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Lewin & Wills Announces Colombia Tax Flash® 2011, Comments on Colombia’s Latest Tax Reform for FY2011

January 12, 2011

The end of the year brought news of the 2011 Tax Reform Act in Colombia. Adrian Rodriguez sent this fast and thorough analysis in Lewin & Wills’ Colombian_Tax_Flash®.

By:  Adrian F. Rodriguez, Partner – 

On December 29th, 2010 the 2011 Tax Reform Act No. 1430 was enacted, adopting material changes to the current Colombian tax framework. In addition to the national level income and VAT taxes, this act adopts many other important changes in the national net-worth and bank debits taxes, and in certain aspects of local (territorial) taxes, among other changes and measures to increase tax collections. 

Please bear in mind that this document presents a selective summary of this tax reform for informational purposes only and it is not intended to be a detailed and comprehensive dissertation of all the topics found therein. Therefore, it is advisable that the readers do not exclusively rely on this document and thoroughly review the measures and changes that could affect them, seeking qualified advice from professional tax attorneys admitted to practice law in Colombia.

The topics of the 2011 Tax Reform Act No. 1430-2010 featured in this issue are: (1) the immediate elimination of the 30% FAID special income tax deduction (as defined in §1, P.2, herein below); (2) the adoption of a 14% withholding tax on certain cross-border financings; (3) the changes to the “one-time” net–worth tax assessable on January 1st, 2011; (4) the unexpected adoption of the 25% surcharge on this 2011 net-worth tax and the adoption of this tax for taxpayers with gross net-worth between USD $500k and USD $1.5m, among other related measures adopted in the year-end “Economic Emergency” decrees; (5) the adoption of an advanced collection “self-withholding tax” on hydrocarbons and minerals exports of up to 10%; (6) the elimination of the zero-rated VAT regime for “intermediate services in the production line” for hydrocarbons and mining export activities; (7) the elimination of the special transfer pricing regime for mining activities; (8) the reduction of penalties in transfer pricing compliance; (9) the amendments to the current statutory foreign tax credit regime for Colombian income tax taxpayers; (10) the changes introduced to the Bank Debits Tax and its progressive sunset scheduled for 2018; and (11) the temporary availability of penalties and lateness interest rebates in national level tax debts.

In matters of taxation the Colombian Congress had a prolific year-end and in addition to Tax Reform Act No. 1430-2010, many other changes were introduced in other pieces of legislation enacted last December, which are not featured in this issue of Colombian_Tax_Flash®. 

part of this document is prohibited without the prior written consent of one of the partners of Lewin & Wills.

(1) Immediate Elimination of the 30% FAID Special Income Tax Deduction for all Taxpayers.


The 2011 tax reform act adopts an immediate elimination of the “popular30% Fixed Assets Investments Income Tax Deduction (“FAID”), beginning January 1st, 2011.

Subject to eligibility, for FY2010 income taxpayers are entitled to deduct 30% of their investments in tangible fixed assets used in their income producing activity. Although the percentage varied from 25% to 40%, this deduction was available since FY2003 for both purchased and manufactured (or built) assets, and for both new and used (second-hand) assets. Leased assets were also eligible for this incentive, provided that the taxpayer exercises the irrevocable purchase option in the corresponding agreement.  Certain rules and restrictions were applicable (For more information on the creation and evolution of the FAID, see: Colombian_Tax_Flash®: July 2004, yr. 1 – No. 2; November 2006, yr. 3 – No. 7, P.1 [unnumbered item 2]; January 2007, yr. 4 – No. 8, P.2 [unnumbered item 5]; April 2007, yr. 4 – No. 10, P.2 [unnumbered item 6]; October 2007, yr. 4 – No. 12, P.1 [unnumbered item 2]; August 2008, yr. 5 – No. 15, P.2 [unnumbered item 3]; September 2009, yr. 6 – No. 17, P.1, §§2(b) and 2(c); March 2010, yr. 7 – No. 18, P.2, §(b), all found in the Publications tab at:

Although the change originally proposed by the Colombian Government was the immediate elimination for the hydrocarbons and mining industries and a progressive elimination for all other sectors, the Colombian Congress opted for the immediate elimination of the FAID for all sectors.

Interestingly, the Lawmaker in the 2011 tax reform act provided that any income tax taxpayers that included the 30% FAID in a Legal Stability Agreement (hereinafter “LSA”) filed for before November 1st, 2010, will be entitled to benefit from the 30% FAID for up to three-years. The Lawmaker was silent with respect to those taxpayers with LSAs already executed (vis-à-vis those filed for) that also included the 30% FAID; will they continue to benefit from the 30% FAID for the term of the duration of the corresponding LSA or will this benefit also be limited to a 3-year term? This should be carefully analyzed on a case-by-case basis, as it is likely to be a controversial issue.

As a reminder, since their adoption on 2005, LSAs have become important tools for eligible investors and companies in Colombia seeking to prevent future changes in selected features of the Colombian legal and tax framework, that they consider key to their investments and business activities in the country (see: Colombian_Tax_Flash®, September 2009, yr. 6 – No. 17, P.3, §5, found in the Publications tab at


(2) 14% Withholding Tax on Certain Cross-border Financing Facilities.

Pursuant to the 2011 tax reform act and unless otherwise provided for in the applicable regulations, interest payments on certain inbound cross-border “Qualified Credit Facilities” and “Qualified Leasing Transactions” (both as defined further below), shall be subject to a 14% withholding tax. If the 14% withholding tax is not applied, the Colombian payor cannot deduct the corresponding interest payment, without prejudice of its joint and several liability for the tax that was not withheld.

For over 25 years, the Colombian income tax regulations privileged interest payments on certain Qualified Credit Facilities and Qualified Leasing Transactions, by deeming such payments as income not from a Colombian source thus not subject to Colombian Withholding Tax. If the cross-border inbound financing was not qualified or otherwise exempted, the corresponding interest payments were subject to a 33% withholding tax.

Under the previous regime, the following cross-border inbound financings were deemed Qualified Credit Facilities and eligible for the withholding tax-free treatment:

(a) Short-term bank overdrafts and imports short-term financings (without any changes in the 2011 tax reform act).

(b) Exports financings or pre-financings (without any changes in the 2011 tax reform act).

(c) Financings contracted abroad by Colombian financial institutions (in the 2011 tax reform act, Congress adopted certain modifications to this item to include Bancoldex and other financial type entities).

(d) Financings for foreign trade operations contracted through Colombian financial institutions (in the 2011 tax reform act, Congress adopted certain modifications to this item to include Bancoldex and other financial type entities).

