New civil society report on Puerto Rico: More transparency, stronger enforcement and a robust asset recovery framework needed

4 December 2023 –

Click on the image to download the report in Spanish.

A recent report authored by Centro de Gobernanza Pública y Corporativa (Center for Public and Corporate Governance) finds that provisions for the prevention of corruption (Chapter II of the UNCAC) have largely been implemented into the legal framework in Puerto Rico, but the integration of asset recovery provisions are still pending. Overall, there is a gap between the current legal framework and its application in practice. Weak criminalization of corruption, a lack of sanctions and widespread impunity represent major challenges, and recent hurricanes, earthquakes and the pandemic have slowed down the fight against corruption. The report is intended as a contribution to the UNCAC implementation review process in its second cycle, produced with technical and financial support from the UNCAC Coalition.

On Chapter II provisions of the UNCAC, preventive anti-corruption measures have been strengthened by the creation of an independent anti-corruption agency, the approval of laws protecting whistleblowers, and codes of ethics for public employees. However, there are several factors that are hindering the implementation of good governance practices and the prevention of corruption, such as a lack of transparency and public access to public information, effective protection for those who report corruption in practice, and the fact that civil society was not actively included in the development of the anti-corruption strategy. Furthermore, the report identifies a lack of criteria and processes for recruitment and management of human resources, a lack of integrity in the judiciary and sanctions for the private sector, as well as insufficient transparency in campaign finances.

Regarding Chapter 5 of the UNCAC, Puerto Rico as a territory of the United States of America, has extensive legislation that regulates financial activities, such as banking and securities market operations, as well as safeguards against money laundering. Nevertheless, oversight processes of the financial system need to be strengthened and sanctions applied more rigorously and transparently. There is no agency in charge of the recovery of public funds and resources that have been misappropriated, diverted, or received as a result of public corruption, or fraud, and there is no legal action, mechanism or remedy that allows agencies to recover assets, funds or public resources. The recovery of assets acquired through corruption and illicit activities is hence not perceived as a priority.

Puerto Rico is a territory of the United States of America, which signed the Convention in 2003. The USA’s second review cycle is nearly completed, but the publication of its country report is still pending, following the USA’s commitment to the UNCAC Coalition’s Transparency Pledge. Centro de Gobernanza Pública y Corporativa found that the USA, like other nations that have territories around the world, do not take them into consideration sufficiently in their implementation of international conventions. While the USA’s 1st review cycle country report mentions Puerto Rico superficially, it does not provide sufficient information on the territories’ compliance with the Convention, which is what this parallel report aims to achieve.

For all the detailed findings, read the full civil society parallel report in Spanish. A translated version in English is forthcoming.

Main findings

The following are some of the main findings according to topic:

Preventive anti-corruption policies

Puerto Rico’s Anti-Corruption Code was put in place in 2018 to consolidate the Government’s public policy on corruption, which was previously scattered across multiple special laws, in a single statute. It seeks to provide more protection to those who report acts of corruption, to create more robust mechanisms to compensate damages to the Government of Puerto Rico for corrupt acts, and to elevate to the statutory level the interagency cooperation necessary to effectively combat and eradicate corruption.

However, the report finds that in order to strengthen the scope of existing legislation and mitigate impunity, the Anti-Corruption Code needs to be reviewed. Furthermore, the following areas are in need of a stronger legislative and enforcement framework: measures for the protection of whistleblowers, incentives for whistleblowing, reparation of damages caused by corruption, management of the prevention of political patronage and conflicts of interest, measures to address impunity and the strengthening of asset recovery.

Anti-corruption bodies

The Anti-Corruption Code created an interagency group called the Group for the Prevention and Eradication of Corruption (PRECO) to promote the continued cooperation of all state and federal government agencies involved in the fight against corruption, improve the government’s ability to receive information and complaints about possible corruption offenses and to strengthen processes to prevent impunity. This group is composed of the Director of the Office of Government Ethics, who shall chair the group, the Comptroller of Puerto Rico, the President of the Office of the Special Independent Prosecutor Panel, the Secretary of Justice of Puerto Rico, the Secretary of the Treasury, the Inspector General, the Commissioner of the Bureau of Police, and any other member invited by the Chairman, such as the special agent in charge of the Puerto Rico Office of the FBI.

However, Centro de Gobernanza Pública y Corporativa found that several other important institutions for the fight against corruption are left out of this group, such as the Office of the Election Comptroller, and the General Services Administration. 

Public sector employment

Legally, Act Number 8. of 2017 regulates entry into the public service at all levels of government in a standardized way on a merit basis and created the Office of Administration and Transformation of Human Resources of the Government of Puerto Rico. However, in practice, staff recruitment processes have remained in the hands of the public agencies, with each agency continuing to prepare calls for applications, process and evaluate job applications, and create the registries that certify candidates who are eligible for appointment to public service.

