional contacts.

7. (C) Having just returned from the Heads of Verification (HOV) meeting in Vienna, Wiederholz reported in the Experts meeting that the Russian delegation stated that their verification center planned to reduce its personnel strength by 100, or by nearly one third. On the margins, Wiederholtz reported to USDel that the head of the Russian arms control
delegation in Vienna (Ulyanov) had told the German Delegation, during a bilateral meeting, that Russia would be content to “let CFE sleep” in 2010 in favor of focusing attention on revising VD 99. (Note. Wiederholtz did not indicate whether Ulyanov was referring to the Russian Federation, or the Russian delegation in Vienna. End Note.)


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ADDED     2011-09-05 13:09:25
STAMP     2011-09-05 13:09:25
TWEETS     0



Monday, September 5th, 2011

ID     10STATE9671
DATE     2010-01-30 00:00:00
ORIGIN     Secretary of State
TEXT     S E C R E T STATE 009671


E.O. 12958: DECL: 01/28/2030


Reason: 1.4 (B) & (D)

1. (C) Assistant Secretary for Verification, Compliance, and Implementation Rose Gottemoeller will head the U.S. delegation to the eighth round of New START Treaty negotiations with Russia in Geneva, SWITZERLAND, beginning on February 1, 2010. This is the first of several cables providing guidance for the beginning of this round; Delegation should request further guidance as needed. The U.S. objective is to conclude the Treaty and Protocol texts so they can be signed as soon as possible, and to continue work on the Annex texts so that they can be completed soon after the Treaty and Protocol are signed.

Recording Agreement on Five Core Issues

2. (S) During their January 21-22 trip to Moscow, General Jones and Admiral Mullen reached oral agreement on the five outstanding core issues in the new START Treaty, which are critical to finalizing the Treaty (Ref A). Accordingly, as the first order of business of the eighth round of Geneva negotiations on the New START Treaty, the Delegation is instructed to implement agreements on the five core issues into written treaty text. Elements of agreement on the five core issues are outlined below.


3. (S) Russia accepted most of the U.S. January 15 modifications to President Medvedev’s December 12 proposed telemetry Protocol language (Ref B) to include:

— Exchange of telemetric information on up to five launches of ICBMs and SLBMs per year;
— Annual Review of telemetry provisions;
— A separate Annex with additional implementing details;
— Removal of any reference to UK Trident.

In addition, Russia agreed that any changes to the telemetry exchange procedures would require mutual agreement in the BCC, but did not agree to include language to this effect because that goes without saying and including it here would require including it in a hundred other places in the agreement. As a result, agreement was reached on Protocol language based on the Russian December 12 draft and the U.S. January 15 changes, revised as discussed above.

4. (S) The Russian side indicated its intention to table additional language for the telemetry Protocol, including language which specifies that the testing Party will select which launches it will share with the monitoring Party. Delegation is authorized to negotiate ad ref to Washington Russian proposed language on selection of launches and additional mutually acceptable language as tactically required. Washington does not believe that any additional language on telemetry is required in the Protocol, given the Russian agreement in Moscow on January 22 that there will be an annex on telemetry.

Unique Identifiers

5. (S) The Russian side agreed “in principle” to the U.S. proposal for unique identifiers on all strategic delivery vehicles as part of a larger package on launcher and warhead numbers. The exact wording on UIDs in the Protocol and Annex are to be negotiated. The Delegation is authorized to negotiate language drawing on the U.S. paper entitled “Implementing Unique Identifiers for Strategic Offense Arms” presented to General Makarov by Admiral Mullen (Ref C).


6. (S) The U.S. and Russia agreed to an annual quota of 18 inspections, of which ten will Type One inspections and eight will be a mixture of inspections of non-deployed systems and formerly declared facilities and inspections to monitor the conversion and elimination of systems. The Russian side agreed to “batch” eliminated solid fuel missiles and mobile launchers of ICBMs for periodic Type Two inspections to monitor the results of elimination. The U.S. delegation is authorized to negotiate language in the Treaty and Parts Three and Five of the Protocol, ad ref to Washington, that implements this approach to monitoring conversions and eliminations.

——————————————— ————–
Aggregate Limits on Strategic Delivery Vehicles and
——————————————— ————–

7. (S) In addition to an aggregate ceiling of 700 on deployed strategic delivery vehicles, the Russian side agreed to an aggregate ceiling of 800 deployed and non-deployed launchers, provided bombers are included along with deployed and non-deployed ICBM and SLBM launchers. The U.S. delegation is authorized to table a change in the U.S. language in Article IV of the Treaty to reflect the broadened 800 limit on deployed and non-deployed ICBM and SLBM launchers and nuclear-capable heavy bombers and to work out with the Russians the definition and concept regarding non-deployed heavy bombers.

8. (S) The U.S. and Russia agreed to an aggregate limit of 1550 warheads associated with deployed strategic delivery vehicles.

End guidance.



DE RUEHC #9671 0300357
O 300351Z JAN 10


ADDED     2011-09-05 13:09:25
STAMP     2011-09-05 13:09:25
TWEETS     0



Sunday, September 4th, 2011

DATE     2010-02-01 00:00:00
ORIGIN     Embassy Bridgetown


E.O. 12958: N/A

REF: 09 STATE 124006



1. (U) Barbados is open for business. The Government of Barbados, through Invest Barbados, strongly encourages foreign direct investment in Barbados, particularly in industries that create jobs and earn foreign currency.

2. (U) The Government offers special incentive packages for foreign investments in the hotel industry, manufacturing, and offshore business services. For example, International Business Companies (IBCs) have a maximum tax rate of 2.5 percent on income and exemption from foreign exchange controls.

3. (U) The services sector holds the largest potential for growth, especially in the areas of financial services, e-commerce, medical transcription, tourism, educational, health, and cultural services. In agriculture, the slow demise of the sugar industry has opened up land for other agricultural uses, and investment opportunities exist in the areas of agro-processing, alternative and renewable energy, and hydroponics. In the financial services sector, Government has improved its regulatory oversight, and the industry is thriving under better regulatory standards, designed to prevent money laundering and tax evasion.

4. (U) Telecom liberalization is bringing an end to the longstanding monopoly of LIME formerly Cable and Wireless, and has introduced competition, lowered the cost of international telecommunications, and enhanced the telecom infrastructure. Since 2000, the Government has gradually allowed more companies to compete in the sector, and by early 2005 there was full competition in wireless and long distance service. The Government has established policy with respect to Voice over Internet Protocol (VoIP) regulations, which was approved on August 15, 2007. To prepare a workforce skilled in advanced IT services, the Government and educational institutions such as the Barbados Community College and the University of the West Indies have undertaken educational and training initiatives.

5. (U) Foreign nationals receive the same legal protections as local citizens. The police and court systems are efficient and unbiased in commercial matters, and the government operates in an essentially transparent manner.

6. (U) Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital. Barbados’ economy is small, however, and new enterprises that might compete with entrenched local establishments, especially in the retail and restaurant sector, may face a de facto veto of their license by local interests. In the past, the government did not approve, or considerably delayed, licenses for importers of U.S. ice cream and poultry products, and some U.S. fast food franchises. Improvement has been made in this area as Government seeks to open the economy to this type of US led investment.



7. (U) Companies can freely repatriate profits and capital from foreign direct investment if they registered with the Central Bank of Barbados at the time of investment. The Central Bank may limit or delay conversions depending on the level of international reserves under the bank’s control.

8. (U) The Ministry of Finance controls the flow of foreign exchange, and the Exchange Control Division of the Central Bank executes fiscal policy under the Exchange Control Act. Individuals may apply through a local bank to convert the equivalent of USD 3,750 per year for personal travel and up to a maximum of USD 25,000 for business travel. To convert any amount over these limits, one must apply to the Central Bank.



9. (U) The Barbados Constitution and Companies Act contain provisions that permit the Government to acquire compulsorily property for public use upon prompt payment of compensation at fair market value. The Embassy is not aware of any outstanding expropriation claims or nationalization of foreign enterprises in Barbados.



10. (U) Barbados bases its legal system on the British common law system. The Attorney General, the Chief Justice, Puisne Judges, and Magistrates administer justice in Barbados. The Caribbean Court of Justice (CCJ) replaced London’s Privy Council as the highest court of appeal for Barbados in 2005.

11. (U) The United States and Barbados are both parties to the World Trade Organization (WTO). The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes. The Barbados Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980), which recognizes the 1958 New York Convention on the Negotiation and Enforcement of Foreign Arbitral Awards, contain provisions for arbitration of investment disputes. Parliament has written The New York Convention’s provisions into domestic law, but has yet to ratify the convention.

12. (U) Barbados is also a member of the International Center for the Settlement of Investment Disputes (ICSID), also known as the Washington Convention. Additionally, individual agreements between Barbados and multilateral lending agencies have provisions calling on Barbados officials to accept recourse to binding international arbitration to resolve investment disputes between foreign investors and the state.



13. (U) While there are no formal performance requirements, government officials will more likely approve investments they believe will create jobs and increase exports and foreign exchange earnings. There are no requirements for participation either by nationals or by the Government in foreign investment projects.

14. (U) There is no requirement that enterprises must purchase a fixed percentage of goods from local sources, but the Government encourages local sourcing.

15. (U) Companies must meet export performance requirements to take advantage of certain tax incentives. For example, “enclave enterprises” must produce goods exclusively for export outside the CARICOM region. Foreign investors must finance their investments from external sources or from income that the investment generates. When a foreign investment generates significant employment or other tangible benefits for the country, the authorities may allow the company to borrow locally for working capital.

16. (U) There is no requirement that locals own shares of a foreign investor’s enterprise, but some restrictions may apply to share transfers. The Companies Act does not permit bearer shares. Foreign investors do not need to establish facilities in any specific location, although there are zoning restrictions.

17. (U) Most investment incentives in Barbados are tax incentives, although there are some special programs for manufacturers. Potential investors should contact a licensed accountant and/or lawyer in Barbados to find out which incentives fit best with their goals.

18. (U) In the manufacturing sector, the Barbados Investment and Development Corporation (BIDC) has established ten well-equipped industrial parks with subsidized rent. The BIDC may also supply limited training grants and free technical assistance through two programs with a focus on developing local businesses: the Export Grant and Incentive Scheme and the Technical Assistance Program. The former helps both locally and foreign-owned companies (but only those foreign companies with management or marketing branches in Barbados) by defraying export costs such as the preparation and shipment of samples and the development of marketing materials. The latter helps companies solve a range of operational problems.

19. (U) The BIDC also offers local small businesses access to its Small Business Development Center, with conference room facilities, communications services, short-term office space, and a commercial library. To further help manufacturers, the Central Bank of Barbados has established an export credit guarantee scheme, covering pre-shipment financing requirements and post-shipment credit risks for manufacturing companies.

20. (U) The Fiscal Incentives (Amendment) Act (2001) provides a maximum 15-year tax holiday to any manufacturer of an approved product, provided that it meets the definition of an enclave enterprise: manufacturing exclusively for export outside of CARICOM; manufacturing approved products containing a specified percentage of local value added; or being highly capital intensive. Under the Fiscal Incentives Act, such enterprises may import duty-free equipment, spare parts, and raw materials from outside CARICOM. Dividends and other distributions to shareholders during the tax holiday are also exempt from the payment of income tax. Non-resident shareholders liable to tax in their country of
residence are subject to Barbados withholding tax at a lower rate. To qualify for these incentives, the enterprise must apply to the Ministry of Economic Affairs, Empowerment, Innovation, Trade, Industry and Commerce.

21. (U) Enterprises not obtaining benefits under the Fiscal Incentives (Amendment Act (2007)and generating export profits (other than from exports within CARICOM) may receive an export allowance expressed as a rebate of corporation tax (between 35-93 percent) on those profits. The maximum rebate of 93 percent applies if more than 81 percent of an enterprise’s profits result from extra-regional exports. The Export Development Allowance permits a company to deduct from taxable income an additional 50% of what the company spends in developing export markets outside CARICOM.

22. (U) Initial Allowances or Investment Allowances of up to 40 percent on capital expenditure are available for businesses making capital expenditures on machinery and plants, or on an industrial building or structure. Annual depreciation allowances on such expenditures are also available.

23. (U) Barbados’ method of calculating export allowance is as follows:




—————————- ——————-

Up to 20 percent 35 percent

21 percent, but under 41 percent 45 percent

41 percent, but under 61 percent 64 percent

61 percent, but under 81 percent 79 percent

81 percent and over 93 percent

24. (U) In the tourism sector, a Market Development Allowance allows a company to deduct an additional 50 percent of what it spends encouraging tourists to visit Barbados. Under the Tourism Development Act of 2002, businesses and individuals that invest in the tourism sector can write off capital expenditure and 150 percent of interest. They are also exempt from import duties, the value added tax, and environmental levies on furniture, fixtures and equipment, building materials, supplies, and equity financing. The Act expands the definition of tourist sector to include not just accommodation, but restaurants, recreational facilities, and services. The Act encourages the development of attractions that
emphasize the island’s natural, historic, and cultural heritage, and also encourages construction of properties in non-coastal areas. The Minister of Tourism must approve all projects under this legislation.

25. (U) Regarding taxation, Barbados has entered into double taxation treaties with the United States, Canada, CARICOM, China, Cuba, Finland, Luxembourg, Norway, Sweden, SWITZERLAND, the United Kingdom, Botswana, Mauritius, Malta, and Venezuela. A new amendment to the tax treaty between the U.S. and Barbados went into effect on January 1, 2005. The revised tax treaty strengthens measures to prevent U.S. companies from using Barbados as a tax shelter on income earned in the United States.

26. (U) Offshore businesses may operate either free of income tax (e.g., captive insurance) or with a tax rate from 1 to 2.5 percent. An International Business Company (IBC) must by the terms of its incorporation export 100 percent of its services or products in order to enjoy the following tax rates on gains and profits:


——————— ——————

Up to USD 5 million 2.5 percent

USD 5-10 million 2.0 percent

USD 10-15 million 1.5 percent

Over USD 15 million 1.0 percent

27. (U) An IBC may import machinery and equipment into Barbados free from certain taxes and customs duties. IBCs also are exempt from withholding tax and tax on the transfer of their assets and may also make certain foreign exchange transactions free of exchange controls. IBCs in the information services sector receive a special tax rate of 2.5 percent on profits, full exemption from import duties on production-related equipment, including computers, full and unrestricted repatriation of capital, profits, dividends, rental of subsidized office space, and training grants to subsidize worker training.

28. (U) International financial service companies also enjoy several tax incentives. Under the Exempt Insurance Act, a company incorporating with a minimum capital of USD $125,000 and at least one Barbadian director is eligible for taxation on profits at zero percent for the first fifteen years, and 2.5 percent on the first USD $250,000 of profits thereafter, as well as an exemption from a withholding tax on royalties and exchange control restrictions. Its beneficial shareholders also must not be persons resident in CARICOM. In 1998, legislation allowed companies involved in the international insurance business to register as Qualifying Insurance Companies, entitled to: a tax rate of 2.8 percent, after deducting a foreign currency earnings allowance, and exemption from withholding taxes and exchange controls.

29. (U) The International Trust Act allows non-residents to create trusts for the benefit of non-residents, with no minimum capital requirements and no withholding taxes, but subject to 40 percent tax on profits earned in or remitted to Barbados. Exempt Societies of Restricted Liability, which may not acquire land in Barbados or transact business with CARICOM residents, enjoy certain concessions for up to 30 years, including exemption from exchange controls and withholding tax on dividends, royalties, interest, or other interest paid to non-residents. The European Union’s 2001 WTO challenge to the U.S. Foreign Sales Corporations (FSC) has eliminated the exemption to U.S. taxes previously enjoyed on profits derived from FSC export sales.

30. (U) The Shipping Incentives Act of 1982 provides concessions to shipping companies engaged in the operation of passenger ships, leasing of ships, shipbuilding, maintenance or repair. The concessions include a ten-year exemption on tax and custom duties on materials connected with the shipping activities.



31. (U) There is a constitutional right for nationals and non-nationals to establish and own private enterprises and private property in Barbados. These rights also pertain to the acquisition and disposition of interests in private enterprises.

32. (U) No industries are officially closed to private enterprise, although the Government reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, banking, and insurance, require a license from the Government. There is no percentage, or other restrictions, on foreign ownership of a local enterprise or participation in a joint venture.

33. (U) The Government of Barbados has been engaged for the past several years in efforts to strengthen the private sector by divesting itself of a number of costly and often unprofitable state-owned enterprises. Since 1992, the Government has sold over USD 120 million of its commercial property to private investors through the sale of shares in Barbados External Telecommunications (to Cable & Wireless of the U.K.), Barbados Telephone Company (to Cable & Wireless), Barbados Mills (to Archer Daniels Midland), the Arawak Cement Company, Barbados Dairy Industries, Barbados National Oil Company, and Heywoods resorts. In July 2003, the Government sold its controlling stake in the Barbados National Bank to Republic Bank of Trinidad.



34. (U) The Barbados Government has improved the legal regime for property rights. Civil law protects physical property and mortgage claims. Barbados signed the Paris Convention on Intellectual Property Rights (IPR), the Madrid accords, and is a member of the United Nations World Intellectual Property Organization (WIPO). The Government of Barbados adopted a new Copyright Act in August 1998, and amended it in 2004 to provide for tougher penalties. The Government also approved legislation in September 1998 for Integrated Circuits Topography and Protection against Unfair Competition and Geographical Indications. In addition, the Government recently revised The Trademark and Industrial Designs Acts to meet world standards. Article 45 of the Protocol Amending the Treaty that established CARICOM commits all 15 members to implement stronger IP protection and enforcement.

35. (U) IPR infringement in most areas is small-scale, although video stores sell and rent pirated DVDs and videos, and other stores sell illegal copies of computer software, designer items, and music.



36. (U) Barbados uses transparent policies and effective laws to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety. The regulatory system can be slow at times, and some companies have complained that the Ministry of Finance does not give adequate justification for rejecting a license.

37. (U) In the past, obtaining a work permit could be a difficult and time-consuming task. However, the International Business Customer Charter launched on November 26, 2007, provides for the processing of long and short term work permits in two to four weeks (2-4) weeks provided that the application is completed in totality. Work permits are of two types, short-term (for six months or less) and long-term (usually for no more than three years). To receive a work permit for senior management, the company must show that a Barbadian national or resident does not possess the skill set to fill the position.

38. (U) The principal regulatory agencies are the Ministry of Finance and the Ministry of Economic Affairs, Empowerment, Innovation, Trade, Industry and Commerce.. The Ministry of Finance regulates the Exchange Control Authority of the Central Bank of Barbados, including inward investment, registration of foreign capital, currency accounts, and repatriation of capital and earnings. Local on-shore companies must meet fairly stringent exchange control requirements, but the Government welcomes investment by non-residents with external sources of financing.

39. (U) The Ministry of Economic Affairs, Empowerment, Innovation, Trade, Industry and Commerce administers the Companies Act and other statutes dealing with company affairs. The Companies Act is modeled on the Canada Business Corporations Act, and creates flexibility and simplicity for the incorporation and operation of companies in Barbados.

40. (U) Companies using or manufacturing chemicals must obtain approval of their environmental and health practices from the Barbados National Standards Institution and the Ministry of Health’s Environmental Division.

41. (U) The Ministry of Economic Affairs, Empowerment, Innovation, Trade, Industry and Commerce on rare occasions imposes price controls, listed in the Official Gazette. The Government controls gasoline prices.

42. (U) Barbados enacted legislation in 2000 to create the Fair Trading Commission (FTC) to provide consumer protection in telecommunication and utility services. There is no specific antitrust legislation in Barbados.

43. (U) The Minister of Economic Affairs, Empowerment, Innovation, Trade, Industry and Commerce or the Minister of Finance must approve foreign investment. The Chief Town Planner must approve new construction or changes in land use. Zoning restrictions protect agricultural land, and the Government pursues policies to ensure environmental integrity.