(e) Financings with foreign financial institutions, which funds were destined to a “Qualified Activity.” Qualified Activities were those that according to the directives of the Colombian Council for Social and Economic Development (CONPES), were deemed of public interest for Colombia’s social and economic development, which included all activities related to the primary, manufacturing and services sector, including transportation, engineering, lodging, tourism, health, trade, and housing construction.

Under the new regime, item (e) above has been revoked and no longer qualifies as a Qualified Credit Facility eligible for the withholding tax-free treatment, and any cross-border interest payments on such facilities made pursuant to agreements entered on or after January 1st, 2011, will be subject to a 14% withholding tax, provided that the facility’s term is equal or greater than 1-year. If the facility is not within items (a) through (d) and it’s term is less than 1-year, the applicable withholding tax rate on the interest payments should be 33%. For the avoidance of doubt, it is important to highlight that under the new regime, facilities within items (a) through (d) above with a term equal or greater than 1-year, will continue to be deemed as Qualified Credit Facilities eligible for the withholding tax-free treatment.

Under the previous regime, the following cross-border inbound leasing transactions were deemed Qualified Leasing Transactions eligible for the withholding tax-free treatment:

(f) Leasing transactions with foreign leasing providers to finance investments in a “Qualified Activity” (as defined above).

(g) Leasing transactions to finance M&E investments in Colombian export activities.

Pursuant to the changes introduced by the 2011 tax reform act, both items (f) and (g) above have been revoked and no longer qualify as Qualified Leasing Transactions eligible for the withholding tax-free treatment, and the interest component of any cross-border leasing payments on such transactions made pursuant to agreements entered on or after January 1st, 2011, except otherwise provided by applicable regulations, will be subject to a 14% withholding tax, and unless the equipment leased is a vessel, helicopter or airplane, case in which the reduced applicable withholding tax rate will be 1%.

Any interest payments on inbound cross-border Qualified Credit Facilities and Qualified Leasing Transactions under items (e), (f) and (g) above (and also items (a) through (d)), made pursuant to agreements entered on or before December 31st, 2010, shall continue to be eligible for the withholding tax-free treatment. This provision will likely be a source of controversy with the Colombian Tax Service, because of the conflicting measures in this regard adopted by the Colombian Government back on November 5, 2010, through Decree 4145-2010.

IMPORTANT: Under the new regime it is made clear that the offerings of notes, bonds and similar debt securities, are not deemed held in Colombia, provided that the offering is made by a Colombian issuer and that the securities are traded outside of Colombia. In our view, the importance of this provision is that despite the adoption of the new withholding tax regime on cross-border interest payments, cross-border interest payments made pursuant to this type of offerings should not be deemed income from a Colombian source and should not be subject to Colombian withholding tax, when the beneficiary is a non-resident. Nonetheless, please bear in mind that application of this rule should be carefully analyzed on a case-by-case basis.

Cross-border interest payments on inbound cross-border financings where the borrowers/debtors are Colombian governmental entities shall continue to be eligible for withholding tax-free treatment.


(3) 2011 Net–worth Tax Revenue Increase Measures. –


The previous 2010 tax reform act introduced a “one-time” net-worth tax assessable on January 1st, 2011 and payable in 8 semiannual installments through 2014 (Tax Reform Act No. 1370-2009. See: Colombian_Tax_Flash®, March 2010, yr. 7 – No. 18, P.1, §(a), found in the Publications tab at  This tax is almost identical to its predecessor 1.2% net-worth tax in force through fiscal year 2010. In adopting this new “one-time” tax, the definition therein of “taxable base” allowed to construe that upon exclusion from the taxable base of certain non-taxable items, e.g., stock or quotas in Colombian companies, the taxpayer was not subject to this tax if the net taxable net-worth was below the taxable threshold of approximately USD $1.5m (COP $3,000,000,000). The 2011 tax reform act recently enacted by Congress adopts measures to correct this “imperfection” clarifying that the tax is applicable on the taxpayers’ gross net-worth, i.e., before excluding non taxable items, even if after excluding the non-taxable items the resulting net taxable net-worth drops below the lower bracket.

In addition to this clarification, the Colombian Congress adopted a series of measures to “tackle” tax avoidance strategies such as the creation of new SAS companies (simplified stock corporations) and statutory divisions of companies, popular amongst taxpayers as a net-worth partition strategy to avoid triggering the net-worth tax. Pursuant to the newly adopted measures, the net-worth of the target entity (whether resulting from the creation of a new SAS or a statutory division) shall be added to the net-worth of the “contributing” or “divided” taxpayer, in order to determine whether the Net-worth Tax is triggered.

As a reminder, taxpayers subject to the newly adopted net-worth tax would have to assess the tax on their net-worth as of January 1st, 2011. If the taxpayer’s net-worth as of January 1st, 2011 was approximately USD $1.5m (COP $3,000,000,000) without exceeding approximately USD $2.5m (COP $5,000,000,000), the applicable rate would be 2.4%.  If the taxpayer’s net-worth exceeds USD $2.5m (COP $5,000,000,000), the applicable rate would be 4.8%.

For purposes of this tax, it is important to keep in mind the change adopted by the previous 2010 tax reform act regarding related party debt deemed as equity (Tax Reform Act No. 1370-2009. See: Colombian_Tax_Flash®, March 2010, yr. 7 – No. 18, P.2, §(d), found in the Publications tab at Pursuant to the amendment enacted therein, all related party debt would be deemed as equity for tax purposes (Colombian Tax Code, §287).

US dollars figures in this section are approximate values using a COP $2,000 exchange rate.


(4) Year-end “Economic Emergency” Measures Increasing the Reach of the 2011 Net-worth Tax to Taxpayers with a Gross Net-worth between USD $500k and USD $1.5m Tax, and the Adoption of a 25% Surcharge on the Net-worth Tax for Taxpayers with a Gross Net-worth greater than USD $1.5m.

Motivated on the damages suffered by the victims of the rain-floods catastrophe, the Colombian Government declared the State of Emergency and through “Economic Emergency” Decree No. 4825, issued on December 29, 2010, adopted two new brackets of taxpayers subject to the “one-time” 2011 net-worth tax commented on §3 above. According to these measures, if the taxpayer’s gross net-worth as of January 1st, 2011 was approximately USD $500k (COP $1,000,000,000) without exceeding approximately USD $1m (COP $2,000,000,000), the applicable rate is 1%. If the taxpayer’s gross net-worth was between USD $1m (COP $2,000,000,000) and USD $1.5m (COP $3,000,000,000), the applicable rate is 1.4%. Taxpayers subject to the newly adopted net-worth tax would have to assess the tax on their net taxable net-worth as of January 1st, 2011, and the tax is payable in 8 semiannual installments through 2014. If the taxpayer’s gross net-worth did not exceed USD $500k (COP $1,000,000,000), the taxpayer is not subject to the 2011 net-worth tax.