Political financing

The Electoral Code of 2011 requires political parties to report their income and expenses and foresees the imposition of sanctions for non-compliance by the Office of the Electoral Comptroller. While the report finds that sanctions are applied equally and without distinction between political parties, it highlights that implementation in practice is questionable and that the Code requires substantive review. The issues arising from Political Action Committee’s (PAC) campaign financing and the US Supreme Court’s decision regarding Citizens United, which impacts Puerto Rico, make it difficult to identify the persons or entities that contribute amounts greater than the limits allowed in the Puerto Rico Electoral Code.

Codes of conduct, conflicts of interest and asset declarations

In 2012, the Legislative Assembly approved a new ethics law and created the Office of Government Ethics of Puerto Rico to oversee the ethical performance of public servants of the Executive Branch of the Government of Puerto Rico. All candidates for elective office and nominated by the governor must file asset and interest declarations before entering and after leaving public office, and are required to take 7,5 hours of ethics training within 30 days of the certification or appointment. The Office of Government Ethics monitors these declarations, a summary of which is published on its website, for inconsistencies and refers questionable cases to the appropriate entity.

Only in exceptional cases, with sufficient documentation and justification, can full asset declarations be requested.

Whistleblower protection

In 2000, Puerto Rico put in place a regulatory framework for the protection of persons who report corruption, but it proved to be insufficient. The Anti-Corruption Code of 2018 aimed to consolidate the protection provisions of different laws and its Article 1 declares as public policy the strengthening whistleblower protection and ensuring that offenders are held accountable for their actions. Although this represented an important step forward, the lack of protocols and redundant processes for receiving and processing complaints, together with the absence of a record of persons who have requested whistleblower protection under current regulations, is clear evidence of the need to review and update this legislation.

Public procurement

The Public Procurement Act of 2019 created the General Services Administration of Puerto Rico as the agency in charge of centralizing all government procurement. While this represents an important qualitative leap to adopt best practice standards in procurement policies and open government, many problems persist. For example, process opacity and the lack of transparency that promote procurement practices with the private sector that violate current regulations and continue to be the main cause of government corruption.

Moreover, the unjustified increase of direct awarding of contracts without open tenders in times of hurricane, earthquake and pandemic crises has been a constant. It is thus essential to adjust the contracting strategy, promote more efficient, effective and transparent procurement processes and incorporate new technologies as an anti-corruption measure.

Management of public finances

The Constitution of Puerto Rico of 1952 established the Department of Treasury as an Executive Department headed by a Secretary of Government. In 1980, the Office of Management and Budget was created additionally, aiming to improve and strengthen the policy formulation and the administration of finances.

In 2016, in the midst of a financial crisis, the United States Congress enacted the Puerto Rico Oversight, Management and Economic Stability (PROMESA) Act, establishing a Fiscal Control Board to restructure the territories’ debt. Puerto Rico’s legislature was hence compelled to submit fiscal plans and budgets to the Board. The Board’s questioning and rejection of several certified budgets over the past six years continues to call into question the viability of the four balanced budgets required for the Fiscal Oversight Board to consider that the Government of Puerto Rico can regain control of the approval of its governmental budgets. The report deems this act and its implications a setback in the country’s governance, making its lack of powers as a territory of the United States more than evident.

Judiciary and Public Prosecutor’s Office

 The Department of Justice, which functions independently, is in charge of the administration of justice, the appointment of judges and notaries, penal institutions and appeals. Its Public Integrity Division, Economic Crimes Division and Comptroller’s Office at the central level assist in the filing of cases and reinforce the work of the district attorney’s offices, including in corruption cases. Employees of the judicial branch are also required to submit asset declarations, which are overseen by the judicial branch. However, the report finds that trust in the judiciary is low, and that the system for appointing judges, prosecutors and attorneys, as well as those evaluating their performance, needs to be strengthened to guarantee judicial independence. 

Access to information and civil society participation

 While Puerto Rico passed an Access to Public Information Act and Open Data Act in 2019, the report finds that accountability and fiscal responsibility continue to be deficient, weak, and insufficient. The acts do not comply with international standards and are ambiguous and contradictory in terms of their application, especially in municipalities.

Similarly, the level of engagement of civil society in anti-corruption efforts leaves much to be desired, with no general legislation requiring citizen participation in the formulation of laws or strategic action plans, and vague requirements of some laws for citizen participation through public hearings and to submit comments, which are not implemented in practice. Further, censorship of investigative journalists and the media continues to be an obstacle for citizens to exercise an active role in governmental decision-making, oversee government actions, and raise awareness of bad government practices that facilitate corruption.

Anti-money laundering

Puerto Rico, as a territory of the United States of America, has extensive legislation that regulates financial activities, such as banking and securities market operations, by the federal government through the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and other government agencies. In addition, the federal Patriot Act of 2001 requires many financial institutions in the United States, including Puerto Rico, to verify and record information that identifies each person who applies to open an account or add a signer to an existing account. The Financial Crimes Enforcement Network (FinCEN), a federal agency, analyzes information collected through the Bank Secrecy Act, which requires financial institutions to report currency (cash or coin) transactions of more than $10,000. Through this information, FinCEN is able to track criminals, their assets and activities and find other information needed to detect money laundering.