44. (U) The Central Bank must approve real property purchases for non-residents. If a non-resident uses foreign funds and pays for the property in Barbados, the Central Bank will normally approve the transaction. When they sell the property, non-residents need to pay the 2.5 percent Property Transfer Tax in addition to brokerage and legal fees. The Commissioner of Land Tax charges an annual fee based on the assessed property value. The Government taxes hotels on 50 percent of the improved value at 0.65 percent, and residential properties are taxed as follows:

Up to USD 62,500 0 percent

USD 62,500 up to 112,500 0.1 percent

USD 112,500 up to 250,000 0.45 percent

USD 250,000 up to 425,000 0.75 percent


——————————————— —–

45. (U) Barbados has a small stock exchange, an active banking sector, and opportunities for portfolio investment. Local policies seek to facilitate the free flow of financial resources, unless there is a shortage of funds. The Government has, in the past, intervened in the local credit market to control interest rates, limit the volumes of funds available for borrowing, and borrow on the local market. However, the Central Bank has raised interest rates in the past without any government intervention. There are a variety of credit instruments in the commercial and public sectors that local and foreign investors may access.

46. (U) The Government has implemented a continuous review process for legislation in the financial sector in an effort to strengthen and improve the regulatory regime in order to attract and facilitate retention of foreign portfolio investments. A self-assessment undertaken by the Bank Supervision Department of the Central Bank found their on-shore and offshore sectors in general compliance with the Basel Core Principles of Effective Banking Supervision, utilizing the Basel Committee’s Core Principles Methodology. The International Financial Services Act, which replaced the Offshore Banking Act in June 2002, incorporates the Basel standards, and provides for on-site examinations of offshore banks. This allows the Central Bank to augment its offsite surveillance system of reviewing anti-money laundering policy documents and analyzing prudential returns.

47. (U) Under the authority of the Money Laundering and Financing of Terrorism Prevention and Control Act, Cap 129, the Government established the Anti-Money Laundering Authority and its operating arm, the Financial Intelligence Unit, in 2000. The Bank Supervision Department of the Central Bank of Barbados, in conjunction with the Anti-Money Laundering Authority in 2001, issued in 2001 the Anti-Money Laundering Guidelines for Licensed Financial Institutions, which were revised in 2006.

48. (U) The Barbados domestic financial sector consists of two indigenous and four international commercial banks, two of which operate merchant banks and one a trust company. There are also 35credit unions and one money remitter. The offshore sector includes 3,361 international business companies, 221 exempt insurance companies and 50 offshore banks (December 2006 figures). Starting in 2001, the Government required Barbados institutions and legal entities to reveal the identity of beneficiaries receiving dividends and/or interest.

49. (U) Assets of commercial banks totaled USD 5.7 billion in October 2009, and remained relatively consistent throughout the year. The reserve requirement for commercial banks was 2 percent of deposit liabilities, and the minimum deposit rate was 3.0 percent at the end of October 2009. The weighted average interest rate was 4.06 percent on deposits and 10.25percent on loans for the same period.

50. (U) Domestic deposits expanded by USD 131.4 million. Accounts of private individuals, financial institutions and statutory bodies, , recorded growth of USD 125 million, USD 6.95million, USD 14.2 million, , and USD 21.8 million, respectively. Deposits for business firms declined by USD 60.7 million which was largely attributed to the decline in the construction and manufacturing sector while Government deposits declined by USD 11.2 million.

51. (U) Credit to the non-financial private sector expanded by USD 248.7 million well above the USD 110.3 million increase recorded for 2007. Lending to the personal sector, professional and other services, construction, tourism, transportation and distribution industries, increased by USD 100.8 million, USD 60.4 million, USD 36.8 million, USD 13.9 million, USD 6.6 million and USD 6.25 million, respectively. Commercial bank lending for industrial and commercial mortgages averaged USD 64.8 million at the end of October 2009, whereas commercial bank lending to residents and non-residents averaged USD 83.3 million and USD 8.2 million respectively.

52. (U) The Securities Exchange Act of 1982 established the Securities Exchange of Barbados (SEB), which was re-incorporated as the Barbados Stock Exchange (BSE) in 2001. The 1982 Act was replaced by the Securities Act, Cap 318A, which removed regulatory responsibility for the securities market activity from the BSE. This Act helped to strengthen the regulatory framework and development of the capital market. In 1997, the BSE began trading corporate stocks and fixed income securities, including Government bonds (not commercial paper). Activities on the BSE include regional cross-border trading arrangements for shares listed on the Trinidad and Jamaica stock exchanges.

53. (U) The BSE operates a two-tier electronic trading system comprised of a Regular Market and a Junior Market. Companies applying for listing on the Regular Market must observe and comply with certain requirements. Specifically they must inter alia have assets of not less than USD 500,000 and adequate working capital based on the last three years of their financial performance, as well as three-year projected performance. Companies must also evidence competent management and be incorporated under the laws of Barbados or other regulated jurisdiction approved by the Securities Commission. Applications for listing on the Junior Market are less onerous, requiring minimum equity of one million shares at a stated minimum value of USD 100,000. Reporting and disclosure requirements for all listed companies include interim financial statements, and an annual report and questionnaire. Non-nationals must obtain exchange control approval from the Central Bank of Barbados to trade securities on the BSE.

54. (U) The Barbados Stock Exchange (BSE) is moving to full immobilization of traditional share certificates where clearance and settlement is fully computerized through a Central Securities Depository. However, investors requiring a traditional certificate can be accommodated for a small fee and the transfer is adjudicated by the Securities Commission under the Property Transfer Tax Act. Mutual Funds are also regulated by the Securities Commission in accordance with the Mutual Funds Act, Cap 320B.

55. (U) The Barbados Stock Exchange (BSE) recorded its second consecutive decrease in 2009.. This downturn was reflected in the Composite Index, which decreased by 14.5% These declines were reflected in market capitalization values that dropped by similar percentages over the quarter, as the general slowdown in economic activity during the year and the repurchase of 87,551 shares by West Indies Rum Distillery Limited in June depressed market capitalization values. In 2009, the BSE made significant strides towards becoming the first CARICOM securities exchange to launch an international trading facility, having received Board approval earlier in the year. The BSE intends to attract international
business companies to list on the international securities market in order to raise capital on the Barbados market. This move would offer greater support to the international business community and complement existing bilateral trade agreements. If approved by the regulators, the international trading facility could attract four types of listings: companies that would have their primary listing in Barbados; companies that would use Barbados as a dual or secondary listing; fixed income securities; and, mutual funds.



56. (U) Barbados has not experienced political violence since riots in the 1930s.



57. (U) Corruption is not a major problem in Barbados, but some U.S. companies have reported unfair treatment by Barbados’ Customs and Excise Department.



58. (U) Barbados has no bilateral investment treaty with the United States, but has a double taxation treaty and tax information exchange agreement. Barbados has bilateral investment treaties with Canada (CARIBCAN), China, Cuba, Germany, Italy, Luxembourg, SWITZERLAND, the U.K., and Venezuela.



59. (U) In 1999, the U.S. Government’s Overseas Private Investment Corporation (OPIC) signed with Citibank to establish a USD $200 million Investment Facility for the Caribbean and Central America, as one means of encouraging investment and stimulating economic development. The Caribbean Development Bank, which is based in Barbados, administers this program. OPIC provides financing and political risk insurance to viable private sector projects, helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets.



60. (U) In 2009, Barbados’ labor force was approximately 142,000, distributed in the following sectors: commerce, tourism, government, manufacturing, construction, agriculture, and fishing. The total average unemployment rate toward the end of 2009 was approximately 10.1 percent.

61. (U) Wages in Barbados are among the highest in the Caribbean. Minimum wages for only a few categories of workers are administratively established and enforced by law. The minimum wage for shop assistants, USD 2.50 per hour, is only marginally sufficient to meet minimum living standards. The Ministry of Labor and Immigration recommended that companies use this as the de facto minimum wage, and most employees earned more than the minimum wage. The Labor Department within that ministry was charged with enforcing the minimum wage. The standard legal workweek is 40 hours in five days, and the law requires overtime payment for hours worked in excess. The law prescribes that all overtime must be voluntary. Workers are guaranteed a minimum of fourteen days of annual leave and are covered by unemployment benefits legislation and National Insurance (social security) legislation.

62. (U) Trade unions, and the leaders of the trade union movement, enjoy a strong voice in the labor and economic affairs of the country through their participation in Barbados’ Social Partnership, a tri-partite consultative mechanism. Approximately 25 to 30 percent of the labor force belongs to trade unions, but this small percentage belies the power and importance of unions in Barbados; all key sectors are unionized, with all private and public employees in agriculture, tourism, and at the airport and seaport belonging to a single union confederation.

63. (U) The major unions recognize the advantages accruing to Barbados from foreign investment and foreign expertise, and they are generally flexible and accommodating in their dealings with employers. However, local labor leadership is sensitive when it perceives a lack of respect for Barbadian laws and customs by large, visible foreign employers. It is generally cooperative with management in unionized shops.

64. (U) Barbados does not have labor legislation that mandates a legal process necessary for unions to achieve status as bargaining agents, and employers have no legal obligation to recognize unions under the Trade Act of 1954, but most employers do so when a majority of their employees desire representation. While there is no specific law that prohibits discrimination against union activity, the courts provide a method of redress for employees who allege wrongful dismissal. The courts commonly awarded monetary compensation but rarely ordered reemployment.

65. (U) The law provides for the right to strike, and workers exercised this right in practice. All private and public sector employees are permitted to strike, but essential workers may strike only under certain circumstances and after following prescribed procedures. In July 2009,the island’s largest telecommunications firm announced the closure of its Call Centre and the subsequent lay-off of 115 workers. The Union intervened and the termination notice was rescinded after an intervention by the Government. There were long-running negotiations between the Union and the telecommunications company regarding the reinstatement of the workers. To date, this issue seems to be resolved as the workers have been reincorporated in other departments. Early contact and rapport with Labor Ministry officials and union leaders by foreign investors may be helpful in terms of fostering labor harmony.

66. (U) The law provides for a minimum working age of 16, and this provision generally was observed in practice. Compulsory primary and secondary education policies reinforced minimum age requirements. The Labor Department had a small cadre of labor inspectors who conducted spot investigations of enterprises and checked records to verify  compliance with the law. These inspectors may take legal action against an employer who is found to have underage workers. Additionally, legislation to address termination of employment and benefits and to prohibit sexual harassment is pending.

67. (U) Parliament passed core regulations to implement the 2005 Occupational Safety and Health at Work Act, but the government had not implemented them by year’s end. The Labor Department enforced other health and safety standards and followed up to ensure that management corrected problems cited. The law requires that in certain sectors firms employing more than 50 workers create a safety committee that could challenge the decisions of management concerning the occupational safety and health environment. Trade union monitors identified safety problems for government factory inspectors to ensure the enforcement of safety and health regulations and effective correction by management. The Labor Department’s Inspections Unit conducted several routine annual inspections of government-operated corporations and manufacturing plants. Workers had the right to remove themselves from dangerous or hazardous job situations without jeopardizing their continued employment.



68. (U) There are no foreign trade zones or free ports in Barbados.



69. (U) The Government of Barbados compiles statistics on Foreign Direct Investment (FDI) in the areas of branches, subsidiaries, undistributed earnings, and other investments. The Barbados Investment and Development Corporation (BIDC) reported that since 1995, FDI has increase on average by USD 1.6 million, but in 2003 alone shot significantly upward by more than USD 80 million from the previous year. FDI in 2006 totaled approximately USD 91.5 million, up from USD 62 million in 2005.



70. (U) American Airlines; Barbados Mills (Archer Daniels Midland);;;; Chevron Texaco;;; Citicorp Merchant Bank; JetBlue Airways; C F Caribbean Flavors; Delta Airlines; Ecolab Barbados Ltd. (joint venture); Ernst & Young; Exxon Mobil; Federal Express; Lenstec Ltd.; Pricesmart Inc.; SC Johnson; TGI Fridays; Hilton

Worldwide Resorts; PriceWaterhouseCoopers; United Parcel Service (UPS); U.S. Airways; and IBM World Trade Corp.

An American Chamber of Commerce (AmCham), Barbados, has made attempts at formation, but has not met regularly.

For further information, please contact the Economic/Commercial Section at the U.S. Embassy.

Jake Aller

Commercial Officer

US Embassy, Bridgetown, Barbados

Tel: 246-277-4274

Jonelle M. Watson

Commercial Assistant

US Embassy Bridgetown, Barbados

Tel: 246-277-4052



71. (U) The following are contacts for investment related inquiries:

Invest Barbados

Trident Insurance Financial Centre
Hastings, Christ Church

Tel: 246-626-2000

Fax: 246-626-2099



Invest Barbados – New York Office

800 Second Avenue, 2nd Floor

New York, New York 10017-4709

Tel: 212-551-4375

Fax: 212-682-5496



72. (U) Additional web resources include:


Invest Barbados website:;
and The Industry and International Business Unit of the Ministry of Economic Affairs and Development Website:


Foreign Commercial Service, U.S. Department of Commerce:; and

Foreign Agricultural Service, U.S. Department of Agriculture:; and


DE RUEHWN #0070/01 0321257
R 011257Z FEB 10


ADDED 2011-09-04 03:35:00
STAMP 2011-09-04 03:35:00


IAEA’s Budget Working Group Fulfills a Promise – But Little Else

Sunday, September 4th, 2011

SUBJECT     IAEA’s Budget Working Group Fulfills a Promise – But Little
DATE     2010-02-01 00:00:00



E.O. 12958: N/A
SUBJECT: IAEA’s Budget Working Group Fulfills a Promise – But Little

REFS: A) 09 STATE 119320 B) 09 UNVIE 541 C) UNVIE 4

1. (SBU) SUMMARY: The Budget Working Group (BWG) January 13-15 allowed a refreshingly non-polemical discussion on IAEA programs, but fell short of Geneva Group hopes to identify programs for emphasis or de-emphasis in the IAEA’s 2011 budget. In contrast to Geneva Group readiness, the G-77 did not meet until after the BWG had already started, and therefore managed to produce nothing more than the same statement (nearly word-for-word) the Group had issued during last year’s budget negotiations over the 2010 level. As a result, little was accomplished, and Finnish BWG Chair Ambassador Rasi polished off the proceedings in two-and-a-half days (half the allotted time). Disappointed as we were at the lack of substance, the process was at least educational (more so, than, say, the Future of the Agency discussions). We also witnessed some significant softening in the hard-line positions of some of the “budget hawks” (Canada and France) and a much more open UK. Most importantly, the BWG represented the culmination of last year’s budget deal, in which Geneva Group Members agreed to discuss Safeguards Financing and other topics of interest to the G-77 in exchange for G-77 support for a significant budget increase in 2010. Viewed in this light, the BWG was small pain for great gain. END SUMMARY.

2. (SBU) Under the efficient chairmanship of Finnish Ambassador Marjatta Rasi, the Budget Working Group (BWG) met January 13 – 15 to discuss programmatic priorities for the 2011 budget. Sluggish from the holidays and ill-prepared for in-depth discussions, outgoing G-77 chair Argentina delivered a rote group statement (but not until the third day of the proceedings) and otherwise took a back seat in the discussion. Even Egypt and Pakistan seemed caught unawares. Brazil was silent. Only Iranian Ambassador Soltanieh remained energized throughout, but his politically-motivated ramblings prompted a private scolding from Rasi.

3. (SBU) Fortunately for the U.S., the BWG revealed a softening of positions among major contributors and a greater willingness to think creatively about financing the Agency. France and Canada in particular expressed solid support for upgrades in the Safeguards Analytical Laboratory. The UK, normally a vocal budget hawk, was conspicuously silent (in part, a UK delegate admitted privately, because of the low level of contention). Spain, Italy, Mexico, Australia and Germany – all staunch budget hawks during last year’s negotiations – spoke little or confined their comments to programmatic priorities. At one point Canada, while expressing appreciation for the informational value of the process, pointed out
bluntly that nobody had yet said, “we should sunset this or that.” SWITZERLAND, another budget hawk, complained on the sidelines of the BWG that nothing had really changed in the budget process, and that discussions over the 2011 level would wind up the same as for 2010 – a fight over the overall level.

4. (SBU) The Secretariat will release an update of the 2011 draft budget proposal in late February, followed by an informal meeting of the Program and Budget Committee in early March, near or alongside the March 1 – 5 meeting of the Board of Governors. The Finns will hold informal consultations with Member States in March regarding the overall 2011 levels, followed by a formal meeting of the Program and Budget Committee on May 3.

5. (SBU) The Finns will recommend the continuation of the BWG when negotiations over the 2012-2013 biennium begin. They will also recommend that 2012-2013 negotiations begin in the fall (November) in order to influence the Secretariat’s proposal and bring greater transparency to the process (this is several months earlier than in the past, when budget negotiations did not begin until February). Finally, the Finns would like to confine the mandate of the BWG to priorities within each MP, rather than branching into philosophical discussions about the relative value of each of the Agency’s “pillars” (safety, verification, science) and the resources they should command. Instead, these philosophical questions should be ironed out in the Medium Term Strategy. Ambassador Rasi reportedly enjoyed her stint at the podium as BWG chair, and may even consent to continue chairing the MTS process.

6. (SBU) NOTE: BWG has become shorthand for open-ended, informal budget negotiations. The same process took place last year under the chairmanship of Ambassador Feruta. In other words, budget negotiations, no matter what their name, follow a similar format. END NOTE.

7. (SBU) According to the head of the IAEA’s program and budget office, Carlo Reitano, there have been no signs that Director General Amano intends any major overhaul of the 2011 budget proposal, submitted by Amano’s predecessor ElBaradei. But that proposal does yield an 11 percent nominal increase unless substantial voluntary funding can be mobilized for the Safeguards Analytical Laboratory (SAL). The bulk of the proposed 2011 increase is for capital investment, not for ongoing operations. For example, other than a healthy injection to MP 3 for Nuclear Security, no Major Program would receive more than a percentage point or two over the 2010 level. Instead, the 2011 proposal focuses on raising 30 Million Euros for major capital investment projects, principal among them SAL modernization and the Agency-wide Information System for Program Support (AIPS).

8. (SBU) The BWG was organized by a discussion of each of the IAEA’s six Major Programs, with Deputy Directors General or their colleagues kicking off discussion with a short presentation about how they had implemented the 2010 increase and where they needed additional resources (rarely did the presenters suggest programs to phase out). Coached by the Finns in advance, each presentation was brief and focused. Rasi then turned over discussion to Member States, who frequently asked informational questions about the programs and subprograms within each Major Program. (Iranian Ambassador Soltanieh was an exception, dominating the floor with anecdotes and accusations reminiscent of his recent performance during “Future of the Agency” discussions.)

9. (SBU) On Major Program 1, Nuclear Energy DDG Sokolov, explained how the emphasis over the past five years had switched to the operation of facilities and innovative techniques. Egypt and Russia complained that MP 1 was proportionally disadvantaged in the 2010 budget increase, despite its work on popular initiatives such as INPRO (Innovative Nuclear Reactors and Fuel Cycles) and collaboration on technical cooperation projects. The U.S. highlighted the Agency’s role in technology transfer (as opposed to development) and offered broad support for MP 1 that nonetheless should include a critical look at programs that could be retired.

10. (SBU) On Major Program 2, Nuclear Sciences and Applications, DDG Burkart gave the day’s most polished presentation that reflected Director General Amano’s philosophy of sound management and focused priorities. He laid out his main objectives for 2011: fighting cancer, understanding and responding to climate change, increasing
efficient delivery of programs through partnerships, enhancing impact and delivery by concentrating efforts on fewer areas. Burkart even noted where MP 2 could do less (on pesticide measurements) and, in response to a question from the U.S., suggested that Member States review his chapter in the Budget Blue Book (GC(53)/5, pages 119-162) to see where completed and phased-out activities are listed (including dam safety). In part due to Burkart’s robust performance, Member States had little to critique on MP 2.