Additionally, through the year-end “Economic Emergency” measures the Government adopted a 25% surcharge on the “one-time” 2011 net-worth tax for taxpayers with a gross net-worth greater than USD $1.5m (COP $3,000,000,000). Like the reference tax, the surcharge should be assessed on January 1st, 2011, and is payable in 8 semiannual installments through 2014. The adoption of this surcharge results in an effective economic burden (including both the reference tax and the surcharge) of 3% of their net taxable net-worth for taxpayers with a gross net-worth between USD $1.5m (COP $3,000,000,000) and USD $2.5m (COP $5,000,000,000), and of 6% of their net taxable net-worth for taxpayers with a gross net-worth greater than USD $2.5m (COP $5,000,000,000). For the avoidance of doubt, net-worth tax taxpayers in the gross net-worth brackets between USD $500k (COP $1,000,000,000) and USD $1.5m (COP $3,000,000,000) are not subject to the 25% net-worth tax surcharge affecting net-worth tax taxpayers in the gross net-worth brackets greater than USD $1.5m (COP $3,000,000,000).

IMPORTANT: Through the year-end “Economic Emergency” measures the Government adopted additional complex regulations affecting all taxpayers of the 2011 net-worth tax, regardless of the bracket they are in, which are not commented herein and that require careful examination on a case-by-case basis. Among these, are worth noting both (i) the adoption of a measure for purposes of determining whether the net-worth tax is triggering, “disregarding” any net-worth partition strategies implemented by the taxpayer, and (ii) the carve out from LSAs entered pursuant to the Legal Stability Agreements Act No. 963-2005 (see: §1, ¶5, P.2 above), of both the 2011 net-worth tax for taxpayers in the brackets below USD $1.5m (COP $3,000,000,000) and the surcharge for taxpayers in the brackets above USD $1.5m (COP $3,000,000,000).

Through a recent revenue ruling the Colombian Tax Service adopted the “likely controversial and debatable” position that taxpayers subject to the 2011 net-worth tax in the brackets above USD $1.5m (COP $3,000,000,000), cannot benefit from a previous LSA they have entered on that covered previous predecessor net-worth taxes (“Dirección de Impuestos y Aduanas Nacionales” – DIAN, Revenue Ruling No. 098797 – 2010, issued on December 28, 2010).

US dollars figures in this section are approximate values using a COP $2,000 exchange rate.


(5) Advanced Collection Self-Withholding Tax on Hydrocarbons and Minerals Exports.

Pursuant to the recently enacted 2011 tax reform act, hydrocarbons and mineral Colombian exporters shall assess, and pay within the next month, a “self-withholding” on the gross sales price of their exports. Such withheld amounts are creditable towards the corresponding fiscal year income tax liability of the Colombian exporter, which is assessable and payable on the immediately following year. The tax reform act invests the Colombian Government with the power to determine the withholding tax rate applicable on these exports, which cannot be greater than 10%.

Rather than a real withholding tax burden on the foreign purchaser, this “self-withholding” burden on the exporter constitutes an advanced collection mechanism of its Colombian income tax liability for the corresponding fiscal year.


(6) Elimination of the Zero-rated VAT Regime for “Intermediate Services in the Production Line” for Hydrocarbons and Mining Export Activities.

Because hydrocarbons and mining exports were zero-rated for VAT purposes, prior to this reform certain “intermediate services in the production line” were also eligible for zero-rated treatment. This will no longer be the case beginning January 1st, 2011.

Provided compliance with statutory requirements, certain “intermediate services in the production line” are eligible for preferential VAT treatment, i.e., taxed at the same VAT rate to which the final product is subject (Colombian Tax Statute, §476, last paragraph). As of January 1st, 2011, this preferential treatment is no longer available for taxpayers in the hydrocarbons and mining industries. Thus, such services in such industries will be subject to the general VAT regime and rate. For the avoidance of doubt the above mentioned preferential VAT treatment continues to be available for other industries.


(7) Elimination of the Special Transfer Pricing Regime for Mining Activities.

Through this tax reform act and beginning FY2011, the Colombian Congress eliminates the special fix-price transfer pricing regime currently in place for mining activities and adopted back in 2006 (Colombian Tax Reform Act No. 1111-2006. See: Colombian_Tax_Flash®, January 2007, yr. 4 – No. 8, P.2 [unnumbered item 6], found in the Publications tab at As a result of this change, as of January 1st, 2011, mining activities shall be subject to the ordinary transfer pricing “arm’s-length based” regime.

For Income tax purposes Colombia has a regular transfer pricing “arm’s-length based” regime, which mostly resembles international OECD guidelines (hereinafter the “Regular Regime”). When it comes to mining activities in the country, since 2006, certain Eligible Income Tax Payers (hereinafter “EIT”) were subject to a special transfer pricing “fix-price based” regime (hereinafter the “Special Regime”). Under the Special Regime, semiannually the Ministry of Mines and Energy fixed the deemed price for each exporter for that 6-month period, and that price multiplied by the number of exported tons was the deemed income tax base for mineral exporters.

Both the Regular and Special Regimes are applicable with respect to cross-border transactions between related parties. The Colombian catalog of foreign related party situations is complex and the income taxpayer must review it carefully.

EITs subject to the Special Regime were minerals producers/exporters that in the immediately preceding fiscal year had export sales over USD$ 100m.


(8) Reduction of Penalties in Transfer Pricing Compliance.

Income tax payers subject to the Regular Regime (see: §7, ¶2, P.7 above) have to comply with certain documentation and transfer pricing returns filing obligations. Non-compliance of such obligations gives rise to penalties. These transfer pricing compliance penalties are being reduced in more than 40% by the 2011 tax reform act.


(9) Amendments to the Current Statutory Foreign Tax Credit (“FTC”).

The current Colombian income tax regime provides for an FTC, provided compliance of certain statutory requirements and subject to certain limitations. Pursuant to these regulations Colombian companies with operations outside of Colombia are eligible for both a direct and an indirect statutory FTC for taxes levied by the source country on non-Colombian source income and dividends respectively.

The 2011 income tax reform act adopts a series of changes to the relevant regulations, including among others, (a) an additional remote FTC on taxes levied by a Third Country, for Colombian companies receiving distributions from foreign companies that have received a distribution subject to income tax in said Third Country, and (b) the introduction of a 15% minimum interest requirement to be entitled to the FTC.

The new regulations of the FTC are complex and should be carefully examined on a case-by-case basis.