Nevertheless, the report finds that the legal scaffolding and supervisory and oversight processes of the financial system need to be strengthened in areas such as money laundering risk assessments to determine anti-money laundering risks or vulnerabilities, how those risks/vulnerabilities are addressed, open disclosure of regulated entities’ compliance with national anti-money laundering provisions, what sanctions are imposed for non-compliance, disclosure of public officials’ compliance data on their assets, independent verification of information, and disclosure of sanctions for non-compliance.

Private sector transparency

The government’s regulation of transparency in the private sector is fragmented and vague. The Anti-Corruption Code of 2018 regulates the behavior of the private sector whenever dealing with the public sector, including a requirement to include a certification of due process in every related invoice.

Asset recovery

In August 2022, the Legislature approved Act No. 76 to make mandatory the imposition of the restitution penalty in cases of crimes against the treasury. The law includes a wide range of crimes that require the restitution of assets and establishes the sanctions and penalties for each crime: aggravated illegal appropriation, extortion, unlawful taking advantage of public works or services, alteration or mutilation of property, bribery, undue influence, breach of duty, negligence in the performance of duty and embezzlement of public funds.

Despite extensive legislation to address government corruption, there is no agency responsible for the recovery of public funds and resources that have been misappropriated, diverted, received as a result of public corruption, fraud, or for having provided false information, among other crimes against the State. Likewise, there is no legal action, mechanism or remedy that allows agencies to recover assets, funds or public resources. Even though the Fiscal Oversight Board has required that the way in which the Government provides its services be restructured and that the State be innovative in finding methods to overcome the current deficit situation, the recovery of assets acquired through corruption and illicit activities is not perceived as a priority.

Key recommendations

 In its report, Centro de Gobernanza Pública y Corporativa makes several recommendations to the authorities in Puerto Rico to ensure the full implementation of the UNCAC, among them:

  1. Amend the Anti-Corruption Code to promote greater coherence and coordination in its implementation, improve results and impact to prevent, combat and penalize corruption, and promote collaboration and alignment with the institutional framework. Develop indicators and metrics to monitor and evaluate compliance with anti-corruption policies and strategies.
  2. Strategically address systemic public governance deficiencies as a way to improve the country’s governance while incorporating anti-corruption policies into other key strategies, such as education, health, the energy system, public housing, public works and highways, public safety, and open government.
  3. Outline a strategy and establish procedures to ensure the elimination of political patronage in recruitment and personnel selection practices in the public service. To avoid political patronage, appointments of secretaries and directors of anti-corruption agencies should be term appointments.
  4. Establish stricter oversight and monitoring processes to ensure transparency and accountability and require election campaigns, political parties and candidates for political office to maintain records of income and expenditures and to disclose all donations and expenditures in a detail in open format. Require greater oversight and oversight of Political Action Committees (PACs).
  5. Ensure the effective implementation of the public policy and legal framework for the protection of whistleblowers, regarding who whistleblowers are, which the protection measures are that benefit them, as well as incentives for whistleblowing, and the means of effective defense available to them in the event that the protection measures are not complied with and damages are caused.
  6. Adopt international standards of transparency in contracting policies that favor open contracting and regulate situations that limit transparency and healthy competition in government contracting processes.
  7. Demand the commitment that public procurement systems be transparent, that procurement be open, and that they guarantee full citizen access to information and to all documents during the duration of the contract.
  8. Strengthen oversight, control and transparency of the formulation and execution of government budgets in all phases of the budget process in accordance with the International Budget Partnership Standard (IBP).
  9. Provide civil society with transparency and open data mechanisms that make true citizen participation in decision-making and governmental oversight viable in practice.
  10. Revise the process of appointing judges and prosecutors to eliminate political appointments. In general terms, it is recommended that:
    1. Specialized chambers be created in the courts to hear public and private corruption cases that are prepared with technology for presentations and handling of digital evidence;
    2. The Department of Justice maintain specialized prosecutors in corruption cases;
    3. The internal auditors of the municipalities respond to the Municipal Legislature or board of directors;
    4. Greater visibility is given to the public auctions of the General Services Administration (ASG) and the agencies;
    5. Ensure the anti-corruption system is in a position to apply and enforce effective sanctions and penalties so that the law does not become a paper tiger.
  11. Adopt international standards to institutionalize appointment processes for judges, prosecutors and attorneys general aimed at strengthening judicial independence and combating corruption.
  12. Strengthen administrative capacities and provide the Department of Justice with the resources and specialized expertise required to combat the high levels of corruption and impunity in the country. Create specialized chambers to hear corruption cases and promote their full integration.
  13. Establish a publicly accessible database to facilitate real-time identification of corporate beneficial owners, measures for direct asset recovery, tools for confiscation purposes, and asset restitution and disposal.
  14. Improve the practical application of state and federal anti-money laundering legislation to close the gap between the existing legal framework and its actual implementation.
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