11. (SBU) Things did not go so well for DDG Taniguchi on Major Program 3, Nuclear Safety and Security. In response to a question from Canada, Taniguchi was forced to defend the Incident and Emergency Center, explaining that emergency response was a national responsibility but that the IAEA had a role in supporting Member State efforts to build that capacity. Taniguchi was also forced to fend off an attack by Iran on the statutory relevance of Nuclear Security and the logic of placing it in the same department as Safety. Taniguchi patiently explained that more and more developed countries were co-locating safety and security under the same regulatory agency, because of the obvious synergies. Iran continued to worry that the Agency’s work on nuclear security would lead an intrusion into national security issues and warned the Secretariat against ignoring the G-77 position on Nuclear Security.

12. (SBU) Safeguards Operations A Division Director Marco Marzo did a creditable job of presenting Major Program 4, Safeguards, in the absence of DDG Heinonen. Most positively, there was considerable rhetorical support among Geneva Group members for upgrades in the Safeguards Analytical Laboratory. Secretariat staff from Safeguards and the budget office fumbled somewhat their pitch for SAL, however, by stating contradictory figures on SAL funding needs in 2011. Russia aired the contradiction for anyone who missed it, embarrassing some members of the Secretariat. The U.S. intervention noted that although the establishment of the Major Capital Investment Fund in 2010 was a significant accomplishment, it was, as yet, an unfunded “empty shell” that could not yet address the needs of SAL and AIPS. The U.S. asked the Secretariat to be more forthcoming about SAL needs in 2011 to keep the modernization on track. Regarding integrated safeguards, the U.S. asked how the upfront costs would diminish over time, and when Member States might
see the results of economizing efforts.

———– ———————- ————
13. (SBU) DDG Waller on Major Program 5, Management, parried questions about procurement reform and Program Support Costs. Waller took care to take special note of the packed governance agenda in 2010, including budget negotiations and the Medium Term Strategy. DDG Cetto on Major Program 6, Management of Technical Cooperation, took several spears during her difficult session. Her assertion that the budget increases for 2010 barely covered the human resources requirements to manage the growing Technical Cooperation program unleashed a vigorous series of interventions from Canada regarding the large overhead of MP 6 relative to the monies and projects it disbursed. In a tacit rejection of G-77
claims that technical cooperation is undervalued at the IAEA, Canada asked incisive questions about resource flows from other MPs that in fact support the implementation of technical cooperation. In response to a debate over performance indicators, the U.S. asked how the Secretariat would report on the number of projects in the current cycle that had been completed on time and have met their objectives. Pakistan and others queried Cetto for information on a move by the Secretariat to establish regional offices, the tone of which was generally critical.

14. (SBU) Following the examination of Major Programs, the BWG delved into other topics as instructed in the budget deal approved by the last General Conference. These topics included capital investment, safeguards financing (i.e., shielding), incentive schemes for on-time payment of contributions, the methodology for price adjustments, and other topics. Again, the G-77’s failure to prepare for the BWG resulted in little more than perfunctory comments. One flare-up occurred when Egypt eloquently linked increasing safeguards costs to the G-77 perception that technical cooperation was falling behind. Pakistan clumsily proposed to freeze the process of de-shielding for six years. The U.S. weighed in strongly regarding NPT safeguards, their critical underpinning of the non-proliferation regime that protects all Member States, and the insistence that everyone pay their fair share. In a soft-spoken threat, Egypt mused that the original de-shielding arrangement must have occurred against the backdrop of a successful NPT Review Conference.

15. (SBU) COMMENT: The BWG absorbed much preparation by both UNVIE and Washington, work which did not immediately bear fruit during the meetings. The UK delegation reminded us, however, that in a basic sense the BWG was a victory: It fulfilled the budget deal worked out in 2009, in which the G-77 had insisted on a discussion of safeguards financing (de-shielding) in exchange for the 2010 increase. The BWG paid a debt, even if its remaining value was little more than educational.

16. (SBU) Looking forward to March negotiations over the general 2011 level, Mission notes that the draft proposal is very much in line with U.S. priorities. Nuclear Security, SAL and AIPS represent top U.S. priorities, to the point where the budget proposal appears practically tailor-made to meet U.S. goals. That said, the proposal will not survive in its current form. If early voluntary

commitments do not sufficiently reduce the SAL-related capital investment request in the budget update, the overall proposal will come under attack by the European budget hawks for its gross size (11 percent) and by the G-77 for its operational plus-up for Nuclear Security. All the same, the 2011 proposal cleaves nicely to U.S. priorities in all the major areas and merits our support as a basis for opening negotiations once we see how DG Amano and his team adjust the levels inherited from his predecessor. END COMMENT.

17. (U) A detailed summary of statements from the BWG are available from Steven Adams (



DE RUEHUNV #0026/01 0321445
P 011445Z FEB 10


ADDED     2011-09-04 03:35:54
STAMP     2011-09-04 03:35:54
TWEETS     0



Sunday, September 4th, 2011

D     10COLOMBO72
DATE     2010-02-01 00:00:00
ORIGIN     Embassy Colombo




E.O 12958: N/A

REF: 09 STATE 124006

1. Per reftel, below is the investment climate statement for Sri Lanka for 2010. (NOTE: Hyperlinks were altered in the cable version to permit transmission, but were sent as requested in the Word version. END NOTE.)


The end of Sri Lanka’s long-running civil war in May 2009 should usher in an era of sustained positive economic growth. Sri Lanka can still be a difficult place to do business, however, with an erratic policy environment and cumbersome bureaucracy. Nonetheless, compared to other South Asian countries, Sri Lanka is relatively open to foreign investment. It offers a relatively open financial system, moderately good infrastructure, and generally capable workers. Some U.S. and other foreign investors have realized worthwhile returns on investment in Sri Lanka; others have tried and departed frustrated.

Sri Lanka is a lower-middle income developing nation with a gross domestic product of about $42 billion in 2009. This translates into a per capita income of just over $2,000, among the highest in the region.

The Sri Lankan economy is remarkable for its resilience. Despite the 1983-2009 civil war, GDP growth averaged around 5% in the last ten years. Even the December 2004 Indian Ocean tsunami failed to dent GDP growth, which was over 6% in 2005-2008, due in part to tsunami reconstruction. While inflation soared in 207 and 2008, it has dropped to 5% in 2009.

Despite directing resources to end the civil war, Sri Lanka saw its gross domestic product (GDP) grow by an estimated 3.5% in 2009. Main contributors to growth were government services, fisheries, food and beverage, telecommunications, banking, and transport. Sri Lanka’s trade deficit narrowed sharply as both imports and exports declined, but imports fell much faster than exports, mainly due to lower oil prices. The trade deficit was fully offset by workers’ remittances estimated around $3 billion. The current account recorded a small surplus after many years. Overall, the Balance of Payments (BOP) is expected to record a surplus of about $2.7 billion, the highest ever, thanks partly to heavy government borrowing. FDI was much lower than previous years with only about $350 million in the first nine months.

While Sri Lanka’s exposure to the global financial crisis is limited due to controls on its capital account, Sri Lanka experienced capital flight in early 2009 by foreign investors who had invested in government debt instruments. Central Bank reserves declined sharply in early 2009. However, business confidence rebounded with the end of the war and an IMF agreement in July 2009, allowing gross official reserves to increase to a historic high of $5.2 billion as of November 2009, providing 6.3 months of imports cover. The rupee has stabilized around Rs 114.50 to the dollar. Credit ratings were revised upward to stable.

2010 will be an important year for the Sri Lankan economy. The Central Bank expects the economy to grow by 7% in 2010, aided by growth in agriculture, manufacturing, construction, tourism and other services, and the Central Bank forecasts inflation to remain at single digit levels. The government has postponed the presentation of the 2010 budget until after the parliamentary elections in March/April. The Government fiscal situation will be a concern in 2010 especially due to spending on two national elections as well as numerous promises to woo voters. However, defense expenditures should decline. Furthermore, the potential loss of the EU’s GSP Plus trade benefit could further hinder Sri Lanka’s economic growth.

Sri Lanka is a stable parliamentary democracy. In 1978, it shifted away from a socialist orientation and opened to foreign investment, although changes in government have often been accompanied by reversals in economic policy. Of the two major parties, the more pro-business United National Party has been in opposition in recent years. When it last held power, from 2002 to 2004, it pursued privatization and regulatory reform welcomed by domestic and foreign investors.

Currently, the ruling Sri Lanka Freedom Party has a more statist economic approach, guided by President Rajapaksa’s 2005 election manifesto Mahinda Chintana (“Mahinda’s Thoughts”). Mahinda Chintana seeks to reduce poverty by steering investment to disadvantaged areas; developing small and medium enterprises; promoting agriculture; and expanding the already enormous civil service. The Rajapaksa government has halted privatization and advocates state control of what it deems “strategic” enterprises such as state-owned banks, airports, and electrical utilities. There are also private banks which compete with the state owned banks. The government has increased direct and indirect taxation to fund increased government
expenditure. The government has adopted import substitution strategies and has increased taxes on imports to protect local industries.

Multinational companies complain that increasing government bias in favor of local businesses is harming the local investment climate.
Though many multinational companies perform better than the local private sector, international MNCs and SMEs feel the government is blatantly biased towards local companies. Some investors believe, and are concerned, that Sri Lanka is becoming a highly nationalistic environment where the government often blames foreigners for its economic and social ills.

Other impediments to investment in Sri Lanka are workers’ declining English language skills, inflexible labor laws, overburdened infrastructure, and its unreliable court system. Sri Lanka boasts a 90% literacy rate in the local Sinhala and Tamil languages, but English, which was once widely spoken, is now far less prevalent.
Sri Lanka’s labor laws include many model protections, but can make it nearly impossible for companies to lay off workers even when market conditions fully warrant doing so. The cost of dismissing an employee in Sri Lanka is, percentage-wise, one of the highest in the world. Sri Lanka has not invested in infrastructure to keep pace with its growth. Its roads are narrow and congested. With the conclusion of the war, Sri Lanka is renovating and constructing roads in the North and East. Multi-year projects to expand the ports in Colombo and Hambantota are underway.

Sri Lanka’s electricity supply is generally reliable but can fail to meet peak demand in years of low rainfall and is priced higher than in other Asian countries. Businesses in Sri Lanka also face high interest rates, although rates have come down in the past few months. Sri Lanka’s courts cannot be relied upon to uphold the sanctity of contracts. The courts are not practical for resolving disputes or obtaining remediation, because their procedures make it possible for one side in a dispute to prolong cases indefinitely.
Aggrieved investors (especially those dealing with the government of Sri Lanka on projects) have frequently pursued out-of-court settlements, in hopes of speedier resolution. In late 2008, the Supreme Court, in an interim order, halted payments to five international and local banks involved in oil hedge contracts with the government. One of the involved banks is American. The case is now proceeding to international arbitration.


According to preliminary data for 2009, Sri Lanka’s exports (mainly apparel, tea, rubber, gems and jewelry) were $6.9 billion and imports (mainly oil, textiles, food, and machinery) were $9.6 billion. Exports to the United States, Sri Lanka’s second largest market, are projected around $1.6 billion in 2009, or 23% of total exports. The United States is Sri Lanka’s second biggest market for garments, taking about 40% of total garment exports. India is Sri Lanka’s largest supplier, with exports of over $3.8 billion. The United States’ exports to Sri Lanka are projected at $180 million in 2009. U.S. exports consist primarily of wheat as well as industrial machinery, medical instruments, aircraft parts, lentils, paper, specialized fabrics and textiles for use in the garment industry, fruits and pharmaceuticals.


The Board of Investment (BOI) (, an autonomous statutory agency, is the primary government authority responsible for investment, with a focus on foreign investment. The BOI is authorized to manage a number of export processing zones which feature business-friendly regulations and improved infrastructure for foreign investors. The BOI is intended to provide “one-stop” service for foreign investors, with duties including approving projects, granting incentives, and arranging services such as water, power, waste treatment and telecommunications. It also assists in obtaining resident visas for expatriate personnel and facilitates import and export clearances.
The Public-Private Partnership Unit, a new division of BOI, has responsibility for coordinating all public-private infrastructure projects. The BOI has special investment incentives for investors interested in the post conflict Northern and Eastern sections of Sri Lanka.

BOI incentives are attractive and real, but the BOI is not the “one stop shop” it aspires to be. Although it is relatively effective in assisting investors who want to establish operations within its industrial processing zones, it is less effective in facilitating and servicing large investments outside these zones. Sri Lanka’s large, inefficient, and dated bureaucracy often works at cross-purposes with BOI authorities and commitments. Additionally, major investments in Sri Lanka, such as infrastructure projects, require approval from the full cabinet, a process which is not transparent and which can politicize even the most urgently needed investments. Registration of foreign company branch offices in Sri Lanka can be cumbersome as well.

Although there are cases in which it appears that the BOI has been used for political purposes, generally the treatment given to foreign investors is non-discriminatory. However, even with incentives and BOI facilitation, foreign investors face difficulties operating in Sri Lanka. Problems range from difficulty clearing equipment and supplies through customs speedily to difficulty obtaining a factory site. Legal challenges to environmentally sensitive projects have been burdensome, even when objections are unfounded. Slow and indecisive application of bureaucratic requirements has also obstructed investment. In part to avoid these delays, and to overcome land allocation problems, the BOI encourages investors to locate their operations in BOI-established industrial processing zones. Investors locating in industrial zones also get access to relatively better infrastructure facilities such as reliable power, telecommunication and water supplies.


The principal law governing foreign investment is Law No. 4, created in 1978 (known as the BOI Act), as amended in 1980, 1983 and 1992, along with implementation regulations established under the Act.
The BOI Act provides for two types of investment approvals. Under Section 17 of the Act, the BOI is empowered to grant concessions (see details below) to companies satisfying certain eligibility criteria on minimum investment, exports and in some cases employment. Investment approval under Section 16 of the Act permits entry for foreign investment to operate under the “normal” laws of the country and applies to investments that do not satisfy eligibility criteria for BOI incentives. Other laws affecting foreign investment are the Securities and Exchange Commission Act of 1987 as amended in 1991 and 2003, and the Takeovers and Mergers Code of 1995 revised in 2003. A new Companies Act came into effect in 2007 replacing the Companies Act of 1982. The new law aims to improve trade and commerce as well as corporate governance in the business sector. It features simplified regulations concerning company formation; provisions specifying the duties of company directors; provisions to prevent the abuse of powers by directors; provisions to protect creditors; and a dispute board to settle disputes among directors. Various labor laws and regulations also affect investors. See sections below.


The government allows 100% foreign investment in the following services: banking, finance, insurance, stock-brokering, construction of residential buildings and roads, supply of water, mass transportation, telecommunications and information technology (software development and business process outsourcing), energy production and distribution, professional services, and the establishment of liaison offices or local branches of foreign companies. These services are regulated and subject to approval by various government agencies. The screening mechanism is non-discriminatory and, for the most part, routine.

Investment in other sectors is restricted and subject to screening and approval on a case-by-case basis when foreign equity exceeds 49%. The affected sectors are: shipping and travel agencies; freight forwarding; fishing; timber-based industries; growing and primary processing of tea, rubber, coconut, rice, cocoa, sugar and spices; and the production for export of goods subject to international quota. Foreign investment restrictions and government regulations also apply to international air transport; coastal shipping; lotteries; large-scale mechanized gem mining; and sensitive industries such as military hardware, dangerous drugs and currency.

Foreign investment is not permitted in the following businesses: non-bank money lending; pawn-brokering; retail trade with a capital investment of less than $1 million (with one notable exception: the BOI permits retail and wholesale trading by reputed international brand names and franchises with an initial investment of not less than $150,000); coastal fishing; and the awarding of local university degrees. Foreign degree courses can be offered in Sri Lanka by affiliating with foreign universities. However, there is no system to monitor the quality assurance or accreditation of the foreign courses offered in Sri Lanka.


The current Government has halted privatizations, preferring to maintain state-owned enterprises. Government treatment of foreign investors in past privatization processes has been largely non-discriminatory. In 2003, however, the government sold part of the retail operations of state-owned Ceylon Petroleum Corporation to Indian Oil Corporation without a formal tender process. In 2008, the Supreme Court cancelled a privatization of a government-owned bunkering company, done in 2002, citing it was illegal. In 2009, the Supreme Court cancelled a 2003 sale of a government-owned large insurance company.

Labor unions in state-owned enterprises are often opposed to privatization and restructuring and seem particularly averse to foreign ownership. In the past, this made the privatization of government entities problematic for new foreign owners.

Measure Year Index/Ranking

TI Corruption Index 2009 3.1/97
Heritage Economic Freedom 2009 56/111

World Bank Doing Business 2010 N.A/105
MCC Gov’t Effectiveness 2008 0.50/92%

MCC Rule of Law 2008 0.88/98%
MCC Control of Corruption 2008 0.63/94%
MCC Fiscal Policy 2008 -7.1/8%
MCC Trade Policy 2009 62.2/27%

MCC Regulatory Quality 2008 0.35/87%
MCC Business Start Up 2009 0.96/85%
MCC Land Rights Access 2009 0.60/47%
MCC Natural Resource Mgmt 2009 89.79/100%


In accordance with its Article VIII obligations as a member of the International Monetary Fund (, Sri Lanka has liberalized exchange controls on current account transactions. In times of balance of payments difficulties the government tends to impose controls on foreign exchange transactions. Most recently, in October 2008, the Central Bank required importers to keep a 100% deposit on letters of credit on a range of imports. The deposit requirement on the import of cars was 200% of the value of the import. These restrictions were later lifted.

Exporters must repatriate export proceeds within 90 days to settle export credit facilities. Other export proceeds can be retained abroad in a local bank’s correspondent bank. Currently, contracts for forward bookings of foreign exchange are permitted for a maximum period of 180 days for the purposes of payments in trade.

There are no barriers, legal or otherwise, to the expeditious remittance of corporate profits and dividends for foreign enterprises doing business in Sri Lanka. Remittance of business fees (management fees, royalties and licensing fees) is also freely permitted for companies with majority foreign investment approved under Section 17 of the BOI Act. Repatriation of funds for debt service and capital gains of companies exempted by the BOI from exchange control regulations is permitted. Other foreign companies remitting funds for debt service, business fees and capital gains require Central Bank approval.

The average delay period for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal, legal channels is in the range of 1 to 4 weeks. All stock market investments can be remitted without prior approval of the Central Bank through a special bank account. Investment returns can be remitted in any convertible currency at the legal market rate.

While controls on capital account (investment) transactions usually prohibit foreigners from investing in Sri Lankan debt instruments, the government allows limited access to foreigners to invest in government rupee bonds and treasury bills. The Central Bank’s dollar-denominated bond issues in the local market are also open to foreign investors. Local companies require Central Bank approval to invest abroad. The process of granting approval for such investments was streamlined in 2002, resulting in a substantial increase in approvals.

The government is planning to relax existing controls on capital account transactions. The proposed plans include permission for Sri Lankans to open foreign bank accounts and invest in shares and short term debt of foreign companies; foreign nationals to invest in debentures of local companies; insurance companies to invest funds in foreign assets; Sri Lankan companies to list in foreign stock exchanges; foreign tourists to open Sri Lanka Rupee accounts; and relaxation of import payment mechanisms.


Since economic liberalization policies began in 1978, the Sri Lankan Government has not expropriated a foreign investment. The last expropriation dispute was resolved in 1998.


Sri Lanka’s legal system reflects diverse cultural influences. Criminal law is fundamentally British. Basic civil law is Roman-Dutch. Laws pertaining to marriage, divorce, and inheritance are communal. Sri Lankan commercial law is almost entirely statutory. The law was codified before independence in 1948 and reflects the letter and spirit of British law of that era. Its amendments have, by and large, kept pace with subsequent legal changes in the U.K. Several important legislative enactments regulate commercial matters: the Board of Investment Law, the Intellectual Property Act, the Companies Act, the Securities and Exchange Commission Act, the Banking Act, the Industrial Promotion Act and Consumer Affairs Authority Act. Most of these laws were revised recently.

Sri Lanka’s court system consists of the Supreme Court, the Court of Appeal, Provincial High Courts and the Courts of First Instance viz. district courts (with general civil jurisdiction) and magistrate courts (with criminal jurisdiction). The provincial high courts have original, appellate and reversionary criminal jurisdiction.
The Court of Appeal sits as the intermediate appellate court with a limited right of appeal to the Supreme Court. The Supreme Court exercises final appellate jurisdiction for all criminal and civil cases. Citizens may apply directly to the Supreme Court for protection if they believe any government or administrative action has violated their fundamental human rights.