(10) Bank Debits Tax Revenue Increase Measures, Sunset Scheduled for 2018, and Increase of the Corresponding Income Tax Deduction.


The 2011 tax reform act adopts a series of changes and measures to “tackle” certain alternatives offered by financial institutions and other authorized agents, as planning tools to minimize the economic burden of this tax.

This national level tax has been in place since the year 2000 and currently taxes, among others, all funds withdrawn or transferred from checking or savings accounts in Colombia at a tax rate of 4 per thousand.

In addition to the abovementioned revenue increase measures, the Colombian Congress has approved the sunset of this tax through a phase-out tax rate scale that begins on 2014 with a reduction to 2 per thousand, followed by a further reduction in 2016 to 1 per thousand, and its final elimination beginning 2018.

In addition and subject to certain requirements, as of FY2013, the 2011 tax reform act authorizes an income tax deduction of 50% of the Bank Debits Tax paid by the income taxpayer during the corresponding fiscal year. The current authorized deduction in place through FY2012 is of 25%.


(11) Temporary Availability of Penalties and Lateness Interest Rebates for National Level Tax Debts.

National level taxes taxpayers that agree to pay their outstanding tax debts corresponding to 2008 and prior taxable periods, are eligible to benefit from a 50% rebate of any outstanding penalties and lateness interest, authorized by the 2011 tax reform act, provided that the owed amounts are paid within the 6 months following the enactment of the 2011 tax reform act, i.e., December 29, 2010, and that the taxpayer continues to timely file and pay her taxes during the 2 years that follow the date in which the owed amounts were paid. If the taxpayer fails to comply with the latter condition, the benefit will be recaptured in full and the Colombian Tax Service is allowed to seek payment of the rebated amounts. Certain rules and restrictions apply.

The 2011 tax reform act authorizes local authorities to adopt measures granting a similar rebate for local (territorial) level tax debts.


(12) Other Important Changes Introduced.

As mentioned in the introductory paragraphs of this issue, the 2011 tax reform act adopts other material changes not discussed herein that should be carefully studied, seeking qualified advice from professional tax attorneys admitted to practice law in Colombia. Some (not all) of these measures are: changes in the VAT withholding regime for providers of Foreign Trading Companies; changes in the terms and proceedings for VAT refunds; the progressive elimination of deductible expenses paid in cash; the extension of the early expiration term to audit income tax returns subject to the compliance of certain requirements; the VAT rate reduction for certain sports and recreation vessels from 35% to 20%; and the 3-year extension of the contributions for public works contracts, public works concessions and other concessions; among others.

In addition, Congress introduced many other changes in other pieces of legislation enacted last December, which are not featured in this issue of Colombian_Tax_Flash®.


Colombian_Tax_Flash® is being sent to clients, friends and colleagues of Lewin & Wills worldwide, and contains a legal alert and marketing information.  If you do not wish to receive this briefing in the future, please e-mail us at writing the words Stop Flash in the subject.

NOTICE: ©2011 Lewin & Wills. All rights reserved. Colombian_Tax_Flash® is a periodical publication that discusses certain recent tax developments in Colombia.  Please be advised that this summary is not intended to be a detailed and comprehensive description of the topics discussed herein.  This publication is prepared by Lewin & Wills (Colombia) for informational purposes only and does not constitute legal advice.  The statements contained herein reflect the author’s interpretation of current tax rules and may not be shared or accepted by the Colombian Tax Service or by the Colombian Courts or by other persons or authorities.  The information contained herein is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Readers should not act upon it without seeking qualified advice from professional tax attorneys admitted for the practice of law in Colombia.  This publication was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any taxes or tax penalties that may be imposed on such person in Colombia or any other jurisdiction.  Prior results do not guarantee a similar outcome. Colombian_Tax_Flash® is copyrighted material. The use, translation, reproduction or retransmission by any means in whole or in part of its contents is prohibited without the prior written consent of one of the partners of Lewin & Wills.

Posse Herrera & Ruiz Names Ernesto Cavelier Partner And Opens Intellectual Property Practice Area

January 12, 2011


Posse Herrera & Ruiz is very pleased to announce the entry of Ernesto Cavelier as partner of the firm and the opening of its Intellectual Property practice area headed by Mr. Cavelier and supported by Ms. Helena Camargo, patent engineer Julian Diaz, four associates and paralegals, and three litigation associates from the litigation group.

Mr. Cavelier will also be working in the Corporate Law practice area.

Ernesto Cavelier has almost 35 years of experience representing foreign and domestic clients in different sectors. Recent transactions led by Mr. Cavelier include privatizations for the energy sector, foreign investments in the oil service industry, acquisitions in the aeronautical, financial and insurance sectors, and complex technology license agreements.

His academic profile includes studies of Comparative Law at New York University, European Law at Amsterdam University, Business at Peter F. Drucker Management Center (EMBA) Claremont University in California, and Intellectual Assets Management at Licensing Executives Society USA and Canada.

Mr. Cavelier is a former Vice-president of Licensing Executives Society International, is a member of LES Comunidad Andina, American Bar Association (ABA), New York Bar Association (NYSBA), Asociación Interamericana de la Propiedad Intelectual (ASIPI), Mining and Oil Lawyer’s Association, and Colombian Academy of Law.


January 12, 2011


Ernesto Villamizar is a Universidad Javeriana lawyer and economist, has studies in Financial and Credit matters with the Chase Manhattan Bank – Banco del Comercio, and Graduate Management studies in the Universidad de los Andes.

He has been a college professor for several years, a domestic and international speaker in trust matters and has occupied important positions in the Financial Sector for more than 25 years, including President of Alianza Fiduciaria, CEO of Banco Union Colombiano and President of Fiduciaria Union.

His experience includes the structuring of trust vehicles for high net worth individuals, real estate developers and government contractors. He also has experience in the structuring and distribution of mutual and private funds.

Corporate Insolvency Law Revisions Proposed in New “Law of First Employment”

December 19, 2010

In a bold attempt to generate greater employment in the formal economy, President Santos has proposed to the Colombian Congress the much-heralded “Law of First Employment.” 

As I explained in my post on the proposal, the Government will create incentives (tax breaks, financing options, and the like) to encourage creation of small businesses by, and first time employment (including “telework”) of, youths under age 28, certain technical professions, the agricultural industry, women under 40, and in three specific states. A key part of the program is the progressive implementation of income taxes and “parafiscal” payments (like social security, health insurance, and the like) – initially at zero percent of the norm and phased in over 5 to seven years. These breaks apply to employers of vulnerable groups and low-income individuals.  The National Government will also establish a technologically modern national employment search database to help connect workers and jobs.

The bill also aims to simplify labor-related procedures. It prohibits employer discounts from salary payments, provides uniform procedures for employee loans, vacation compensation, and housing support.