All commercial matters exceeding the value of Rs 3 million (approximately $26,000) fall within the jurisdiction of the Commercial High Court of Colombo. There are also a number of tribunals which exercise judicial functions, such as the Labor Tribunals to hear cases brought by workers against their employers.
Until recently, the court system was largely free from government interference. There are allegations that the judiciary is sometimes subject to political influence, but this has not been evident in commercial litigation so far. Litigation can be slow and unproductive, though. Monetary judgments are usually made in local currency. Procedures exist for enforcing foreign judgments.

In late 2008, acting on a fundamental human rights petition, the Supreme Court, in an interim order, halted payments to five international and local banks involved in oil hedge contracts with the government. One of the banks involved is American. The banks are taking the case to international arbitration.


The Companies Act and the Insolvency Ordinance provide for dissolution of insolvent companies, but there is no mechanism to facilitate the re-organization of financially-troubled companies.
Other laws make it difficult to keep a struggling company solvent. The Termination of Employment of Workmen Act (TEA), for example, makes it difficult to fire or lay off workers who have been employed more than six months for any reason other than serious, well-documented disciplinary problems. The Labor Commissioner’s approval or the affected employee’s consent is required to fire workers. The government has introduced a standard compensation formula under the TEA to facilitate termination for other than disciplinary reasons. Employers protest that compensation is excessive compared to similar formulae in the Asian region, with terms in Sri Lanka about twice as generous as the East Asian average. (See section on “Labor” for further details.)

In the absence of proper bankruptcy laws, extra-judicial powers granted by law to financial institutions protect the rights of creditors. When a company cannot meet the demands of a creditor for a sum exceeding Rs 50,000 (approximately $440) the creditor may petition for the company to be dissolved by the court. Lenders are also able to enforce financial contracts through powers that allow them to foreclose on loan collateral without the intervention of courts. However, loans below Rs 5 million ($435,000) are exempt from the application of the law. Additionally, a judgment ruled that these powers would not apply with respect to collateral provided by guarantors to a loan. These two moves have weakened creditors’ rights. Financial institutions also face other legal challenges as defaulters obtain restraining orders on frivolous grounds due to technical defects in the recovery laws. Also, for default cases filed in courts, the judicial process is extremely slow.

The new Companies Act of 2007 introduced a “solvency test” to determine the financial health of a company. There are provisions relating to the responsibilities of a company’s directors in cases of serious loss of capital. The solvency test is intended to prevent companies without sufficient assets from obtaining loans and to protect rights of creditors.

The Companies Act does not provide for the revival of struggling companies. However, as in the past, it is expected that the courts would take a liberal attitude towards any restructuring plans that may be of benefit to a company.


In principle, foreign investments are guaranteed protection by the Constitution of Sri Lanka. The government has entered into 24 investment protection agreements with foreign governments (including the United States) and is a founding member of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank. Under Article 157 of the Constitution of Sri Lanka, investment protection agreements enjoy the force of law and no legislative, executive or administrative action can be taken to contravene them. The government has ratified the Convention on Settlement of Investment Disputes, which provides the mechanism and facilities for international arbitration through the World Bank’s International Center for the Settlement of Investment Disputes (ICSID).

The U.S.-Sri Lanka Bilateral Investment Treaty (BIT) was ratified by both governments in 1993 (


The Arbitration Act of 1995 gives recognition to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Arbitral awards made abroad are now enforceable in Sri Lanka. Similarly, awards made in Sri Lanka are enforceable abroad.
A center for arbitration known as the Institute for the Development of Commercial Law and Practice (ICLP) ( has been established in Colombo for the expeditious, economical, and private settlement of commercial disputes. However, the ICLP appears unlikely to become involved in disputes involving the Sri Lankan Government, which is often a party to disputes involving foreign investors.

Sri Lanka’s first commercial mediation center was established in 2000 and became operational in mid 2001. Commercial mediation is conducted under the Commercial Mediation Act. Interest in mediation is still low.

The Labor Department has a process involving labor tribunals for settling industrial disputes with workers or unions, and arbitration is required when attempts to reconcile industrial disputes fail. The Labor Commissioner typically becomes involved in labor-management mediation. Other senior officials, including the Labor Minister, and the President, have intervened in particularly difficult cases.

The government record in handling investment disputes is problematic. Disputes often become politicized, causing the government to put political interests ahead of its respect for the sanctity of contracts. For example, in 2006, the Indian Oil Corporation’s petroleum retailing subsidiary in Sri Lanka temporarily closed its operations when the government failed to honor its commitment to reimburse the company for fuel sold at the government-controlled price.


U.S. companies have experienced problems with payment of valid contracts; implementation of agreements with the government; and inexplicable failure to secure contracts, despite demonstrated superior performance, high value, and competitive bids.

A U.S. power company producing electricity in Colombo has been unable to obtain payment since 2004 for power that it produced under a temporary, more costly, operating mode following a fire in its plant. The company had intended to suspend operations to conduct repairs following the fire, but agreed to the government’s request that it keep producing power even at a higher cost. However, the government withheld payment on the basis of a questionable Attorney General finding that the higher than usual electricity price was imposed on the government “under duress.”

As mentioned previously, the Ceylon Petroleum Company (CPC) entered into a contract with five banks on an oil hedging contract. Once the international price of oil rose substantially, the CPC and Government of Sri Lanka (GSL) refused to honor the oil hedging contracts. One American bank is involved. The GSL has not resolved the case, and the banks have filed for international arbitration.


The Board of Investment specifies certain minimum investment amounts for both local and foreign investors to qualify for incentives. Firms enjoying preferential incentives in the manufacturing sector in most cases are required to export 80% of production, while those in the service sector must earn at least 70% of income in foreign exchange. Sri Lanka complies with WTO Trade Related Investment Measures (TRIMS) obligations.

Sri Lanka encourages foreign investment in information technology, electronics assembly, light engineering, automobile parts and accessories manufacturing, industrial and information technology parks, rubber based industries, information and communication services, tourism and leisure related activities, agriculture and agro processing, port-related services, regional operating headquarters, and infrastructure projects. Foreign investors are generally not expected to reduce their equity over time, nor are they expected to transfer technology within a specified period of time, except for build-own-transfer or other such projects in which the terms are specified within pertinent contracts.

In some BOI-approved enterprises, businesses are required to maintain certain levels of employment to enjoy incentives. In addition, privatization agreements generally prohibit new owners from dismissing workers, although the owners are free to offer voluntary retirement packages to reduce their workforce. Some foreign investors have received political pressure to hire workers from a particular constituency or a given list, but have successfully resisted such pressure with no apparent adverse effects.

Foreign investors who remit at least $250,000 can qualify for a one-year resident visa, which can be renewed. Employment of foreign personnel is permitted when there is a demonstrated shortage of qualified local labor. Technical and managerial personnel are in short supply, and this shortage is likely to continue in the near future. In the past, foreign employees attached to BOI-approved companies received preferential tax treatment for an initial period. This concession was withdrawn in April 2008. BOI is planning to appeal to the Finance Ministry to reverse this decision. Foreign employees in the commercial sector do not experience significant problems in obtaining work or residence permits.


The Board of Investment ( has various incentives, with such investments typically requiring prior approval by various ministries. Please see the note at the end of this section on proposed changes to the incentive programs listed:


Qualifying industries:

-Non-traditional manufacturing exports and companies supplying to exporting companies. Minimum investment of $500,000(a);
-Export oriented services. Minimum investment of $500,000;
-Manufacture of industrial tools and/or machinery. Minimum investment of $150,000;
-Small-scale infrastructure. Minimum investment of $500,000;
-Research and development. Minimum investment of $100,000;
-Agriculture and agro processing industries. Minimum investment of $150,000;
-Export trading houses of rural sector. Annual turnover of $5,000,000.

Incentives: Currently, the above industries qualify for a five-year tax holiday. A preferential tax of 10% in the 6th and 7th years follows the tax holiday for some industries. Some of these industries qualify for duty-free imports (generally, during the life of the project for export-oriented projects, and during the project implementation period for others). Exporting companies and export-oriented services will be exempted from exchange control regulations. They will also qualify for free repatriation of profits and dividends and free transferability of shares. An Economic Service Charge (ESC) at 0.25% of income applies to all companies including BOI-approved companies with tax holidays. A three year tax holiday is available for investments between $250,000 and $500,000.


Qualifying Industries:

-Information technology (IT) or information technology enabled services. Minimum investment of $150,000. Minimum employment levels apply;
-Information technology training institutes. Minimum invest of $100,000. Minimum number of students applies;
-Business Process Outsourcing (BPO). Minimum investment of $150,000. Minimum employment levels apply;
-Regional operating headquarters providing the following services to related businesses outside Sri Lanka: administration, business planning, sourcing raw materials, research and Development, technical support, financial and treasury management, marketing and sales promotion. Minimum investment of $250,000.

Incentives: Currently, IT services, IT training institutes, and BPO firms qualify for tax holidays of 5-12 years provided they meet minimum employment and student levels. Otherwise, a preferential tax of 10% applies for 2 years. Regional operating headquarters qualify for a tax holiday of 3 years. A preferential tax of 10% will apply in the 4th and 5th years. From the 6th year onwards, a preferential tax of 20% will apply for IT training institutes while a tax of 15% will apply for others. Capital goods for these projects will be exempted from import duty for above investments.
An Economic Service Charge at 0.25% of income applies to BOI-approved companies enjoying tax holidays, from the fourth year of operation.


The BOI has a separate incentive program to promote regional development, with the aim of establishing new factories or service companies (such as hotels, hospitals, or training institutes) in the regions outside the capital Colombo. The incentives include 10-20 year tax holidays for investments in Northern and Eastern Provinces and 2-10 year tax holidays for investments located in other provinces. In addition, imports of machinery and equipment are exempted from both customs duty and the value-added tax. Minimum investment levels apply.


Investments in the Northern and Eastern Provinces receive generous tax incentives including 10-20 year tax holidays. Incentives are targeted at producers of textile and apparel, food, wood, paper, rubber and plastic products, fishing gear and fishing boats. In addition, hotels, agriculture-based industries, and fisheries are also entitled to these incentives. Exporting companies can import raw material, capital goods and construction material free of import duty under this program. Companies producing for the local market can import capital goods and construction material without duty. In addition, state lands will be made available at concessionary rates for these projects.


Companies acquiring existing companies in petroleum, power generation, transmission, development of highways, seaports, airports, railways, water services, public transport, agriculture and agro processing and other infrastructure projects approved by the BOI will qualify for tax holidays ranging from 5 to 8 years depending on the magnitude of investment. A preferential tax of 15% will follow after the tax holiday period. These companies will also qualify for duty free imports of capital goods. A minimum investment of $12.5 million is required.

Large-scale new infrastructure projects in power generation, transmission and distribution; development of highways, seaports, airports, public transport and water services; establishment of industrial parks, and other infrastructure projects approved by the BOI will qualify for tax holidays ranging from 6 to 15 years depending on the size of the investment. A preferential tax of 15% will follow the tax holiday. They will also qualify for duty free imports of capital goods. A minimum investment of $12.5 million is required.


-Industrial estates. Minimum investment of $500,000 to $75 million; tax holidays ranging from 3 to 15 years;
-Textile fabric manufacturing, processing. Minimum investment of $500,000 to $10 million; tax holidays ranging from 5 to 15 years.

For further information on investment incentives and other investment-related issues, potential investors are encouraged to contact the Board of Investment directly. The BOI can be found at and, or reached via e-mail at The BOI has introduced an investor matchmaking service via the BOI website. Information regarding this service can be found at


A preferential trade agreement, the Indo-Lanka Free Trade Agreement (ILFTA) ( between Sri Lanka and India, is now in effect. Under this agreement, most products manufactured in Sri Lanka with at least 35% domestic value addition (if raw materials are imported from India, domestic value addition required is only 25%), qualify for duty free entry to the Indian market. Tariff concessions for Sri Lankan products include zero tariffs on 4,235 items; 50 to 100% reduction for tea and garments under quota; 25% reduction for 553 textile items; and no reduction for 431 items on India’s “negative list.” Discussions are underway to reduce the negative lists of both countries. The two countries are also discussing services sector liberalization, under a proposed Comprehensive Economic Partnership Agreement (CEPA). Other areas potentially covered by the CEPA are investment and economic cooperation. Because production constitutes a portion of value addition, ILFTA and the proposed CEPA enables foreign firms operating in Sri Lanka to gain preferential entry into the Indian market. The CEPA negotiations have stalled, however, and it is not clear that Sri Lanka is interested in finalizing the deal.

Some U.S. companies currently avail themselves of the ILFTA by adding at least 35% value in Sri Lanka and getting import duties into India reduced from as much as 15% to as little as zero. The American Chamber of Commerce in Sri Lanka, in a study on the ILFTA, identified agro-processing, food preparation, tea, rubber products, coconut products, spices, furniture, ceramic and confectionary as having growth potential in India. The study also found vehicles and vehicle parts, aircraft parts and motorcycles to be possible attractive sectors for U.S. manufacturers under the Indo-Lanka Agreement.

Sri Lanka’s Board of Investment promotes the following product sectors under ILFTA: beverages, confectionary, rubber products, plastics, coconut products, footwear, paper, textiles and garments, artificial plants, ceramics, glassware, jewelry, iron and steel products, aluminum extrusions, machinery and mechanical appliances, electronics and electrical products, automobiles and spare parts, furniture, and doors.

The 2005 Sri Lanka-Pakistan Free Trade Agreement (SLPKFTA) ( provides duty-free entry into Pakistan for almost all Sri Lankan exports except those on the negative list. Pakistan’s negative list contains 541 items with no duty concessions. Sri Lanka’s Board of Investment promotes the following product sectors under SLPKFTA: spices, coconut based products, animal or vegetable oils, confectionary, processed food, rubber products, ceramics, jewelry, iron and steel, copper and aluminum articles machinery and mechanical appliances, electronics and electrical appliances, medical instruments, and automobiles and spare parts.

Sri Lanka and six other South Asian nations belonging to the South Asian Association for Regional Cooperation (SAARC) agreed in 2004 to establish a South Asian Free Trade Area (SAFTA) (, which began operation on July 1, 2006. SAFTA offers regionalized tariff reductions for imports from member countries. Stated goals of SAARC members under SAFTA are to reduce duties for imports from member countries to between zero and 5% over a period of 7-10 years. The SAARC trade talks have had limited effect to date on trade and investments.

These agreements could help make Sri Lanka a gateway to South Asia for foreign investors.

Sri Lankan exports to the European Union (EU) are also duty free under the “GSP-Plus” incentive agreement in effect since July 2005. Under this program, 7,200 Sri Lankan products meeting rules-of-origin criteria can enter the EU duty free. The GSP Plus scheme for Sri Lanka was renewed in January 2009 for a period of three years, subject to the results of  an on-going investigation of the government’s actions at the end of the civil war. Depending on the findings of the investigation, benefits could be withdrawn by July 2010.


Private entities are free to establish, acquire, and dispose of interests in business enterprises. Private enterprises enjoy benefits similar to those granted to public enterprises, and there are no known limitations to access to markets, credit, or licenses. Foreign ownership is allowed in most sectors. Private land ownership is limited to fifty acres per person. The government owns about 80% of the land in Sri Lanka, including the land housing most tea, rubber, and coconut plantations. The government has leased most of these plantations to the private sector on 50-year terms. Although state land for industrial use is usually allotted on a 50-year lease, 99-year leases may also be approved on a case-by-case basis, depending on the nature of the project. There are also substantial land disputes arising from the end of the war, as the Government regains control of areas after many years of war.

While foreign investors can purchase land from private sellers, the government has imposed a 100% tax on land transfers to foreigners. For this purpose, Sri Lanka has defined foreign investment to involve as little as 25% foreign ownership – a definition that can be particularly difficult for companies listed on the Colombo Stock Exchange since on any particular day, their ownership characteristics may vary. Apartments above the third floor of condominium buildings, land for the development of large housing schemes, hospitals and hotels with a minimum investment of $10 million, exporting companies with a minimum investment of $1 million, and large infrastructure projects with a minimum investment of $50 million are exempted from the tax. Regulations regarding these exceptions have been published in Gazette No 1386/18 dated March 30, 2005.


Secured interests in property are recognized and enforced. The legal system is nondiscriminatory and protects and facilitates acquisition and disposition of property rights by foreigners, although it has recently become subject to political influence. A fairly reliable registration system exists for recording private property including land, buildings and mortgages. There are likely to be difficult land disputes in the recently freed northern and eastern regions of the country, following the end of the war. However, there are problems due to fraud and forged documents.


Sri Lanka is a party to major intellectual property agreements including the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement for the Repression of False or Deceptive Indication of Source on Goods, the Nairobi Treaty, the Patent Co-operation Treaty, the Universal Copyright Convention, and the Convention establishing the World Intellectual Property Organization (WIPO). Sri Lanka and the United States in 1991 signed a Bilateral Agreement for the Protection of Intellectual Property Rights. Sri Lanka, a WTO member, is also a party to the Trade Related Intellectual Property Rights (TRIPS) agreement in the
World Trade Organization. Sri Lanka has not acceded to the WIPO Performances and Phonograms Treaty (WPPT); the WIPO Copyright Treaty (WCT); or the WTO Information Technology Agreement.

In November 2003, a new intellectual property law came into force that was intended to meet both U.S.-Sri Lanka bilateral IPR agreement and TRIPS obligations to a great extent. The law governs copyrights and related rights, industrial designs, patents, trademarks and service marks, trade names, layout designs of integrated circuits, geographical indications, unfair competition, databases, computer programs, and undisclosed information. All trademarks, designs, industrial designs and patents must be registered with the Director General of Intellectual Property. Sri Lanka introduced regulations to regulate the commercial use of local creations in 2008.

Infringement of intellectual property rights (IPR) is a punishable offense under the law. Intellectual property rights come under both criminal and civil jurisdiction. Recourse available to owners includes injunctive relief, seizure and destruction of infringing goods and plates or implements used for the making of infringing copies, and prohibition of imports and exports. Penalties for the first offence include a prison sentence of 6 months or a fine of up to Rs 500,000 ($4,425), but smaller penalties are the norm. Penalties can be doubled for a second offense. Aggrieved parties can seek redress for any IPR violations through the courts, though this can be a frustrating and time-consuming process.

Since the passage of the 2003 IPR law Sri Lanka has slowly begun enforcing its provisions. The Police occasionally raid counterfeit CD/VCD stores as well as counterfeit garment sellers. However, it is rare for the police to act without a formal complaint and assistance from an aggrieved party. Several offenders have been charged or convicted by courts. However, the minimal damages and suspended sentences imposed suggest that the court system still fails to recognize the significance of intellectual property rights.

Counterfeit goods continue to be widely available in Sri Lanka. Local agents of well-known U.S. and other international companies representing recording, software, movie, clothing and consumer product industries continue to complain that lack of IPR protection is damaging their businesses. Piracy of sound recordings and software is widespread, making it difficult for the legitimate industries to protect their market and realize their potential in Sri Lanka. Software companies complain of the lack of IPR enforcement within government institutions and even some larger corporations, including several banks. In December 2009, the government of Sri Lanka approved a new Information Technology (IT) policy for the government sector which includes rules on hardware and software procurement. The implementation date of the new policy is not known. The embassy and the American Chamber of Commerce of Sri Lanka are working to pursue more aggressive enforcement and enhance public awareness.


Patents are valid for 20 years from the date of application but must be renewed annually. Patents are granted for inventions, with the following exceptions: discoveries, scientific theories and mathematical methods, plant or animal varieties (other than micro biological processes) and essential biological processes for the production of plants and animals (other than non-biological and microbiological processes), business rules and methods, methods of treatment by surgery or therapy, and diagnostic methods practiced on a human or animal body. The law also permits compulsory licensing and parallel imports of pharmaceutical products. Compulsory licensing will allow the government to grant licenses to manufacture certain patented drugs, overruling patent licenses in a national emergency. The parallel imports will allow the import of a branded drug from an alternative source.

Copyrights are not registered. A work is protected automatically by operation of law. Original literary, artistic, and scientific works including computer programs and databases are protected under the new law. There are enforcement limitations applying to copyrights, including software.

Sri Lanka recognizes both trademarks and service marks. The exclusive right to a mark is acquired by registration. A mark may consist of words, slogans, designs, etc. Protection also is available to well known marks not registered in Sri Lanka. Registered trademarks are valid for ten years and renewable. The law also recognizes both certification marks and collective marks.


The Board of Investment strives to inform potential investors about laws and regulations that may affect operations in Sri Lanka. Laws are in place pertaining to tax, labor and labor standards, exchange controls, customs, environmental norms, and building and construction standards. However, some of the laws and regulations are difficult to access.

Foreign and domestic investors often complain that the regulatory system is unpredictable due to outdated regulations, rigid administrative procedures, and excessive leeway for bureaucratic discretion. Effective enforcement mechanisms are sometimes lacking, and coordination problems between the BOI and relevant line agencies frequently emerge. Lethargy and indifference on the part of mid- and lower-level public servants compound transparency problems. Lack of sufficient technical capacity within the government to review financial proposals for private infrastructure projects also creates problems during tendering. An example of weakness in regulations occurred in mid-2006, when police and government
agencies closed two satellite television broadcasting stations for not possessing required licenses. The two stations remained closed for over five months, before various government agencies reauthorized their operations.

In 2005-2009, the Government awarded several key infrastructure projects to Chinese companies outside the tender process. They included a 300 megawatt coal power project, a fuel bunkering project, and a large port construction project and an airport project in the southern district of Hambantota. In addition, the Government has promised oil exploration rights to India and China outside the tender process. Similarly, in 2008, the government-owned Ceylon Petroleum Corporation signed an agreement with the government of Iran to finance the expansion of the country’s oil refinery. The government had previously signed a Memorandum of Understanding with an American company to negotiate an agreement for the same project. Despite the purported agreement with Iran, the refinery project is still on hold.

Although many foreign investors, including U.S. firms, have had positive experiences in Sri Lanka, some have encountered significant problems with government practices and regulations. Some multinational firms have experienced extensive unexplained delays in trying to reach agreement on investment projects. Others have had contracts arbitrarily canceled without compensation, even though the Sri Lankan Cabinet had approved those contracts.

Proposed laws and regulations are generally made available for public comment. However, occasionally they are published without public discussion.


Retained profits finance about 70% of private investment, with short term borrowing financing a further 20% of investment. The stock market and corporate securities market have not been significantly used to raise capital. Foreign direct investment (FDI) finances about 4% of overall investment. Foreign investors are allowed to access credit on the local market. They are also free to raise foreign currency loans.

The state consumes over 50% of the country’s domestic financial resources and has a virtual monopoly on the management and use of long-term savings in the country. This inhibits the free flow of financial resources to product and factor markets. For 2009, the government’s net borrowing from the local market is forecast to be Rs 183 billion ($1.6 billion). Due to high inflation and increased government borrowing, interest rates were high in 2007 and 2008. Most companies cite high interest rates as a major impediment to doing business and investment in Sri Lanka. With the decline in the rate of inflation in 2009, the Central Banks reduced key interest rates. Consequently, lending rates to blue chip companies declined to 12% in January 2010 from about 20% in January 2009. Other companies including SME’s face higher rates.


Commercial banks are the principal source of bank finance. Bank loans are the most widely used credit instrument for the private sector. Financial institutions also raise syndicated bank loans to fund large-scale investment projects undertaken by the private sector.

The domestic debt market in Sri Lanka is still at a nascent stage. The first credit rating agency in Sri Lanka was Fitch Rating Lanka (, which opened an office in Colombo in 1999. Fitch Ratings Lanka is a joint venture between Fitch Ratings Inc, International Finance Corporation (IFC), the Central Bank of Sri Lanka, and several leading local financial institutions. Credit ratings are now mandatory for all deposit-taking institutions and for all varieties of debt instruments and have helped numerous Sri Lankan companies raise funds through debt markets.

Sri Lanka received its first sovereign credit ratings in December 2005, with a “BB-minus” from Fitch Ratings and a “B-Plus” from Standard and Poor’s (S&P). Current ratings are “B-Plus” (Fitch) and “B” (S&P). Fitch has assigned a stable rating outlook for Sri Lanka. S&P’s rating outlook is positive.


There is an active and fairly competent accounting profession, based on the British model. The source of accounting standards is the Institute of Chartered Accountants of Sri Lanka (ICASL), and standards are constantly updated to reflect current international accounting and audit standards adopted by the International Accounting Standards Board (IASB). In addition, Sri Lanka is following the worldwide move to adopt International Financial Reporting Standards (IFRS) for financial reporting purposes set by the IASB. The proposed full convergence is expected to be in 2011 for financial periods on or after January 1, 2012. A significant change is expected with full convergence. Due to the lack of an adequate enforcement mechanism, problems with the quality and reliability of financial statements still exist.

Sri Lankan accounting standards are applicable for all banks, stock exchange listed companies and all other large and medium-sized companies in Sri Lanka. Accounts of such business enterprises are required to be audited by professionally qualified auditors holding ICASL membership. ICASL has published accounting standards for small companies as well. The Accounting Standards and Monitoring Board (ASMB) is responsible for monitoring compliance with Sri Lankan accounting and auditing standards. British professional accounting bodies are quite active in Sri Lanka. The Chartered Institute of Management Accountants (CIMA), a leading professional accounting body based in the UK and spread over the Commonwealth, has its largest overseas presence in Sri Lanka. CIMA UK suspended the Sri Lanka divisional council over a governance issue in December 2008 and a new council was appointed in January 2010. CIMA programs and operations in Sri Lanka continued undisrupted during this period.


The Securities and Exchange Commission (SEC) regulates the securities market in Sri Lanka. The SEC law was revised in 2003, enhancing the SEC’s coverage and investigative powers. The SEC now covers stock exchanges, unit trusts, stock brokers, listed public companies, margin traders, underwriters, investment managers, credit rating agencies and securities depositories.

Foreign investors can purchase up to 100% of equity in Sri Lankan companies in numerous permitted sectors. In order to facilitate portfolio investments, country funds and regional funds may obtain Ministry of Finance approval to invest in Sri Lanka’s stock market. These funds make transactions through share investment external Rupee accounts maintained in commercial banks.


The Colombo Stock Exchange (CSE) has fully automated trading, clearing and settlement systems. The CSE maintains a rolling settlement period of 3 days. Twenty one local and foreign joint venture brokers currently operate at the CSE. Foreign stockbrokers are permitted to hold up to 100% equity in stock brokerage firms operating at the CSE. The SEC has a settlement guarantee fund with an initial capital of Rs 100 million ($88,500), which aims to guarantee the settlement of trades between clearing members of the exchange. There are 232 companies listed on the stock exchange with the top ten positions by market capitalization held by conglomerates, telecommunication companies, banks, and food and beverage companies. The CSE, which suffered in 2007-2008 due to increased conflict-related violence and the global financial crisis, was the second best performing market in the world after Russia in 2009. The market gained 125% in 2009. The post-war optimism led to a surge in investor interest.

The CSE suffered somewhat after insider trading charges were filed in the U.S. against Raj Rajaratnam of Galleon fund, but quickly recovered. The U.S. based Galleon fund was a major investor in the CSE, and held shares in over 70 companies. Galleon has now exited from most of the CSE companies. Investors have also been discouraged by various Supreme Court decisions negatively impacting businesses in 2008-2009. One ruling, citing bias by government officials in favor of the eventual contract winner, reversed the 2002 privatization of a bunkering unit to a large conglomerate listed in the stock exchange. A similar case reversed the sale of a large government-owned insurance company to another listed
conglomerate. In yet another case, the Supreme Court temporarily stopped payments due to local and foreign banks for oil hedging contracts. Other issues include lack of liquidity and limited market size.

Improvements are also needed in corporate governance, accountability, and public disclosure. The Accounting and Auditing Standards Monitoring Board, the Ceylon Chamber of Commerce, the Colombo Stock Exchange, and professional accounting bodies are taking initiatives in these areas.

Acquisition of companies through mergers and acquisitions is governed by the Takeovers and Mergers Code of 1995 made under the Securities and Exchange Commission of Sri Lanka Act. This law applies only to companies listed on the Colombo Stock Exchange. It is modeled on the lines of the London City Code on Takeovers and Mergers. Acquisition of more than a 30% stake of a listed company requires the buyer to make an offer to all other shareholders. The articles of association of a few listed companies restrict foreign equity to certain levels.


Sri Lanka has a fairly well diversified banking system. There are 23 commercial banks – eleven local and twelve foreign. In addition, there are 14 local specialized banks. Citibank NA is the only U.S. bank operating in Sri Lanka.

In late 2008, the Central Bank dissolved the board of directors of a private local bank, Seylan Bank, and appointed the state-owned Bank of Ceylon to carry on the business of the bank. This was done to ensure stability in the overall financial sector following a financial scandal at a non regulated large finance company connected to the bank.

Since then, the Seylan Bank has been restructured with equity from new shareholders. The bank has returned to normal business activity with a board of directors appointed by the new shareholders.

The Central Bank also took control of several non-bank finance companies connected to the failed finance company. These companies are being restructured through mergers. The Central Bank also launched a stimulus package for finance and leasing companies with the aim of avoiding a crisis in them. However, weaknesses in smaller finance and leasing companies exposed to real estate remains a concern.

Sri Lanka experienced its first bank failure in December 2002 when the Central Bank took action to revoke the license of a small licensed specialized bank as it approached insolvency. There was no fallout for other banks from this incident. Two other small troubled banks were restructured under Central Bank guidance.

The Central Bank is responsible for supervision of all banking institutions. It has driven improvements in banking regulations, provisioning, and public disclosure of banking sector performance. Since 2004, credit ratings have been mandatory for all banks operating in Sri Lanka. In 2006, the Central Bank introduced higher capital requirements for commercial banks to further stabilize the banking system, promote consolidation, and facilitate entry of larger banks. Notable progress in 2008 includes mandatory provisioning on performing loans and acceptance of the Basel II standardized approach framework. In addition, the Central Bank issued corporate governance rules for banks. The new rules are
aimed at promoting the safety and soundness of the banking system. In 2009, the Central Bank carried out capacity building programs on Basel II. The Bank issued regulations for service providers of payment cards regulations. The Central Bank will regulate all payment card systems. The Central Bank has also developed a road map for the full  implementation of International Accounting Standards on Financial Instruments for banks by January 1, 2011. In addition, the Central Bank plans to introduce new Sri Lanka accounting standards to the banking sector in 2011. Nevertheless, the Central Bank still suffers from lack of autonomous authority, especially with regard to the large state owned banks.

Sri Lanka has enacted laws to deal with money laundering and terrorist financing. The Bank Supervision Department of the Central Bank supervises and examines financial institutions for compliance with anti-money laundering and terrorist financing regulations. A Financial Intelligence Unit (FIU) was created in 2006, and operates under the Central Bank. The Financial Intelligence Unit has issued instructions to banks, finance and insurance companies, and the securities industry regarding anti-money laundering and terrorist financing regulations and, in 2008, extended it rules on “know your customer” and “customer due diligence” to insurance companies and the securities industry.


Total assets of commercial banks stood at Rs 2,200 billion ($19 billion) as of December 31, 2008. The two state-owned commercial banks, Bank of Ceylon and People’s Bank, with assets of Rs 492 billion ($3.3 billion) and Rs 416 billion ($3.6 billion) respectively, are still important players, accounting for about 40% of all assets.

The two state banks are inefficient and have accumulated extensive bad debt. However, as these banks are implicitly guaranteed by the state, their problems have not harmed the credibility of the rest of the banking system. Progress has been made in restructuring the two banks — their nonperforming loan ratios declined from 18% in 2003 to 5-7% in 2008, while provisioning and profitability have improved. Nonetheless, both these banks have significant exposure to the state and state-owned companies, which are treated as performing loans.


Private commercial banks and foreign banks operating in Sri Lanka generally follow more prudent credit policies and, as a group, are in better financial shape. Foreign banks tend to make provisions in line with international best practices, as most foreign bank branches are subject to host country supervision in addition to that of the Central Bank of Sri Lanka.

Non-performing loans to total loans ratio increased from 4.9% in 2007 to 6% in 2008. It is estimated to have increased sharply in 2009, with significant variations among individual banks. There are concerns regarding credit exposure to housing and consumer sectors, impact of high interest rates and the impact of prevailing economic conditions on the banking system.


Sri Lanka adopted capital adequacy standards set by the Basel Committee on banking regulations and supervisory practices in 1993. The minimum capital adequacy ratio required by the Central Bank is 5% for core capital (Tier I) and 10% for risk weighted assets (Tier I and Tier II). The Central Bank adopted Pillar 1 of Basel II capital adequacy standard for all banks in 2008.

Risk-based capital adequacy in the banking sector was 13% in 2008. The Bank of Ceylon’s capital adequacy ratio is well within Central Bank requirements. Following a capital injection from the Ministry of Finance, People’s Bank reported core and total CAR ratios of 6.48% and 10.46%, under the Basel II framework in 2008.


SOE’s are active in transport (bus and railways, ports and airport managements, air line operations), utilities such as electricity, petroleum imports and retail, water supply, and telecommunications, TV and Radio broadcasting, newspaper publishing, banking and insurance.

Directors of SOE’s are appointed by the cabinet or a line Ministry. They report to line Ministries. The board seats are allocated to both senior government officials and politically-affiliated individuals. Senior management positions such as the post of CEO are most often allocated to politically-affiliated individuals.

Sri Lanka does not currently have a sovereign wealth fund (SWF).


Leading companies in Sri Lanka are actively promoting CSR. Some SME companies have also started to promote CSR. The Ceylon Chamber of Commerce (CCC), the largest business chamber in Sri Lanka, has a CSR section promoting CSR among its membership. CCC also has an annual “Best Corporate Citizens” award to encourage CSR activities. In addition, a professional accounting body has a program to promote sustainability reporting. Internationally, some of Sri Lanka’s leading companies have joined the UN Global Compact initiative. In fact, Sri Lanka won the Asia Award 2009 for the “best performing global compact principles by a local network.” The apparel industry, Sri Lanka’s largest export industry, has a specially designated CSR program for the industry under the title “Garments without Guilt” ( The ethical sourcing and sustainable development practices under the program aim to empower women and their communities through poverty alleviation and opportunities for education and personal growth. In addition, it also endeavors to promote sustainable eco-friendly manufacturing practices in the apparel industry. Firms who pursue CSR are viewed favorably by Sri Lanka’s business sector resulting in positive media attention.


The Sri Lankan government’s military campaign against the Liberation Tigers of Tamil Eelam (LTTE) ended in May 2009 with the defeat of the LTTE. Prior to that, from January 2008 to June 2009 fighting between the Sri Lankan military, paramilitary groups and the LTTE increased. Bomb attacks in densely populated areas killed dozens of civilians, including in some areas frequented by foreign tourists. LTTE conducted several air attacks in Colombo during this period. There were a series of other incidents throughout the country targeting armed forces personnel, politicians and civilians in 2007-2009.

In 1997, the United States designated the LTTE as a Foreign Terrorist Organization (FTO). In 2007, the United States froze the assets of, and blocked transactions with, the Tamils Rehabilitation Organization (TRO), a U.S.-registered non-profit group, on the grounds that it provided support for the LTTE.

During the two and half decades of war, foreign tourists and foreign business representatives were not LTTE targets, but they were injured in attacks on other targets. In 2001, the LTTE attacked Colombo’s international airport and destroyed commercial and military aircraft. Sri Lankan Airlines lost several commercial aircraft in the attack. Prior to 2001 the LTTE attacked several foreign-flagged commercial ships in the waters off the north and east of the country. The LTTE also bombed Colombo’s financial and business districts, causing numerous casualties and extensive damage to property.

Currently, Sri Lanka is included in the Lloyds Joint War Risk Committee’s war, strikes, terrorism and related perils areas list. Insurers have the option of imposing war risk premiums on ships using Sri Lankan ports. Lines which call on Sri Lanka regularly are not charged the war risk charge now, but could affect new businesses.


Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.


In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at:


It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental in the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Sri Lanka ratified the UN Anti-Corruption Convention in 2004. Sri Lanka has signed but not ratified the UN Convention against Transnational Organized Crime. Sri Lanka became a signatory to the OECD-ADB Anti-Corruption Regional Plan in May 2006.


The OECD Antibribery Convention entered into force in February 1999. As of December 2009, there are 38 parties to the Convention including the United States (see Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA. Sri Lanka is not a party to the OECD Convention.


The UN Anti-Corruption Convention entered into force on December 14, 2005, and there are 143 parties to it as of December 2009 (see treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anti-corruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anti-corruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention
contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Sri Lanka is a party to the UN Convention.


In 1996, the Member States of the Organization of American States (OAS) adopted the first international anti-corruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 33 parties (see Sri Lanka is not a party to the OAS Convention.


Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption
standards. Currently, GRECO comprises 46 member States (45 European countries and the United States). As of December 2009, the Criminal Law Convention has 42 parties and the Civil Law Convention has 34 (see Sri Lanka is not a party to the Council of Europe Conventions.


U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.


The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at In Sri Lanka, this service is provided by the Economic and Commercial Section at the U.S. Embassy (

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at


The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the antibribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.


Public sector corruption, including bribery of public officials, remains a significant challenge for U.S. firms operating in Sri Lanka. While the country has generally adequate laws and regulations to combat corruption, enforcement is weak and inconsistent. U.S. firms identify corruption as a constraint on foreign investment, but, by and large, it is not a major threat to operating in Sri Lanka – at least once a contract has been won. Corruption appears to have the greatest effect on investors in large projects and on those pursuing government procurement contracts.

There is a consensus that corruption is rampant in Sri Lanka. In Transparency International’s Corruption Perception Index for 2009 Sri Lanka ranks 97th with a score of 3.1 out of a possible 10 points. The World Bank Control of Corruption Index which ranges from -2.5 to +2.5 has shown an improvement to -0.13 in 2006 and 2007 from -0.26 in 2005. In a 2006 USAID Democracy and Governance assessment, anecdotal evidence from the private sector indicated that the percentage of a public sector contract paid in bribes nearly tripled. According to Transparency International, corruption is perceived as most pervasive in political appointments to government institutions and in government procurement awards, as well as in high frequency/low value transactions. The police force and the judiciary are perceived to be the most corrupt public institutions. Corruption is also a persistent problem in customs clearance and enables wide smuggling of certain consumer items, to the detriment of legitimate manufacturers and importers.

In 2008-2009, the Supreme Court, examining public interest litigations against the sale of three government properties, faulted a former President and the Secretary to the Treasury for wrongdoing. Both were fined. The Supreme Court also reversed the sales. Also in 2008, the Supreme Court also removed the Secretary to the Treasury from his position and ruled that he cannot hold any public office in the future. However, in 2009 the Supreme Court chaired by a new Chief Justice allowed the former the Treasury Secretary to resume his duties, thereby reversing the 2008 decision.

In January 2007, a parliamentary Commission found evidence of serious and widespread waste, fraud, and abuse in the management of Sri Lanka’s numerous government enterprises. Privatization of a handful of government enterprises between 2001 and 2004 also appears to have been done in a corrupt manner. The mismanagement and corruption reviewed by the Commission have cost Sri Lanka an estimated USD 1.3 billion. However, the government has taken little concrete action to date to address the Commission’s findings, and it later replaced the Commission’s chairman and some of its members; one new appointee is the President’s brother. Following the Commission’s report, several other large scale corruption incidents and frauds materialized, including at the government’s tax office.

Sri Lanka ratified the UN Anti-Corruption Convention in 2004. Sri Lanka has signed but not ratified the UN Convention against Transnational Organized Crime. Sri Lanka became a signatory to the OECD-ADB Anti-Corruption Regional Plan in May 2006.