To simplify business procedures, there are substantial revisions to the corporate insolvency law, known as Law 1116 of 2006.  Reform is needed.

In a post I wrote about dispute resolution procedures in Brazil, Mexico, and Colombia, I found that the World Bank’s 2010 Doing Business survey found, “Colombia compares favorably to Latin America and the Caribbean on closing businesses, with rankings that are fairly high. Colombia’s bankruptcy procedures for closing a business are considerably better-ranked than the LAVCA Scorecard ranks them.”  True enough, but the World Bank survey, I also found, was subject to some methodological criticism. Therefore I also looked to the Latin America Venture Capital Association (LAVCA) Scorecard, which  ranks Colombia lower. “When it comes to bankruptcy procedures,” I found, “LAVCA scores Brazil 3 out of 4 points, Colombia 2 out of 4 points, and Mexico 1 out of 4 points.” 

LAVCA’s leadership knows Colombia quite well, and its criticism and calls for improvement merited a significant response.

What are the changes? Many deadlines have been shortened in the process to identify debts and assets, resolve objections, propose a voluntary agreement for reorganization, or adjudicate the case, if a voluntary plan cannot be agreed up, starting with an attempt to agree on a plan of liquidation. 

Procedures have also been established to reverse decisions to liquidate companies, to clarify that companies in reorganization or dissolution may be the subject of mergers and divisions, to adjudicate assets that appear after liquidation, and to specify that debtors may serve as reorganization “promoters.”  See translation of new bankruptcy procedures.




Corporate Insolvency Law Revisions – Translation

December 19, 2010

Here is my unofficial translation the revisions to the Corporate Insolvency Law, contained in the new Law of First Employment, for study purposes. DISCLAIMER: Do not rely upon this translation – consult your Colombian insolvency lawyers or check with me for a referral. 

Simpler Trade Procedures
Article 24. Determining the Cause of Dissolution of a Company. When dissolution requires a declaration by the General Assembly of Shareholders or the Board of Directors, the requisite majority of members thereof established by statutes or by law must declare the company dissolved and the particular cause thereof, and record the declaration in the commercial register.

The members may avoid the dissolution of the company by adopting measures correcting the declared cause that occurred, provided that the protocol containing the measures adopted is registered in the commercial register within eighteen months following the occurrence of the cause.

When the means provided by law or contract for the appointment of a liquidator are exhausted and the liquidator has not been appointed, any of the members may apply to the Superintendent of Companies to appoint the liquidator. The designation by the Superintendent shall proceed immediately, even where the bylaws contain an arbitration clause.

That appointment of the liquidator shall be in accordance with the regulations adopted for the purpose by the National Government.

Article 25. Private liquidation of companies with no external liabilities. In those cases in which, once an inventory of assets is made under the law, it is evident that the company has no external liabilities, the liquidator of the company will immediately convene a meeting of the General Assembly of Shareholders or Board Members, to submit for their consideration that inventory as the final account of the liquidation.

If it is found that, contrary to what was noted in the inventory, there are obligations to third parties, partners will be jointly and severally liable to creditors.

This responsibility shall extend up to a term of five years from registration in the commercial register of the document containing the inventory and final account settlement.

Article 26. Deposit of unclaimed credits. When a creditor fails to claim payment, the liquidator is entitled to make a judicial deposit in the name of the creditor in the amount of the obligation reflected in the inventory of assets.

Article 27. Additional Adjudications. If new assets of a company appear after the end of the process of voluntary liquidation, or after the liquidator has ceased to allocate inventory, there shall be an additional adjudication in accordance with the following rules:

1. The additional allocation will be the responsibility first of the liquidator that conducted the liquidation of the company, but if five (5) years have passed from the approval of the final account settlement or if the liquidator cannot reasonably advance the process, the Superintendency of Companies shall determine who will make the additional allocation.

2. Any creditors listed in the inventory of assets may submit a claim by a document that describes the new assets and provides such evidence as may be appropriate.

3. Once the liquidator has established the value of the new assets, he or she shall award them to the unpaid creditors in the order established in the inventory of assets. In the event there are no creditors, the liquidator shall award the property among those who appear as the final members [shareholders], according to the percentage of their rightful share in the capital of the company.

4. The document signed by the liquidator shall record the description of the assets adjudicated, the value thereof, and the identification of the person or persons to whom they were awarded.

5. Expenses incurred for the additional adjudication, shall be borne by those to whom assets are awarded.

Article 28. Actions against members and liquidators in voluntary liquidation. The Superintendency of Companies, exercising judicial functions shall hear actions for damages against members and receivers according to legal norms.

All of these actions will be brought under one single petition under the verbal summary procedure governed by the Code of Civil Procedure.

Article 29. Reactivation of Companies and Branches in Liquidation. The General Assembly of Shareholders, the Board of Directors, the sole shareholder or holder of foreign company branches in Colombia may at any time after the initiation of liquidation, agree to reactivate the company or branch of a foreign company, provided that external liabilities do not exceed 70% of corporate assets and that the distribution of the remaining assets to members [shareholders] has not commenced.

The revival may coincide with the transformation of the company, provided that the requirements of the law are satisfied.

In any case, to transform the company into a simplified stock company, the determination will requires the unanimous vote of all members.

To reactivate, the liquidator of the company shall submit for the consideration of the General Assembly of Shareholders or Board Directors a proposal containing the reasons for reactivation and the facts that satisfy the requirements of the preceding article [Ed. Note: sic – probably “this article”].

The liquidate should also prepare special financial statements in accordance with the provisions of existing rules, dated not more than thirty days before the date of the notice of the meeting of the highest corporate body.

The decision to reactivate shall be taken by the majority provided by law for transforming the company. Absent or dissenting partners may exercise the right of withdrawal under the terms of the law.

The document containing the determination to reactivate the company shall be entered in the commercial register at the headquarters of the Chamber of Commerce . The determination shall be reported to the creditors within fifteen days from the date of the decision by written notice addressed to each of them.

Creditors have the right of judicial opposition under the terms provided in Article 175 of the Code of Commerce. The action may be brought within thirty days after receipt of notice described in the previous paragraph. The action shall proceed before the Superintendency of Companies to be resolved through the verbal summary procedure.

Article 30. Article 10 of Law 1116 of 2006 is amended to read as follows:

Article 10. Other Costs of Admission. The request to initiate the process of reorganization must be filed, accompanied by documents evidencing, in addition to the costs of default or imminent inability to pay, the satisfaction of following requirements:

1. The time set by law shall not have expired to weaken the grounds for dissolution, unless measures have been adopted to address them.