The Bribery Commission is the main body responsible for investigating allegations of bribery and corruption. The function of the Commission, under Act No 19 of 1994, is to investigate allegations brought to its attention and to institute proceedings against responsible individuals in the appropriate court. The law states that a public official’s offer or acceptance of a bribe constitutes a criminal offense and carries a maximum sentence of seven years imprisonment and a fine at the discretion of the courts. A bribe by a local company to a foreign official is not covered by the Bribery Act.

Although highly publicized, efforts to investigate bribery and corruption by the Bribery Commission and Presidential Commissions have failed, damaging public confidence in such processes. In February 2008, the President removed the Bribery Commission’s Director General, the sole individual able to serve indictments and appointed a new Director General.

Several other government entities try to address corruption, the most important being the Auditor General’s Department. However, there is a confusion of mandates and these institutions frequently interpret their mandates narrowly, inhibiting their effectiveness.


Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at:

Information about the OECD Antibribery Convention including links to national implementing legislation and country monitoring reports is available at:,3355,en_2649_34859_1_1_1_1_1,00. html. See also new Antibribery Recommendation and Good Practice Guidance Annex for

General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website:

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at:

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at:


The Government of Sri Lanka has signed investment protection agreements with the United States (which came into force in May 1993) and with the following other countries:

1. Belgium
2. People’s Republic of China
3. Denmark
4. Egypt
5. Finland
6. France
7. Germany
8. Indonesia
9. India
10. Iran
11. Italy
12. Japan
13. Korea
14. Luxembourg
15. Malaysia
16. Netherlands
17. Norway
18. Romania
19. Singapore
20. Sweden
22. Thailand
23. United Kingdom


A bilateral treaty between Sri Lanka and the United States to avoid double taxation was ratified and entered into force on June 12, 2004.

Foreign investors not qualifying for Board of Investment incentives such as tax and exchange control exemptions or concessions are liable to pay taxes on corporate profits, dividends, and remittances of profits. They are also liable to pay a Value Added Tax on goods and services. The government has also imposed a tax of 0.1% on debits to any current or savings account maintained at any bank in Sri Lanka. Debits made to accounts of government and international organizations are excluded. Accounts maintained at Foreign Currency Banking Units, accounts maintained for stock exchange transactions (SIERA), and resident and non-resident foreign currency accounts are exempted from the tax.

An Economic Service Charge (ESC) at 0.25% of income applies to BOI-approved companies enjoying tax holidays. The Embassy encourages prospective U.S. investors to contact an international auditing firm operating in Sri Lanka to assess their tax liability.


The United States and Sri Lanka concluded in 1966 (and renewed in 1993) an agreement that allows the Overseas Private Investment Corporation (OPIC) to provide investment insurance guarantees for U.S. investors. OPIC currently provides coverage to banking and power sector investments in Sri Lanka. Sri Lanka’s membership in the Multilateral Investment Guarantee Agency (MIGA) offers the opportunity for insurance against non-commercial risks.

The U.S. Embassy and other U.S. Government institutions spend over $13 million annually in Sri Lanka. This amount can potentially be utilized by OPIC to honor an inconvertibility claim; however, no such claims have been made to date in Sri Lanka. The Embassy purchases local currency at the financial rate.


Sri Lanka’s labor force is literate (particularly in local languages) and trainable, although weak in certain technical skills and the English language. The average worker has eight years of schooling. Two-thirds of the labor force is male.

In 2009, 7.6 million Sri Lankans were employed, with 43% in services, 25% in industry and 32% in agriculture jobs. Overall, 41% of the workforce is in the private sector and 16% in the government. Self employed workers constitute 30% of all employed while another 11% were unpaid family workers. About 61% of the employed are in the informal sector.

The unemployment rate has declined in recent years to around 5%. The rate of unemployment among women and high school and college graduates, however, has been proportionally higher than the rate for less-educated workers. Youth and entry-level unemployment and underemployment remain a problem. A significant proportion of unemployed people seek “white collar” jobs. However, most sectors seeking employees offer manual or semi-skilled jobs or require technical or professional skills such as management, marketing, information technology, accountancy and finance, and English language proficiency. The construction, plantation and apparel industries report a shortage of workers. Some investors have faced problems in finding sufficient employees with the requisite skills.

The government has initiated educational reforms it hopes will lead to better preparation of students and better matches between graduates and jobs. The government declared 2009 to be the year of English and Information Technology. More computer, accounting and business skills training programs and English language programs are becoming available. But the demand for these skills still outpaces supply.


There are an estimated 1.5 million Sri Lankan workers abroad. Remittances from migrant workers, at around $3 billion, are one of Sri Lanka’s largest sources of foreign exchange. The majority of this labor force is unskilled (housemaids and factory laborers) and located primarily in the Middle East, but Sri Lanka is also losing many of its technically and professionally qualified workers to more lucrative jobs abroad. Despite the global slowdown, remittances from migrant workers abroad actually increased in 2009. At least one labor importing country, South Korea, temporarily stopped importing labor from Sri Lanka in 2009.


Labor is available at relatively low cost, though it is priced higher than in some other South Asian countries. Productivity lags behind other countries in Asia. Child labor is prohibited and is virtually nonexistent in the organized sector, although child labor occurs in informal sectors. The minimum legal age for employment is set at 14. Most permanent full-time workers are covered by laws pertaining to maximum hours of work, minimum wage, leave, the right of association, and safety and health standards.

Many believe that Sri Lanka’s labor laws and its numerous official holidays dampen productivity. The full moon day of each month (sacred in the Buddhist faith), if it falls on a weekday, is a paid holiday. There are eight other public holidays. The public sector and banks enjoy additional holidays. These statutory holidays are in addition to 21 days of annual/casual leave and approximately 21 days of sick leave (the number of days for sick leave is at the discretion of the management). Further, female employees are entitled to 84 days fully paid maternity leave for the first two pregnancies. Female workers are permitted 60 hours of overtime work per month.

The Government continues to interfere with private sector wage setting. In October 2005 the Government, through an act of Parliament, took steps to mandate a wage increase (of approximately Rs 1,000 ($8.85) per month) to private sector workers. The private sector is concerned about such interference in wage setting, which could damage competitiveness in certain sectors.


The Termination of Employment of Workmen Act (TEA) makes it difficult to fire or lay off workers who have been employed more than six months for any reason other than serious, well-documented disciplinary problems. Disputes over dismissals can be brought to a labor tribunal administered by the Ministry of Justice. The labor tribunals have large backlogs of unresolved cases. Certain labor disputes founded upon fundamental rights (allegations of termination/transfers based upon discrimination, etc.) can be brought directly to the Supreme Court. Recent amendments to the Industrial Disputes Act (IDA) include labor dispute resolution rules to expedite the dispute process.

The government has introduced a standard compensation formula under the TEA to facilitate termination. The compensation formula takes into account the number of years of service and offers 2.5 months’ salary as compensation for 1 year of service, 12.5 months’ salary for 5 years of service; 38 months for 20 years and up to a maximum of 48 months’ salary for 34 years service. According to the World Bank’s Doing Business 2009 report, Sri Lanka’s firing cost is among the highest in the world. For example, Sri Lanka’s firing cost for 20 years of service, at 38 months, compares with Pakistan and Nepal’s 22.5 months, India’s 19.6 months, Malaysia’s 18.5 months, China’s 13.2 months and Bangladesh’s 11.7 months. The Labor Commissioner’s approval or the affected employee’s consent is required to fire workers. The Labor Commissioner’s approval is often subject to delays of around 6-7 months. Employers complain that the package is excessive, especially compared to international norms. They have also pointed out that higher compensation could adversely affect companies requiring restructuring, and discourage investment.


About 20% of the 7 million-strong work force is unionized, but union membership is declining. There are more than 1,900 registered trade unions (many of which have 50 or fewer members), and 19 federations. About 15% of labor in the industry and service sector is unionized. Most of the major trade unions are affiliated with political parties, creating a highly politicized labor environment. In many cases several unions, affiliated with different political parties, work together at state-owned enterprises. This is not the case for private companies, which only have one union or perhaps a workers’ council to represent the employees. Several trade unions with affiliations to major political parties have formed themselves into an organized group, the National Association for Trade Union Research and Education (NATURE), to promote education and training among trade unionists.

All workers, other than police, armed forces, prison service, and

those in essential services, have the right to strike. By law, workers may lodge complaints to protect their rights with the commissioner of labor, a labor tribunal, or the Supreme Court. The president retains the power to designate any industry as an essential service.

Unions represented workers in many large private firms, but workers in small-scale agriculture and small businesses usually did not belong to unions. Public sector employees were unionized at very high rates. Labor in export processing zone enterprises tends to be represented by non-union worker councils.

Unions have complained that the Board of Investment and some employers, especially in the BOI-run export processing zones, prohibit union access and do not register unions on a timely basis. Employers allege that the JVP, a Marxist political party opposed to private enterprise, could provoke labor to strike under the pretense of trade union activity. Due to the JVP’s violent past, employers are generally not in favor of it or its trade union arm, the Inter-Company Trade Union.

In BOI enterprises, including those in the export processing zones, worker councils composed of employees generally engage in labor and management negotiations. These worker councils have functioned well in some companies in providing for worker welfare. The BOI has requested that companies recognize trade unions and accept the right to collective bargaining. According to the BOI, where both a recognized trade union with bargaining power and a non-union worker council exist in an enterprise, the trade union will represent the employees in collective bargaining.

The International Labor Organization’s (ILO) Freedom of Association Committee has observed that Sri Lankan trade unions and employee councils can co-exist, but advises that there should not be any discrimination against those employees choosing to join a union. The right of employee councils to engage in collective bargaining has been held as valid by the ILO. The ILO has, however, noted weaknesses in rules governing operation of employee councils and low prevalence of collective bargaining agreements and requested that the Government address these issues.

In response to these observations, the BOI revised its labor manual in March 2004, requesting that companies located in export processing zones allow union access to zones and provide official time off to union members to attend meetings. Along with this revision, the BOI also issued new guidelines for the formation and operation of employee councils, giving powers to employee councils to negotiate binding collective agreements.

In 2008, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) submitted a petition to the United States Trade Representative seeking suspension of Generalized System of Preferences (GSP) benefits for Sri Lanka due to alleged labor rights violations in some factories in the export processing zones. AFL-CIO submitted a similar petition in 2002, which was rejected. USTR did not act on the 2008 petition and the AFL-CIO submitted a revised petition in July 2009. The United States Government has not yet made a decision whether to accept the GSP petition for review. If accepted, the governments of the United States and Sri Lanka would enter into consultations. A Sri Lanka trade union made a similar case with the European Union (EU) when Sri Lanka applied for benefits under the special incentive arrangements of the GSP. After an audit, the EU, in January 2004, granted significant benefits to Sri Lanka under EU GSP+ in recognition of the country’s efforts to implement core labor standards. The EU, however, urged improvements in freedom of association. The current review of GSP+ benefits centers on alleged violations of human rights relating to the end of the war and treatment of internally displaced persons, not labor rights.

Key public sector entities such as the Ceylon Electricity Board, Ceylon Petroleum Corporation and the Sri Lanka Ports Authority also have large unions which have protested anticipated moves towards privatization or restructuring. They staged a “work to rule” campaign in 2009 demanding higher wages. They returned to work as the industries were made essential services by the President. The government granted the striking workers salary increases, although not as much as demanded. Trade unions in the plantations also staged a “go-slow” campaign demanding higher wages, when a plantation sector collective bargaining agreement came up for renewal. They were granted a 40% increase.

In July 2006, the Supreme Court broke a port slowdown which had disrupted shipping through the Colombo Port for over a week. However, in response to a challenge lodged by several unions, the ILO Freedom of Association Committee noted that the port “go-slow” action did not disrupt an essential service, i.e. one whose disruption would endanger life, personal safety or health of the whole or part of the population.


Collective bargaining is not yet popular. Employers’ Federation of Ceylon, the apex employers association in Sri Lanka, assists its member companies to negotiate with unions and sign collective bargaining agreements. While about half of the 520 members of the Employers’ Federation of Ceylon is unionized, currently 135 of these companies (including a number of foreign-owned firms) are bound by collective agreements. As of January 2010, there were only four collective bargaining agreements signed in companies located in export processing zones.


Formerly confrontational labor-management relations have improved in the last few years as employers have worked harder to motivate and care for workers. Work stoppages and strikes in the private sector are on the decline, and there were few strikes in 2009. While labor-management relations vary from organization to organization, managers who emphasize communication with workers and offer training opportunities generally experience fewer difficulties. U.S. investors in Sri Lanka (including U.S. garment buyers) generally promote good labor management relations and labor conditions that exceed local standards.


Sri Lanka is a member of the International Labor Organization (ILO) and has ratified 31 international labor conventions. The labor laws of Sri Lanka are laid out in almost 50 different statutes. The Ministry of Labor has published a Labor Code, consolidating important labor legislation. Sri Lanka has ratified all eight of the core labor conventions included in the 1998 ILO Declaration on Fundamental Principles and Rights at Work. ILO Convention 138 on minimum age for admission to employment and Convention 182 on worst forms of child labor were ratified during 2000-2001. Sri Lanka ratified ILO convention 105 on Forced Labor in 2003. The ILO and the Employers’ Federation of Ceylon are working to improve awareness of core labor standards. The ILO also promotes its Decent Work Agenda program in Sri Lanka.


Sri Lanka has 12 free trade zones, also called export-processing zones, administered by the BOI. The oldest, the Katunayake and Biyagama Zones, located north of Colombo near the Bandaranaike International Airport, are fully occupied. The third zone is located at Koggala on the southern coast. Several mini export-processing zones are located in provinces. There are nearly 200 foreign export processing enterprises operating in these zones. There are also two industrial parks that have both export-oriented and non-export oriented factories. They are located in Pallekelle, near Kandy in central Sri Lanka, and in Seethawaka in Avissawela about 60 kilometers from Colombo. In addition, a large private apparel company opened Sri Lanka’s first privately run fabric park in 2007. The company invites local and foreign companies to set up fabric and apparel factories in this eco-friendly park.

In the past, firms preferred to locate their factories near Colombo harbor or airport to reduce transport time and cost. However, excessive concentration of industries around Colombo has caused heavy traffic, higher real estate prices, environmental pollution, and scarcity of labor. The BOI and the government now encourage export-oriented factories to set up in industrial zones farther from Colombo. However, Sri Lanka’s poor roads make these outlying zones less appealing. There have been two garment factories established in Eastern Sri Lanka, for example. The Government has embarked on a substantial plan to improve road infrastructure island-wide.


From 1998-2001, foreign direct investment (FDI) flows to Sri Lanka averaged only about $150 million per year (excluding privatization receipts). In 2007, FDI increased to about $600 million and in 2008 to about $750 million. There was $350 million as of September 2009.


Total cumulative U.S. investment in Sri Lanka is estimated to be in the range of $200 million. Major U.S. investors include: Energizer Battery, Mast Industries, Smart Shirts (a subsidiary of Kellwood Industries), Chevron, Citibank, Caterpillar, 3M, Coca-Cola, Tandon Corporation, Pepsi Co, Sportif, Worldquest, Fitch IBCR, AES Corporation, American International Group (AIG), American Premium Water, Virtusa, Avery Denison, North Sails, Amsafe Bridport, RR Donnelly (through Office Tiger and Revlon (through its Indian subsidiary). Several Sri Lankan-Americans have started IT and BPO companies in Sri Lanka serving the US market. In addition, IBM, Lanier, NCR, GTE, Motorola, Procter & Gamble, Liz Claiborne, Tommy Hilfiger, J.C. Penney, Sun Microsystems, Microsoft, Bates Strategic Alliance, McCann-Erickson, Pricewaterhouse Coopers, Ernst and Young, and KPMG all have branches, affiliated offices or local distributors/representatives. Kentucky Fried Chicken, Pizza Hut, Federal Express, UPS, and McDonald’s are represented in Sri Lanka through franchises. Numerous other American brands and products are represented by local agents.


Leading sources of foreign direct investment in Sri Lanka are Malaysia, the United Kingdom, the United States, Singapore, India, China, the UAE, and Korea. Major non-U.S. investors include: Unilever, Nestle, British American Tobacco Company, Mitsui, Pacific Dunlop/Ansell, Prima, FDK, Telekom Malaysia Bhd, S.P. Tao, HSBC and the Indian Oil Corporation. In 2008/9, India’s Bharathi Airtel invested in mobile cellular services. Leading U.S. and foreign investors that have acquired significant stakes in privatized companies include Chevron, Hanjung Steel of Korea, Mitsubishi Corporation and C. Itoh (A.K.A. Itochu) of Japan, Emirates Airlines of United Arab Emirates, Shell Oil of the UK, and the Indian Oil Corporation.

Web Resources Return to top

Board of Investment of Sri Lanka: or

International Monetary Fund (IMF) Sri Lanka country information:

Article VIII obligations of the International Monetary Fund:

U.S.-Sri Lanka Bilateral Investment Treaty:

Institute for the Development of Commercial Law and Practice:

Indo-Lanka Free Trade Agreement:

South Asian Free Trade Area:

Fitch Ratings Lanka:

Garments without Guilt program of the apparel industry:

Return to table of contents

DE RUEHLM #0072/01 0320841
R 010841Z FEB 10


ADDED 2011-09-04 03:34:39
STAMP 2011-09-04 03:34:39



Sunday, September 4th, 2011

ID     10ASTANA184
DATE     2010-02-12 00:00:00
ORIGIN     Embassy Astana
TEXT     C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000184


E.O. 12958: DECL: 02/12/2020

REF: A) 09 ASTANA 1762
C) 09 ASTANA 1761

Classified By: Charge d’ Affaires, a.i. Pamela Spratlen: 1.4 (b), (d)

1. (SBU) SUMMARY: Timur Kulibayev, the President’s influential son-in-law and Deputy Chairman of the National Welfare Fund Samryk Kazyna, sued four independent newspapers for publishing articles alleging that he received major kick-backs from the Chinese for oil contracts signed in 2003-05. The court initially sided with Kulibayev, ordering on February 1 the confiscation of all print runs that carried the story and placing a ban on any other articles insulting Kulibayev’s honor and dignity. It reversed its ruling on a technicality after an outcry from civil society leaders and criticism from the Organization for Security and Cooperation in Europe’s (OSCE) Representative on Freedom of the Media. Ousted, self-exiled chairman of Bank Turam Alem (BTA) bank Mukhtar Ablyazov is the source of the corruption allegations. The Financial Police opened an investigation into Ablyazov’s allegations on February 11. END SUMMARY.


2. (SBU) Timur Kulibayev, President Nazarbayev’s influential son-in-law and Deputy Chairman of National Welfare Fund Samryk-Kazyna, filed a libel suit on February 1 against four newspapers — “Respublika,” “Golos Respubliki,” “Vzglyad,” and “Kursiv” — after they published a story accusing him of corruption.
An Almaty district court, acting with uncharacteristic swiftness on the same day, ordered the confiscation of all print runs containing the story and placed a ban on future stories that “insult the honor and dignity” of Kulibayev. The order was immediately delivered to the four newspapers, as well as to other independent news outlets and newspaper stalls across the country.


3. (SBU) The source of the offending story was a letter to media outlets from Mukhtar Ablyazov, the ousted and self-exiled chairman of the Bank Turam Alem (BTA) bank who fled the country following accusations of embezzlement and financial fraud (ref A). In the letter, Ablyazov accused Kulibayev of pocketing a portion of the proceeds from the sale of a government stake in a Kazakhstani oil company to the China National Petroleum Company (ref B) in 2003.
According to Radio Free Europe/Radio Liberty, Ablyazov has documents proving Kulibayev’s illegal machinations. Ablyazov’s accusations appeared in the media at the same time as a story that Dinara Kulibayeva, Kulibayev’s wife and Nazarbayev’s daughter, bought a luxurious villa in SWITZERLAND for a record 74 million Swiss franc (approximately $68.4).


4. (SBU) The court order caused an uproar in civil society. Chief editors and journalists of the four newspapers held press conferences condemning the court decision as an attempt to “completely exterminate independent media in Kazakhstan.” Editor-in-Chief of independent newspaper “Svoboda Slova,” Gulzhan Yergaliyeva, called on the Supreme Court to reverse “this shameful ruling.” Political opposition parties also joined in the protests. The Ak Zhol party — seen by some as an opposition party closest to the government — released an unusually harsh statement criticizing “this selective justice” for “creating a cast of untouchables in Kazakhstan and further legalizing corruption.” International NGOs Freedom House and the Committee to Protect Journalists publicly urged the courts to rescind “the unacceptable gag-order,” declaring that “censorship has no place for the chair of the OSCE.” On February 8, Miklos Haraszti, the OSCE Representative on Freedom of the Media, released a statement condemning libel lawsuits in Kazakhstan (as well as Tajikistan and Hungary) as “dangerous attempts at censorship.”


5. (SBU) The first inklings that not all in the government agreed with the Almaty court ruling appeared on February 8. The Chair of the Supreme Court, Musabek Alimbekov, told journalists that the Almaty judge “may have made a mistake. Judges are human,” he said, “and humans make mistakes.” Alimbekov noted that any potential judicial mistake would have to be addressed in a court of higher instance. General Prosecutor Kairat Mami also said that his office was looking into a case of possible judicial malfeasance, based on a complaint from several journalists.


6. (SBU) On February 9, the court rescinded its own ruling to ban articles that “insult (Kulibayev’s) honor and dignity.” The ruling was based on a technicality — the judge ruled that Kulibayev did not follow proper pre-trial procedures for libel cases when he failed to ask the newspapers to print a retraction before filing suit. Civil society activists greeted the verdict as a temporary victory, but did not exclude the possibility that the President’s powerful son-in-law will find other ways to squelch the story in independent media. In her ruling, the judge said she would consider the plaintiff’s demand for a public apology only if the media outlets refuse to publish a refutation.


7. (SBU) Meanwhile, Ablyazov continued his campaign against Kulibayev. On February 8, he announced that he sent proof of Kulibayev’s embezzlement to the Prosecutor General’s Office, the parliament, and political parties. He also claimed to have sent letters to several leading businessmen in Kazakhstan urging them to share any information on Kulibayev’s wrong-doings, and publicized an email address ( to which people could send complaints against Kulibayev. Activists of the Alga opposition party — widely believed to be financed by Ablyazov — made several attempts to publicly deliver Ablyazov’s letter to the parliament in Astana. On two separate occasions, the group was detained by the police for organizing an unsanctioned rally. On February 11, Kazakhstan’s State Agency for Fighting Economic and Corruption Crimes (Financial Police) announced that it received Ablyazov’s letter and launched an investigation into the case.

8. (C) COMMENT: Ablyazov’s allegations have started a flurry of guessing games about the state of play in the power games among the Kazakhstani elite. Most independent political analysts agree that Ablyazov must have received the incriminating evidence from a third party — either Rakhat Aliyev, Nazarbayev’s exiled former son-in-law, or someone high enough in Kazakhstan’s power echelons to have access to this kind of information. Some allege that Ablyazov is the front man for interests in the oil industry that want to diminish Kulibayev’s far-reaching influence in the energy sector. Others speculate that this is a power play from one of the rival political clans (ref C). All agree, however, that this case is all about power and control. It is also an important test of freedom of expression in Kazakhstan. The fact that the court rescinded its gag-order is a positive sign, and here the strong statement from OSCE’s Haraszti certainly played a role. However, as civil society activists point out, the judge’s ruling leaves open the possibility for Kulibayev to take further legal action if the newspapers refuse to print a retraction. We will continue to watch closely how these power games play out. END COMMENT.


DE RUEHTA #0184/01 0430933
O 120933Z FEB 10


ADDED     2011-09-04 03:51:56
STAMP     2011-09-04 03:51:56
TWEETS     0



Sunday, September 4th, 2011

ID     10BERN56
DATE     2010-02-12 00:00:00
ORIGIN     Embassy Bern




E.O. 12958: N/A


BERN 00000056 001.2 OF 014


(U) SWITZERLAND continued to make progress in its anti-trafficking-in-persons practices and achievements. To further improve the process for gathering statistics on investigations and prosecutions, the 26 cantons decided to harmonize cantonal recording and reporting practices by 2010.
However, these efforts to consolidate national TIP data have thus far proved to be more difficult than authorities anticipated. Swiss officials are still working out apparent anomalies between 2008 case information reported to the Federal Statistics Office and information reported or otherwise available to the Federal Office of Police from the cantons. The government cooperated with other governments in the investigation and prosecution of trafficking and trafficking-related offenses.

(U) Protection: The government enacted new protective measures for TIP victims. Data on the number of TIP victims referred by Swiss authorities to assistance centers for victims of crime in 2008 are not yet available, but expected soon.

(U) Efforts to improve the legal protections of TIP victims continued. In 2008, the government amended the Federal Law on Foreigners, thereby reinforcing the legal framework in which cantons can provide TIP victims stays of deportation proceedings to recover from their trauma and weigh participation in judicial proceedings. The law further allows the federal government to logistically and financially assist trafficking victims and witnesses, for whom a return is acceptable, in the re-integration in their countries of origin. The government also revised the Federal Victims Assistance Law. The revision, which entered into force on January 1, 2009, enhances crime victims’ right to emergency protections and allows cantons to pool resources to establish regional victim assistance centers specializing in certain types of crime (e.g. TIP).

(U) On November 27, the Swiss government submitted to the Parliament a bill for the ratification of the Council of Europe’s Convention on Human Trafficking and for the adoption of a comprehensive witness protection program that enables officials to provide victims of crime with new identities.

(U) Prevention: Swiss government agencies continued to fund several prevention and protection programs abroad.

(U) On September 29, the Federal Office of Police announced that in the previous 12 months, approximately 12 cases of suspected child sex tourism were reported on a Web site it established in 2008 to enable travel agencies and individuals to report suspicious travel. The federal police forwarded relevant information to the competent municipal, cantonal, or international police offices for further investigation.


(U) A. The Swiss Federal Office of Statistics collects data on TIP and TIP-related crimes. Useful NGO information also is available, particularly with regard to assistance provided to victims of TIP crimes.

(SBU) The Federal Office of Police Coordination Unit against the Trafficking of Persons and Smuggling of Migrants (KSMM) also collects TIP data. It is currently working to determine why the Federal Office of Statistics does not have information on as many TIP convictions for 2008 as have been reported to the KSMM by cantonal officials. The KSMM will provide authoritative case information for 2008 as soon as it has resolved these anomalies, and KSMM contacts are aware of the importance of this data to the TIP report process.

(U) B. SWITZERLAND is primarily a country of destination for persons being trafficked, almost exclusively women, but transit also occurs. Trafficking occurs both across borders and within the country. Swiss officials estimate the number of trafficking victims at a few hundred per year. Federal Police assess that the total number of potential trafficking victims currently living in SWITZERLAND is between 1,500 and 3,000. The great majority of trafficking victims are forced into nude dancing and prostitution. Trafficking for the purpose of labor exploitation as domestic servants also occurs but appears to be relatively limited.

(U) Several cantons (states), including Zurich, Geneva, Basel, Bern, Vaud, and Ticino, recorded an increase in the number of registered prostitutes and commercial sex establishments. In the city of Zurich, prostitution reportedly has increased significantly in 2009. According to police estimates, 795 new prostitutes arrived in Zurich in 2009, compared to 605 in 2008. At least 300 prostitutes came from Hungary; many of them were part of the Roma minority and were reportedly particularly vulnerable for trafficking.

(U) C. In some cases, victims are subjected to physical and sexual violence, threats to themselves or their families or both, drugs, withholding of documents, and incarceration. Police estimates suggest that up to 50 percent of illegal prostitutes’ gross income is paid to brothel owners and traffickers who organize the passage and entry to SWITZERLAND. While the majority of TIP victims still are found in Swiss urban areas, in recent years police and NGOs increasingly have encountered TIP victims working in contact bars in more rural areas.

(U) D. Both Federal Police and NGO sources noted a considerable increase in 2009 in the number of young women being trafficked into SWITZERLAND for sexual exploitation from Eastern Europe, particularly Hungary. TIP victims in SWITZERLAND typically come from Eastern Europe and the former Soviet Union (Hungary, Poland, Bulgaria, Slovakia, Czech Republic, Slovenia, Romania, Ukraine, Moldova), Latin America (Brazil, Dominican Republic), Asia (Thailand, Cambodia), and to a lesser extent from Africa (Nigeria, Cameroon). The Zurich-based Information Center for Women from Africa, Latin America, and Eastern Europe (FIZ) reported that roughly 43 percent of the 160 TIP victims counseled in 2008 came from Eastern Europe, another 30 percent from Latin America, about 15 percent from Asia, 9 percent from Africa and the remaining 3 percent from Western Europe.

(U) E. Trafficking into the country is primarily performed by individuals and small groups related through ethnic, clan, or family ties, as well as organized criminals. Federal Police have reported that traffickers are increasingly well organized with far-reaching international networks. Often, the perpetrators and victims are from the same cities and regions. In addition to men, women also play a role in the recruitment, intermediary, or exploitation process. How many trafficking victims were lured into SWITZERLAND under false pretenses and how many were brought in fully aware that they were going to engage in prostitution in SWITZERLAND is unclear, but under Swiss law both are punishable as human trafficking.

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(U) A. Government officials at the highest level acknowledge that trafficking is a problem. On November 27, the Swiss government submitted to the Parliament a bill for the ratification of the Council of Europe’s Convention on Human Trafficking and for the adoption of a comprehensive witness protection program that enables officials to provide victims of crime with new identities. With the adoption of the law on a comprehensive witness protection program, SWITZERLAND will reportedly meet the requirements of the Convention.

(U) B. The Federal Office of Police (BAP) is the federal government’s primary actor in anti-trafficking efforts. The BAP’s Federal Criminal Police handles international cooperation and investigations of organized crime; the Service for Analysis and Prevention, i.e. the domestic intelligence service, does strategic analysis of information. The Federal Office of Police also hosts the Coordination Unit against the Trafficking of Persons and Smuggling of Migrants (KSMM), which is the federal government’s interdepartmental body to coordinate and monitor anti-trafficking efforts.
The KSMM develops anti-TIP strategies and policies in consultation with its constituting ministries that retain final responsibility for their implementation.

(U) The prosecution of illegal prostitution (i.e. prostitution without a valid work permit) and trafficking of persons normally falls under the jurisdiction of cantonal police and judicial authorities. However, cases linked to organized crime fall under the authority of the federal authorities to investigate and prosecute. The Federal Office of Migration has the lead in easing the return of trafficking victims and assisting in their re-integration in their home societies.

(U) The following government agencies are represented on the Steering Committee of the KSMM, taking active part in the fight against human trafficking:

Federal Level:

— Ministry of Foreign Affairs
– Political Division IV (Human Security)
– Directorate for International Law
– International Development Cooperation

— Finance Ministry
– Swiss Border Guards

— Ministry for Justice and Police
– Office of the Prosecutor General

– Federal Office for Migration

– Federal Office of Justice
– Federal Office of Police

— Economics Ministry
– Directorate of Labor

Cantonal (i.e. state) Level:

— National Conference of Cantonal Chiefs of Police

— National Conference of Prosecuting Offices

— National Conference of Equal Opportunity Offices

— National Conference of Victims Assistance Centers

— National Conference of Cantonal Migration Offices


— Information Center for Women from Africa, Latin America, and Eastern Europe (FIZ), Zurich

— International Organization for Migration, Bern

— Foundation Terre des Hommes, Lausanne

— Association Libert`, Geneva

(U) C. In general, criminal cases against traffickers are not pursued (for lack of evidence) unless their victims are willing to testify. Federal and cantonal police and immigration authorities follow a policy of granting potential TIP victims a stay of deportation proceedings to give them time to recover from their trauma and to let them freely decide whether to participate in judicial proceedings against their tormentors. On December 17, the Federal Office for Migration issued instructions on the conditions for providing residency permits to victims and witnesses of human trafficking in SWITZERLAND. The instructions state that a “hardship” residency permit may be granted independently of the victim’s willingness to testify.

(U) A number of major urban centers and suburban cantons have established written agreements on a referral process for TIP victims in the context of regular roundtable meetings between NGOs and cantonal justice, police, and immigration authorities. As a direct result of the federal regulations to stay deportation proceedings and the better local cooperation between NGOs and law enforcement officials, the number of TIP victims willing to testify against their traffickers has risen considerably.

(U) D. The Federal Office of Police’s Coordination Unit against the Trafficking in Persons and Smuggling of Migrants (KSMM) is the federal government’s main coordinating and monitoring body of its anti-trafficking efforts. Through its coordinating role, the KSMM keeps abreast of anti-trafficking efforts on all fronts (prevention, victim protection, and prosecution) both at the federal and cantonal level. In addition, its remit includes monitoring of parliamentary ratification of international conventions and offering expert advice on trafficking-relevant legislative reform.

(U) The KSMM has made available its assessment of Swiss anti-trafficking efforts to the Council of Europe, the OSCE, and the UN. The Federal Police’s Service for Analysis and Prevention, i.e. the government’s domestic intelligence service, does strategic analysis of human trafficking in and throughout SWITZERLAND and publishes its findings in the Federal Office of Police’s annual report on homeland security.

(U) E. The Civil Register Office of every municipality is responsible for the registration of births, deaths and marriages as well as acknowledgements of paternity. In SWITZERLAND, all births must be reported to the civil register office of the place of birth.

(U) All foreign nationals desiring to reside in SWITZERLAND must register at the Residents’ Registration Office within eight days of their arrival. The Residents’ Registration Office is responsible for changes of address, temporary or permanent residence permits and issues passports and ID cards.

(U) F. Because SWITZERLAND has a federal system in which 26 cantons have primary and largely independent authority for law enforcement, national data collection is a more cumbersome process than in centralized states. Moreover, data on convictions and sentences often changes until judicial appeals processes have run their course, which can take 18 months or more. To further improve the process for gathering statistics on investigations and prosecutions, the 26 cantons decided to harmonize cantonal recording and reporting practices by 2010.
However, these efforts to consolidate national TIP data have thus far proved to be more difficult than authorities anticipated. Swiss officials are still working out apparent anomalies between 2008 case information reported to the Federal Statistics Office and information reported or otherwise available to the Federal Office of Police from the cantons.

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(U) A. The Swiss Penal Code has two articles specifically prohibiting trafficking in persons:

Article 182, effective since December 1, 2006, stipulates that anyone acting as the supplier, broker, or buyer in the trafficking of a human being for the purposes of sexual exploitation, labor exploitation, or to remove a body organ shall be liable to imprisonment or a fine, or both. The act of recruiting an individual for the purposes aforementioned also qualifies as trafficking and is liable to the same punishment. If the trafficking victim is a minor under 18 years of age or if the perpetrator repeatedly engages in human trafficking, the minimum penalty is a prison sentence of one year. Article 182 applies universally; traffickers are subject to prosecution in SWITZERLAND even if the act of trafficking was committed abroad, and regardless of whether trafficking is a crime in the foreign country where the act took place.

(U) Article 195 prohibits the promotion of prostitution and states that anyone inducing a person into prostitution by abusing a situation of dependency or promising pecuniary advantage, anyone impairing a prostitute’s freedom of movement by checking on the activities in question or fixing the place, time or extent or any other circumstances of the prostitution, or anyone secluding a person for prostitution shall be liable to imprisonment.

(U) Other forms of trafficking or exploitation of human beings are implicitly covered by the Penal Code’s provisions against threat, coercion, deprivation of personal liberty, and kidnapping (Articles 180, 181, 183). The Immigration and Naturalization Law penalizes facilitating the illegal immigration of foreigners into SWITZERLAND as well as the employment of foreigners without proper work permission. The Constitution implicitly bans forced or compulsory labor. Article 27 provides for economic freedom and explicitly guarantees the right to choose freely one’s profession as well as unrestrained access to and unencumbered exercise of a gainful occupation.
Forced or bonded labor by children is explicitly forbidden under Article 30 of the 1964 Labor Act.

(U) B. The maximum sentence for trafficking in persons for sexual exploitation is a prison term of twenty years (Penal Code Article 182). Coercing someone into prostitution or restricting a prostitute’s personal freedom (Penal Code Article 195) can carry a prison sentence of up to ten years.

(U) C. Under Penal Code Article 182 the penalties prescribed for trafficking for labor exploitation are the same as for trafficking for sexual exploitation. The minimum penalty is a fine; if the victim was a minor under 18 years of age, the minimum penalty is a one-year prison sentence.
Maximum penalty is 20 years in prison. Article 182 explicitly prohibits all acts related to labor trafficking – recruitment, supply, transfer, or the receipt of persons being trafficked. Thus, both the labor recruiters in labor source countries and the employers or labor agents in labor destination countries are subject to prosecution in SWITZERLAND.
Article 182 applies universally; labor recruiters are subject to prosecution in SWITZERLAND, even if the act was committed in a foreign country where labor trafficking may not constitute a criminal offense.

(U) D. The Penal Code also punishes rape, forcible sexual assault, and other sex crimes. Sexual activity with minors (Article 187) and sexual acts with dependent persons (Article 188) are punishable with up to five years imprisonment; sexual coercion (Article 189), rape (Article 190), and sexual violations of mentally or physically incapacitated persons (Article 191) are liable to a maximum ten year prison sentence; sexual acts with detainees (Article 192) and taking advantage of a person’s distress or dependency due to employment or any other condition to induce a sexual act or acceptance thereof (Article 193) carry a maximum penalty of imprisonment for up to three years.

(U) E. The investigation and prosecution of forced prostitution and human trafficking as well as the protection of victims in SWITZERLAND normally fall under the jurisdiction of the cantons, and consolidating national statistics can lag by 12-18 months.

(U) Under SWITZERLAND’s federal structure, the cantons hold jurisdiction over most criminal infractions, and statistical records of reported crime and police investigations vary greatly from canton to canton. In 2007, the inter-cantonal Working Group on Human Trafficking and Migrant Smuggling established a database on the ongoing investigations and prosecutions on suspicion of human trafficking or forced prostitution in the cantons. Cantonal authorities report ongoing investigations/prosecutions on a voluntary basis.

The data base is maintained by the Human Trafficking/Migrant Smuggling Investigative Unit of the Federal Criminal Police, which also coordinates inter-cantonal and international trafficking investigations. According to this developing database, there were at least 26 police investigations or prosecutions during 2008 for human trafficking for the purposes of sexual or labor exploitation.

Year Art. 196/182 Art. 195 Total
1999 7 14 21
2000 5 17 22
2001 2 17 19
2002 2 11 13
2003 7 6 13
2004 2 12 14
2005 12 15 27
2006 5 14 19
2007 18 17 35

(U) (Note: Swiss Federal Police contacts inform us that they are working to resolve anomalies between 2008 TIP conviction data collected by the Federal Office of Statistics and data reported directly to the KSMM by cantonal officials. KSMM contacts are aware of the importance of this data to our TIP reports process and will provide post with the most authoritative data available as soon as possible.)

(U) On January 22, the Lausanne Criminal Court found a Ugandan guilty on charges of human trafficking and aggravated extortion and sentenced him to a prison sentence of four years.

(U) On September 16, the High Court of Zurich upheld a sentence of three and a half years in prison against a Bulgarian who had forced women into prostitution and trafficked some of them.

(U) F. Investigators of the Federal Criminal Police receive specialized training in investigating incidences of organized crime, including human trafficking. Under the 2001 Efficiency Bill, the Federal Criminal Police obtained from the cantons the jurisdiction to investigate and prosecute more complex cases of human trafficking that span several cantons or are linked to organized crime. The Federal Criminal Police also handles international cooperation in the investigation of incidences of human trafficking.

(U) G. The Swiss government readily cooperates with other governments in the investigation and prosecution of trafficking cases. The Federal Criminal Police takes part in the expert working groups of both Europol and Interpol.