2. Regular accounts of the business prepared in accordance with legal requirements.

3. If the debtor has a pension liabilities, the actuarial calculation must be approved and the company must be current its in payment of monthly pensions, bonds and pension requirements.

Obligations due to these concepts caused during the [reorganization] process and payments due arising prior to the commencement of the reorganization process shall be paid in preference, even over other administrative expenses.

Article 31. Common Provisions Relating to Private Liquidation. In private liquidation process, the liquidation documents provided in paragraph 3 of Article 247 of the Commercial Code shall not be required.

Any company in private liquidation may be part of a merger or division.

During the liquidation period, companies in private liquidation are not obligated to renew their commercial registration.

Article 32. Without prejudice to criminal or other purposes as may be appropriate, liabilities for mandatory deductions for tax authorities, deductions made to employees or to contribute to the social security system shall not prevent the debtor from accessing the reorganization process.

In any case, at the time of filing the debtor will inform the judge about the existence and present a plan to satisfy these liabilities, which must be fulfilled no later than the time of confirmation of the reorganization agreement. If by that date this condition is not satisfied, the judge may not confirm the agreement presented.

Such obligations which arise after the start of the process will be paid as administrative expenses.

Article 33. The first and third paragraphs of Article 13 of Law 1116 of 2006 shall be amended to read as follows:

1. The five (5) basic financial statements for the three (3) financial years and the reports, if any, signed by a Certified Public Accountant or Auditor, as applicable, unless the debtor has previously furnished the Superintendent such financial statements in the given conditions, in which case the Superintendent shall secure them for the relevant purposes.

3. An inventory of assets and liabilities at the same date as in the previous section, duly certified, signed by a public accountant or auditor, as appropriate.

Article 34. Two paragraphs shall be added to article 17 of Law 1116 of 2006, which shall read as follows:

Clause 3. From the time of the submission of the application for reorganization until the acceptance thereof, the debtor may only make payments in the ordinary course of business, such as labor, tax and suppliers.

Paragraph 4. In special cases, the bankruptcy judge may authorize the advance payment of small debts, i.e., those that collectively do not exceed five percent of external liabilities of the debtor.

Article 35. Role of the Promoter in the Reorganization Process. The functions of the Promoter provided under Law 1116 of 2006 shall be fulfilled by the legal representative of the corporate debtor or the individual natural person commercial debtor, as appropriate.

Exceptionally, the bankruptcy judge may appoint a Promoter when justified the judgment of the judge it is justified in light of the circumstances, for which the judge shall take into account such factors as the size of the enterprise, the amount of its liabilities, the number of creditors, the international character of the operation, the existence of accounting anomalies and breach of statutory duty by the debtor.

Any number of unrelated creditors representing at least thirty percent of the total external liabilities at any time may request the appointment of a Promoter, in which case the bankruptcy judge shall designate one immediately. The request may be made from the beginning of the process and the percentage of votes will be calculated based on information submitted by the debtor with the request [for admission to reorganization].

Similarly, the debtor may request the appointment of the Promoter from the beginning of the process, in which case the bankruptcy judge shall proceed with such appointment.

In cases where a Promoter is appointed, the Promoter shall comply with all functions under Law 1116 of 2006.

Article 36. Article 29 of Law 1116 of 2006 be amended to read as follows:

Article 29. Objections. The proposal submitted by the Promoter to recognize and prioritize liabilities owed and voting rights shall remain in the office of the bankruptcy judge for a term of five (5) days.

The debtor can not object to liabilities included in the list of liabilities filed by the debtor with the petition to start the reorganization process. For their part, managers may not object to the obligations of external creditors that are included within the debtor’s application.

Immediately preceding the expiration of the term above, the bankruptcy judge shall retain the objections for a term of three (3) days for the objected-to creditors to respond, providing documentary evidence as may be appropriate.

After that term has expired, there shall run a term of ten (10) days intended to bring about the settlement of the objections. The objections which are not settled shall be decided by the bankruptcy judge at the hearing provided for in the next article.

The only admissible evidence for the processing of objections will be documentary, which must be provided with a statement of objections or the response to them.

If there are no objections, the bankruptcy judge will recognize credits, establish the voting rights and set a deadline for agreement by ruling that will not appeal.

Article 37. Article 30 of Law 1116 of 2006 shall be amended to read as follows:

Article 30. Determination of Objections. If objections are filed, the judge shall proceed as follows:

1. Accept the documentary evidence submitted by the parties.

2. Sign a decree convening a hearing test to resolve the objections, which shall take place within five days.

3. In the event the judge decides the objections the court will recognize the liabilities, assign the rights to vote and set deadlines for concluding the agreement. Otherwise, only the remedy of reinstatement may be presented at the hearing.

In any case the hearing may not be suspended.

Article 38. Article 31 of Law 1116 of 2006 shall be amended to read as follows:

Article 31. Term to Conclude the Agreement of Reorganization. In the event that the credits are recognized, there will be four months to conclude the reorganization agreement, unless the parties agree to a shorter term. The term of four months may not be extended under any circumstances.

Within the time for concluding the agreement, the promoter, on the basis of the reorganization plan of the company and the cash flow available for the payment of obligations, shall file with the bankruptcy judge, as may be the case, a reorganization agreement duly approved by the favorable votes of a number of creditors representing at least an absolute majority of votes allowed. This majority must additionally comply in accordance with the following rules:

1. There shall be five (5) categories of creditors, consisting of :

a) The holders of labor claims;

b) Public entities

c) Financial institutions, national and other entities subject to inspection and supervision of the Financial Superintendency of Colombia, private, public or mixed, and foreign financial institutions;

d) internal creditors and

e) Any other external creditors.

2. There must be favorable votes from at least three (3) categories of creditors.

3. If there are only three (3) classes of creditors, the majority must comply with affirmative votes from creditors belonging to two (2) of them.

4. If there are only two (2) categories of creditors, the majority must comply with affirmative votes from both classes of creditors.

If a properly approved reorganization agreement is not presented in the period provided in this Article, then a term shall immediately commence to conclude an agreement to adjudicate the case.
The reorganization agreement approved by the affirmative vote of a plural number of creditors representing at least seventy-five percent (75%) of the votes will not require voting classes of creditors established in the rules contained in the preceding paragraphs.

Paragraph 1. For the purposes specified in this law internal creditors are the partners or shareholders of the corporation, holders of shares or shares in a sole proprietorship, and holders of any other legal entity. In the case of commercial natural person, the debtor will have the this status.

For purposes of calculating the votes, each internal creditor is entitled to a number of votes equal to the value obtained by multiplying the percentage of equity by the number that results by netting from shareholders equity the profits in kind and amount of the shareholders capital account, having been recapitalized in accordance with the balances and information in court at the time of admission to the insolvency process. When the equity is negative each shareholder shall have one vote.