(U) SWITZERLAND has a bilateral cooperation accord between Europol and the Swiss Police, allowing the latter to obtain information from Europol’s intelligence files on organized crime, drug trafficking and terrorism. Under the terms of the agreement, Swiss Federal Police have assigned to The Hague a liaison officer whose role is to support and coordinate the cooperation between SWITZERLAND and other EU countries. There is also a Swiss Police liaison at the headquarters of Interpol.

(U) H. Extradition is permitted if the act in question is punishable under Swiss law and the law of the requesting state, liable to a term of imprisonment of at least one year, and no Swiss court is competent in the matter. No Swiss national shall be extradited to a foreign country for penal prosecution or execution of a verdict without his or her written consent. The person in question may revoke consent until the order for the extradition is issued.

A request for extradition is complied with only if the requesting country accords reciprocity. Foreigners may be extradited to another state for offenses punishable under its laws or for serving a term of imprisonment if this state applies for extradition or accepts, upon request of the Swiss authorities, to prosecute the person in question or to execute a verdict cast by Swiss authorities. Swiss Police statistics record extraditions only by country so no extraditions statistics are available for specific criminal offenses. There have been no changes to extradition law.

(U) I. Trafficking is not tolerated in SWITZERLAND, and there are no indications or reports that government officials are involved.

(U) J. N/A

(U) K. There have been no indications or reports that Swiss military or civilian personnel deployed on international peace-keeping missions have engaged in or facilitated severe forms of trafficking or exploited victims of such trafficking. SWITZERLAND pursues a zero-tolerance policy regarding sexual exploitation by personnel participating in international peace-keeping missions.

(U) L. The 2002 partial revision of the Penal Code providing for the extraterritorial coverage of SWITZERLAND’s child sexual abuse laws entered into force on January 1, 2007. Anybody violating Swiss child sexual abuse laws is subject to prosecution in SWITZERLAND under the extraterritorial provisions of the Penal Code regardless of the legislation of the foreign country where the abuse took place.


(U) A. Under the Swiss Victims Assistance LAW (OHG), all TIP victims are entitled to help from government-funded victims assistance centers for abuse victims or women shelters and enjoy special safeguards during criminal proceedings, and cantonal authorities do provide these protections in practice. On November 27, the Federal Government submitted a bill to the parliament on a comprehensive witness protection program that allows authorities to provide victims of crime with new identities. The draft proposed the creation of a centralized witness program agency. The consultation period in the Swiss parliament will last until mid-March 2010.

(U) On January 1, 2009, a revision entered into force, which requires the cantonal victim assistance centers to take into account the special needs of different groups of victims of crime. Under the revised OHG, a canton can pay financial compensation to another canton for counseling services provided to a victim of crime within the latter canton’s jurisdiction. This is meant to provide urban centers additional incentives and resources to establish specialized victim counseling centers, such as a victims’ assistance centers tailored to supporting TIP victims.

(U) In 2007, Parliament adopted a new federal code of criminal trial proceedings that will supplant the existing 26 cantonal codes. The new federal code strengthens the existing witness protection measures under the OHG in order to avoid a perpetrator in a TIP case learning the identity of a prosecution witness and it gives witnesses the right to call on an attorney and/or a confidante during court proceedings. The government plans to put the new federal code into effect on January 1, 2011.
Implementation requires several years because, even under the new federal code of criminal trial proceedings, law enforcement remains the dominion of the cantons. Cantons need time to amend their legislation and adjust cantonal operating modes to the new federal regulations on court proceedings.

(U) B. Under the OHG, TIP victims are entitled to free and immediate material and medical aid as well as psychological, social, and legal assistance.
Local victims assistance centers have to provide TIP victims with a minimum of 14 days of emergency lodging, 14 days of living allowance, 4 hours of consultation with a lawyer and 5 sessions of psychotherapy, with all other expenses for medical treatment, transportation, personal safety, or translation services being covered by the government. If recovery requires more time, the government is obligated to assume the additional cost of longer-term care. The victims’ assistance center may lodge a TIP victim in a shelter for battered women.

(U) According to Swiss federal government statistics, in 2007 (most recent figures available) a total of 128 victims of human trafficking or forced prostitution received help from government victims assistance centers, compared to 90 in 2006. Swiss officials are aware of our interest in this information for TIP reporting purposes, and will provide 2008 data to post as soon as it is available. The NGO FIZ Makasi, a victim assistance center counseling TIP victims, assisted 186 trafficking victims in 2009, compared to 160 in 2008, 167 in 2007, 133 in 2006 and 116 in 2005. FIZ Makasi, which was launched in 2004 by the Zurich-based NGO FIZ, has received some financial contributions from the federal government and several cantons for counseling services offered to TIP victims under their jurisdiction.

(U) Foreign juvenile victims of crime under 18 years of age have to be placed under the protection of the Cantonal Guardianship Office (Vormundschaftsbehoerde) during their stay in SWITZERLAND. In criminal court proceedings, the OHG provides special protective measures for juvenile victims of crime: Questioning by police or the investigative magistrate must occur soon and the testimony is recorded on videotape. Cross-examinations are not allowed. The questioning has to be done by a recognized expert and no more than two sessions are allowed. The law recognizes the special needs of juvenile victims of crime and they may only serve as witnesses of the prosecution if their testimony is indispensable for the conviction
of a suspect.

(U) In case of the repatriation of a juvenile victim of crime (after the end of the stay-of-deportation proceedings or a criminal court procedure), the Federal Office for Migration and cantonal migration offices have to take into account that the person in question is a minor under 18 years of age. Under the law, a return to the country of origin is only permissible if the authorities have ascertained that the juvenile can be placed again in the care of the parents or a close relative, or if there is a satisfactory care structure in place in the country of origin.

(U) C. Federal and cantonal governments provide some funding to NGOs and women shelters that provide services to TIP victims, primarily on the basis of agreed per capita payments for services rendered to victims. Under the 1993 OHG, all cantons are obligated to offer TIP victims the services listed above. Internationally, the Swiss Ministry of Foreign Affairs provides funding to International Organizations and NGOs providing services to TIP victims, primarily through its development aid arm SDC and the rest through its human rights and human security division. Post has requested the MFAQs TIP-related funding statistics for 2009, and will provide that information in a supplemental report.

(U) D. The government does assist foreign victims of trafficking by granting relief from deportation and providing temporary to permanent residency status in cases of serious hardship. Under the Federal Law on Foreigners, effective January 1, 2008, cantonal immigration authorities are expected to grant TIP victims a minimum 30-day stay of deportation proceedings to let them recover from their trauma and weigh participation in judicial proceedings against their traffickers. Cantonal immigration authorities may admit TIP victims willing to cooperate with judicial authorities for up to three months or may issue short-term residency permits (with the consent of the federal authorities) if the criminal investigation takes longer. In 2008, cantonal immigration offices granted the 30-day stays of deportation proceedings to 22 trafficking victims (33 in 2007) and issued 20 short-term residency permits for the duration of legal/court proceedings against their traffickers (6 in 2007).
Post will provide 2009 statistics on stays of deportation proceedings for TIP victims in a supplemental report, when that information is available from Swiss federal authorities.

(U) E/F. The new Federal Law on Foreigners further strengthens the legal status of TIP victims and witnesses, explicitly authorizing the government to waive normal immigration requirements and grant residency permits for victims of human trafficking as well as witnesses in human trafficking cases.
The Federal Office for Migration grants trafficking victims temporary admission in SWITZERLAND if they are at risk of personal harm as witnesses in criminal proceedings or if a return to the country of origin is deemed unreasonable. In 2008, four victims were granted such long-term residency permits on grounds of personal hardship after the end of court proceedings (four in 2007). The law also allows the federal government to logistically and financially assist trafficking victims and witnesses for whom a return is acceptable in their re-integration in their countries of origin. In April 2008, the Federal Office for Migration started a two-year pilot project to assist trafficking victims and witnesses in their return to and re-integration in their home societies. Post will provide 2009 statistics on any residency permits provided to TIP victims in a supplemental report, when that information is available from Swiss federal authorities.

G. The number of TIP victims receiving counseling services from professional assistance centers for victims of crime rose from 90 in 2006 to 128 in 2007. Swiss officials are aware of our interest in this information for TIP reporting purposes, and will provide 2008 data to post as soon as it is available.

(U) Embassy contacts have stressed that statistics available indicate that persons on L-permits do not figure prominently among TIP victims. Police authorities have shared the assessment that the great majority of TIP victims enter the country without any proper documentation.

(U) H. Thirteen out of SWITZERLAND’s 26 cantons have established a formal referral process for TIP victims to improve their protection and security by regulating the procedures for identifying and referring TIP victims for assistance. Four major cantons (Bern, Ticino, Vaud and Zurich) have put in place special police units for screening for trafficking victims involved in the legal commercial sex trade.

(U) I. Under the Federal Law on Foreigners, effective January 1, 2008, cantonal migration authorities are expected to grant TIP victims a stay of deportation proceedings to recover from their trauma and weigh participation in judicial proceedings. The new law further strengthens the legal status of TIP victims and witnesses, explicitly authorizing the government to waive
normal immigration requirements and, in cases of serious hardship, grant residency permits for victims of human trafficking as well as witnesses in human trafficking cases.

(U) The new Federal Law on Foreigners also allows the federal government logistically and financially to assist in the voluntary return to and re-integration of trafficking victims and witnesses in their countries of origin. The Federal Office for Migration in April 2008 started a two-year pilot project to assist primarily victims and witnesses of human trafficking and secondarily cabaret dancers in SWITZERLAND who are in an exploitative situation.
The pilot project is being implemented in co-operation with cantonal bodies assisting returning migrants and the International Organization for Migration. Under the new Federal Law on Foreigners, the beneficiaries of the pilot program receive the same assistance and have access to the same counseling services as are offered to asylum seekers returning voluntarily. This includes financial, material, and medical assistance in the return to the country of origin. The pilot project takes into account the special needs of TIP victims (i.e. risk assessment, rehabilitation programs, etc.). After the pilot phase, the project will be evaluated and potentially slightly modified. It will then be turned into an indefinite TIP victim return assistance program.

(U) J. The Swiss Government encourages TIP victims to assist judicial authorities in trafficking investigations and prosecutions by granting them temporary residency and financial support, and admitting them to stay if a return to their country of origin posed a serious risk of personal harm.
The Swiss Victims Assistance Law (OHG) safeguards TIP victims’ rights in criminal prosecutions with special rules for trial procedures and for compensation and redress. The OHG covers all victims of crimes, including foreigners staying illegally in SWITZERLAND. The OHG provides for the special protection of witnesses’ identity in criminal court proceedings: victims/witnesses may request the trial to take place behind closed doors and avoid confrontation with the defendant. The OHG is a federal law and thus binding on all cantonal codes of criminal trial proceedings. TIP victims may also file civil suits against their traffickers and seek financial compensation. Under the Federal Law on Foreigners, effective January 1, 2008, TIP victims temporarily admitted for the duration of court proceedings against their traffickers may be issued a work permit during their stay. On September 7, the Court of Solothurn sentenced two owners of a brothel in the canton of Solothurn to prison sentences of 4 1/2 years (for the main offender) and 15 months, without requiring the victims to testify.
The Court found that the facts that the victims were in SWITZERLAND illegally, that the victims did not speak any Swiss languages, nor have other sources of support, proved that the victims were totally dependent upon the brothel owners, and that their self-determination was therefore limited to a decisive extent.

(U) Several major urban centers have established a referral process for TIP victims in the context of regular roundtable meetings between NGOs and cantonal justice, police and immigration authorities. As a direct result of the regulation to stay deportation proceedings and the better cooperation between NGOs and law enforcement officials, the number of TIP victims willing to testify against their traffickers has risen considerably.

(U) K. The GOS provides extensive training for government officials in identifying trafficking victims and providing assistance. The Swiss Police Institute in 2009 held specialized five-day anti-TIP workshops for migration and law enforcement officials and border guards. From November 9 to 13, the first course in French was held in the French Speaking part of the country and from November 19 to 20, a special training session for representatives from the judiciary took place in Bern.

(U) The Swiss Department of Foreign Affairs briefs experts and diplomatic personnel about the problem of trafficking in human beings prior to their postings abroad, and draws their attention to a code of conduct drafted by a joint working group on human trafficking. According to these rules, diplomatic staff shall stay clear of any person who can reasonably be suspected of engaging in trafficking in human beings or those who are involved in other criminal activities under the laws of either the host country or of Swiss or international law. The Department of Foreign Affairs also urges its embassies and consulates to develop ongoing relationships with NGOs assisting trafficking victims.

(U) The Federal Department of Foreign Affairs anti-TIP information and prevention program for visa applicants is conducted by all Swiss consulates worldwide. The program consists of the following elements: a personal interview with every first-time L-visa applicant; the signing of a standardized labor contract with a Swiss night club in the presence of a Swiss consular official; a briefing of the L-visa applicant on her or his legal and contractual rights; and an information brochure with the phone numbers and addresses of victim assistance hotlines or drop-in centers in SWITZERLAND for persons in need.

(U) L. N/A

(U) M. The following is a list of IOs and NGOs operating in SWITZERLAND that provide services to trafficking victims:

Terre des Hommes, SWITZERLAND;

Ecpat SWITZERLAND (end child prostitution, child pornography and trafficking of children for sexual purposes);

International Organization for Migration;

International Labor Organization;

Association Libert` (end human trafficking);

Women’s Information Center for Women from Africa, Asia, Latin America and Eastern Europe (FIZ):

counseling, publications/articles,
symposiums/workshops, participation in round tables with aids-prevention and anti-violence groups,
multi-lingual educational radio programs, and
international contact building.

(U) In addition, a number of smaller NGOs counseling women in the sex trade as well as women shelters that exist in most urban centers, deal with the problem of human trafficking. A great number of these organizations are linked in the national network “Prostitution Collective Reflection” (ProKoRe). The major counseling centers and primary points of contact of ProKoRe are FIZ in Zurich, Xenia in Bern, and ASPASIE in Geneva.

(U) The ‘Association Libert`’ started as a joint pilot project of the awareness raising campaign ‘End Human Trafficking Now!’ and ‘Friend of Humanity’ in June 2008 with a specialized hotline for victims of human trafficking in Geneva. The initiators reported that in their first year they assisted 31 victims of human trafficking, which encouraged the initiators in June 2009 to form a local NGO aspiring to fill gaps in French speaking SWITZERLAND in terms of victims’ protection through a comprehensive approach to victims’ assistance. Since then, they concluded a cooperation agreement with the Zurich based TIP counseling center FIZ.

(U) The national organizations and domestic NGOs typically deal with TIP victims, prostitutes, and victims of domestic violence and offer victim counseling, crisis intervention and emergency lodging, legal and medical assistance, and assisted returns to the country of origin. Cooperation with local authorities is varied but typically includes regular meetings and institutionalized information exchange, cooperation in the context of working groups or roundtables, financial support by local communities and cantons, as well as public funding for specific projects.


(U) A. The City of Zurich together with FIZ hosted a symposium on June 11 dedicated to the topic of ‘Women trafficking in SWITZERLAND’ combating strategies. The symposium was held in Zurich and attended by experts from the federal and the cantonal governments, NGOs and multi-lateral organizations. The symposium got wide media coverage throughout SWITZERLAND.

(U) B. SWITZERLAND’s borders are adequately monitored and immigration regulations are stringent. SWITZERLAND’s visa sections in countries of origin inform applicants of “artistic visa” or L-permits about their rights when working in SWITZERLAND.

Information brochures are available in 16 languages. Some embassies have also displayed respective information on their homepage.

(U) Swiss Foreign Affairs Department officials have sensitized visa adjudicators to the problem and have invited NGOs to give training to embassy staff.

(U) The Swiss Border Guards, an administrative unit of the Federal Department of Finance, cooperate closely with the Federal Office for Migration on issues of asylum and migration. Combating irregular migration and the smuggling of migrants is a priority for the Swiss Border Guards. Border Guard officials receive special training to heighten awareness of human trafficking as part of the normal training program. Border guards report all suspicious activities to the cantonal police force of the area, which holds sole authority for further criminal investigations. However, in practice it has proven difficult for border guard officials to spot victims of human trafficking because the latter often give only limited information about themselves and commonly do not denounce their traffickers out of fear of reprisals. The leadership of the Swiss Border Guards, the Federal Office for Refugees, and the Federal Office for Migration are all represented on the KSMM to assure the flow of information and the analysis of immigration patterns for evidence of trafficking.

(U) The Ministry of Foreign Affairs constantly adjusts measures to combat visa abuse, ensuring that procedures are tailored to local conditions. In 2005 the MFA introduced systematic risk assessments and began subjecting Swiss missions to comprehensive inspections every four years. The MFA puts special importance on raising awareness among visa clerks and their line managers and on their careful screening and preparation for the task in high-risk missions.

(U) C. The key office coordinating the anti-trafficking efforts of the various government agencies is the Coordination Unit against the Trafficking of Persons and Smuggling of Migrants (KSMM), which started operations at the beginning of 2003. Formally a part of the Federal Office of Police, the KSMM processes and passes information and coordinates policy within the federal administration as well as between the federal agencies and the cantons (states). It is also the primary point of contact for international inquiries on all issues linked to illegal migration and human trafficking.

(SBU) In February, 2010, the Swiss federal government organized a visit of Swiss police officials to Hungary for a dialogue on TIP prevention and to coordinate on some concrete TIP cases. MFA officials have informed post that the Swiss federal government plans to use this exchange as a model for dialogue and coordination with other countries.

(U) Internationally, SWITZERLAND was one of the initiators of the OSCE Action Plan to Combat Trafficking in Human Beings and has been supporting the OSCE Special Rapporteur since 2000, both financially and with expert secondments.

(U) D. The KSMM seeks to implement the national action plan that its interdepartmental steering committee first adopted in 2003. In keeping with its decentralized structure, the steering committee is the KSMM’s highest organ. The steering committee consists of directorate-level representatives of the federal departments involved in combating human trafficking, delegates from cantonal conferences and associations, as well as representatives from three NGOs and international organizations with a consultative status. The Steering Committee sets targets and the guidelines for the KSMM’s activities and controls the drafting and implementation of measures. The Steering Committee is chaired by the Federal Office of Police.

(U)Specific measures are developed and implemented either by working groups set up for that purpose or by individuals with special support from the KSMM Secretariat.

(U) E. In conjunction with the European Soccer Cup (Euro 08), which SWITZERLAND hosted jointly with Austria in June 2008, the federal government provided $96,000 (100,000 Swiss francs) to NGOs to kick-start suitable public awareness campaigns against trafficking and forced prostitution. The campaign primarily targeted potential ‘clients’ of prostitutes.

(U) F. In summer 2008, the Association of Travel Offices in SWITZERLAND signed an International Code of Conduct related to preventing child abuse abroad.
In coordination with this effort, the Swiss federal police added a form to its internet site where suspected incidents of child sex tourism can be reported to appropriate law enforcement authorities.
On September 29, the Federal Office of Police announced that in the previous 12 months, approximately 12 cases of suspected child sex tourism were reported on the Web site. The federal police forwarded relevant information to the competent municipal, cantonal, or international police offices for further investigation.

(U) G. N/A.


(U) A. On June 24, the Federal Department of Foreign Affairs started a three-year series of round tables on human trafficking for foreign experts in close cooperation with the International Organization for Migration (IOM). The first round table consisted of talks between Swiss experts and a delegation from Hungary (representatives from the Office of the National Coordinator against Human Trafficking in the Hungarian Ministry of Justice, the Hungarian national police force and the police and state prosecutor of the City of Budapest and Interpol).

The talks aimed at sharing experiences and strengthening cooperation, since Hungary was one of the main countries of origin of victims of human trafficking in SWITZERLAND.

(U) B. Post is awaiting update from GOS on the international assistance they’ve provided to other countries to address TIP.

Post POC

Chris Buck, Deputy POL/E Counselor
Tel. [41] (31) 357-7213
Fax. [41] (31) 357-7344

[Note: Post will provide an estimate of the number of hours spent in preparation of this report (and the ranks of the various personnel contributing those hours), when the report has been finalized. End Note]


DE RUEHSW #0056/01 0431152
P 121152Z FEB 10


ADDED     2011-09-04 03:52:31
STAMP     2011-09-04 03:52:31
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