Amendment of the reorganization agreement must be adopted with the same percentage of votes required for approval and confirmation. To that end, the votes will be deducted from those debts originally selected which have been extinguished in implementing the reorganization agreement, keeping the votes of the internal creditors equal to those calculated for the first determination, based on the date of commencement of the process.

Paragraph 2. When internal or linked creditors hold a majority decision-making in the reorganization agreement, it may specify in the agreement or a term reforms to the attention of foreign liabilities unrelated creditors more than ten years from the date of the agreement except that most foreign creditors consent to the granting of a longer period.

Article 39. Article 37 of Law 1116 of 2006 shall be amended to read as follows:

Article 37. Term and Confirmation of the Adjudication Agreement. After the term for filing a reorganization agreement has expired, and it has not been confirmed it, the judge shall proffer a ruling taking the following decisions:

1. Appoint a liquidator, unless the reorganization process has proceeded with a Promoter, in which case the Promoter shall act as liquidator.

2. Set the deadline for submission of the value of the inventory, and

3.Order a current statement of the costs incurred during the reorganization process.

There shall be a period of three (3) days to object to the valuation of assets and the costs of reorganization. To present objections, the procedure provided for the reorganization process shall be applied. After resolving objections or no objections are present, there shall be a term of thirty (30) days to present the award agreement.

During the previous term only perishable goods of the debtor that are at imminent risk of deterioration may be disposed of, depositing the proceeds of the sale to the bankruptcy judge’s order. Other property may be sold if authorized by an absolute majority of creditors in any case authorization must be confirmed by a judge.

The award agreement will be agreed and will be awarded as the debtor’s assets, paying off the obligations due after the commencement of the insolvency process, then those contained in the approved classification and qualification. In any case the procurement rules set out in this law shall be followed.

The award agreement must be approved by the majority and in the manner provided in this Act for approval of the reorganization agreement, always respecting the priority of law and, in particular those relating to pension liabilities. To this end, the debtor shall credit the current statement of administrative expenses and the requirements for implementation of the agreement and form of payment, while respecting their priority.

If the settlement award is presented to the bankruptcy judge within the period specified in this law, the creditors accept the Superintendent or the judge awarded the debtor’s assets, according to the rules of procurement of goods covered in this law.

For confirmation of the award agreement, the same standards shall apply as for confirmation of the reorganization agreement, meaning that if there is no confirmation of the award, the bankruptcy judge shall proceed to adjudicate the debtor’s assets under the terms stated in the preceding paragraph.

The adjudication shall occur at the latest within fifteen (15) days of the confirmation hearing of the award agreement when the same has not been confirmed or the deadline has passed for submission within the parameters established in this law. There shall be no recourse against the act that decrees the award of the goods.

Paragraph 1. In any case, the bankruptcy judge shall order the payment of the taxes attach to foreclosed assets, including the most extensive.

Paragraph 2. For assets which are not part of the capital to be adjudicated, the disposition shall be determined under the provisions of this Act for goods excluded from the process of liquidation.
Clause 3. The effects of the settlement award will be, in addition to those mentioned in Article 38 of Law 1116 of 2006, those contained in Article 50 of the Act.

Article 40. Electronic Media. The use of electronic means in handling insolvency proceedings is permitted in accordance with the provisions of Act 527 of 1999 and for the formalities with the Commercial Register, nonprofit entities and to the National Register Bidders Delegates at the Chambers of Commerce.

In cases where personal appearance is required, such requirement is satisfied by the digital signature mechanism. Where the law requires the submission of an original value title, electronic means may not be used.

Article 41. Article 123 of Law 1116 of 2006 shall be amended to read as follows:

Article 123. Advertising of commercial trust agreements for security purposes consisting of a private document. Commercial trust contracts for security purposes consisting of a private document must be entered in the Register of the Chamber of Commerce have jurisdiction in the domicile of the settlor, subject to the registration or registration, according to the kind of act or with the nature of the goods, must be in accordance with the law.

Article 42. Exclusion of personal presentation of the powers to further proceedings before the Superintendency of Industry and Commerce. The powers to be conferred to further proceedings before the Superintendency of Industry and Commerce and Chamber of Commerce. The powers granted to further proceedings before the Superintendency of Industry and Commerce, relating to registration of distinctive signs and new creations will not require personal appearance.

The minutes of the governing bodies and management of companies and nonprofit entities, and their extracts and copies authorized by the Secretary or by the Representative the respective legal person, who must register with the Chambers of Commerce, are presumed authentic until proven otherwise by competent authority statement. Therefore personal appearance is not required for these papers with the secretary of the Chamber of Commerce in question, judge or notary.

Article 43. The numbers 4 and 7 of Article 85 of Law 222 of 1995 shall be as follows:

4. Order the removal of directors, Auditor and staff, as necessary, for breach of the orders of the Superintendency of Companies, or the duties prescribed by law or bylaws, ex officio or upon request by Providence reasoned that appoint a replacement to the lists drawn up by the Superintendency of Companies. The removal ordered by the Superintendency of Companies will involve an inability to engage in trade, up to ten (10) years from the date of the administrative act accordingly.

From submission to control, prohibiting managers and employees the provision of securities that fall on the company’s own assets, disposals of assets or operations not related to the ordinary course of business without prior authorization from the Superintendency of Companies. Concluded or executed any act in contravention of the provisions of this Article shall be ineffective and void.

The recognition of the budgets of inefficiency under this Article shall be the responsibility of the Superintendency of trade companies in the exercise of administrative functions. Likewise, the parties may apply to the Superintendent recognition through verbal summary of the process.

7. call on society to the processing of an insolvency process, whether it is caught by a situation of default.

Article 44. Article 121 of Act 1116 of 2006 shall read as follows:

Article 121. Contributions. The resources needed to cover operating costs and investment required by the Superintendency of Companies will come from the contribution payable by the Company under its supervision or control, as well as rates referred to in this article.

The contribution will consist of a rate to be calculated on the total amount of assets, including adjustments for inflation, to register the company at 31 December of the previous year. This contribution will be settled according to the following rules:

1. The total contributions shall be the amount of investment and operating budget that requires the Superintendent in the respective annual term, net surplus from contributions and fees from the prior year.

2. Based on total assets of the companies monitored and controlled at the end of the previous annual period, the Superintendency of Companies, by order, establish the rate of contribution receivable, which may be different depending on whether the companies active in period preoperative, in the concordat, the reorganization or liquidation.

3. The rate that is fixed may not exceed one per thousand of the total assets of the companies monitored or controlled.

4. In any case, the contribution to charge each company may exceed one percent of total contributions, or less than one (1) current monthly minimum wage.

5. When society taxpayer does not monitor or control remain throughout the term, its contribution is proportional to the period under supervision or control. However, if the fact that one or more companies do not remain under the supervision or control during the entire period, it generates a defect remedied required budget, the superintendent may require liquidation and other contributors the corresponding amount at any time during the corresponding effect.

6. The contributions will be settled for each company annually based on total assets, multiplied by the rate set by the Superintendency of Companies for the corresponding fiscal period.

7. Where a company fails to provide timely cut balances at 31 December of the previous year, the Superintendent will make the corresponding settlement based on the assets recorded in the balance last stand in the archives of the entity. However, after receiving financial statements for the prior year shall be based on the reassessment of the contribution.

8. Where a company this product balances for the reassessment, they may be applied first to outstanding obligations to the institution and, secondly, to be deducted from payment of the fiscal year in progress.

The Superintendence of Companies may charge to non-monitored or controlled or other entities or persons, fees for services they provide, depending on the costs that each service involving the entity, determined based on the remuneration of personnel engaged in activity, in proportion to the time required and the cost of their displacement in terms of travel and land and air transportation, when necessary any place, and administrative expenses such as postage, photocopies, certified and experts.

The amounts for taxes or fees for services that are not canceled within the deadlines set by the Superintendency, cause the same penalty interest applicable to tax and supplementary income.

The Colombian Global Market Opens – Trades International Securities on the BVC

December 18, 2010

The Bolsa de Valores de Colombia (BVC) is Colombia’s stock exchange, but since November it has joined forces with the Chilean and Peruvian exchanges, creating a platform for trading in all three countries of issues registered in any of the three countries. In a separate new development, 21 issues of international securities can now be traded on the “Global Market of Colombia.” 

Three brokerage houses – Correval, Interbolsa and Valores Bancolombia – will publish information who are obliged to publish relevant information of each of those registered. The sponsoring broker (or international custodians) will provide access to the financial, economic, accounting, legal and administrative disclosures of the issuers.

The Global Market will operate differently than the current foreign exchange trading of issues like Canada’s Pacific Rubiales and Canacol Energy. They will be traded, cleared and settled through systems administered by the BVC using a wheel or separate session. Deceval will administer these securities through accounts with an international custodian, and Deutsche Bank has been contracted for this new market segment.

The brokers and their respective issuers are:

Valores Bancolombia

Apple Inc.
Bank of America Co.
Caterpillar Inc.
Chevron Co.
Exxon Mobil Co.
The Goldman Sachs Group Inc.
Johnson & Johnson
JPMorgan Chase & Co.
The Procter and Gamble Co.

Interbolsa Inc.
Barrick Gold Co.
Citgroup Inc.
General Electric Co.
Google Inc.
Gran Tierra Energy Inc.
Pfizer Inc.
Research In Motion Ltd.
Schlumberger N.V.
Walmart Stores Inc.


Anadarko Petroleum Co.
Murphy Oil Co.

The Proposed “Law of First Employment” – Towards Formalization, Through Incentives, A National Database, and Regulatory Reforms

December 18, 2010

One of the great challenges facing the modernizing Colombia is the formalization of employment. Proponents of the US-Colombia Trade Promotion Agreement and other free trade deals have argued they will bring about more and better employment, boosting trade and development. Informal employment has cost the health care financing system in Colombia dearly, while formal employment brings not only needed payment into the system, but modern worker benefits and protections. Increased formal employment is needed on a massive scale to reduce income inequality and cement gains is social stability.

President Santos has formally proposed to the Colombian Congress a major piece of legislation designed to bring about more formal employment, called the Law of First Employment. It is a very serious effort to rise to this enormous challenge.

The proposed law has four parts. Chapter I deals with stimulating first employment, focusing on young people under the age of 28 and in the agricultural sector as well as three specific states. The law directs the creation of incentives for businesses to formalize employment through micro credit and credit oriented programs (both in urban and rural sectors) for youths under age 28, professionals, technicians, leading to formalization and generation of business, employment and telecommuting, using tools such as tax breaks, capital assistance, grace periods, training programs, technical assistance and expert advice. The bill directs special programs to be established in the agricultural sector, and in the states of Amazonas, Guainia, and Vaupes.

The bill eases new small businesses into the tax system on a gradual basis, with no income tax payable during the first two years, only 25% of the tax due in the third year, 50% in the fourth, 75% in the fifth, and normal taxation in the sixth and subsequent years (and more favorable rates of progression in the states of Amazonas, Guainia, and Vaupes. Comparable discounts will apply to the “parafiscal” payments – health insurance, social security, and the like. Discounts also apply for the generation of new employment of persons under age 28.

Changes made to the nation’s labor laws by the bill are intended to speed and reduce the complexity of procedures for the posting of new jobs and improved salaries and to reduce red tape.

Chapter II focuses on the insolvency laws, and purports to simplify and reduce expense in procedures for the liquidation of enterprises, making a large number of changes to Law 1116 of 2006, the Corporate Insolvency Regime.  A translation and explanation of these changes can be found here.

Chapter III purports to cut red tape and simplify bureaucratic procedures in a number of other areas of the law, primarily relating to employee benefits.  Chapter IV will establish a national employment database.

Overall, the ambitious legislation will be best understood as the incentives for hiring, and the national employment database, are implemented in the near future. Presumably, they will be very positive overall for business in building a climate of legalization and formalization. The legislation is undoubtedly another very positive, pro-business sign that Colombia’s political leaders are doing the hard work of modernizing their economy to continue to reap the benefits of, and to lock in, the gradual end of the civil and narco-trafficking wars.

Government Announces Measures To Relieve Currency Pressures and Defend Employment

November 9, 2010

A tip of my hat to Clayton Steele and her enterprising colleagues at Posse Herrera & Ruiz abogados, who brought to my attention the following announcement of measures to ease upward pressure on the USD:COP.

From the National Planning Department

Translation by iGoogle/Hunter Carter


Bulletin 122

Bogotá, October 29, 2010 .- (GIS). The following is a summary of the package of measures adopted Friday by the National Government to relieve pressure and protect employment exchange:

1. The Government has decided not to monetize US$1,500 million projected to flow to the country in 2010. This represents a substantial relief in the supply of dollars of foreign exchange and therefore less pressure for currency revaluation. These funds will be frozen in accounts outside at least during the first months of 2011.

2. It also amended the 2011 financial plan to balance external funding sources and debt service, thereby reducing the flow of monetization of the national government by US$384 million for 2011.  The Ministry will implement a hedging strategy for the payments of external debt service the following year, through the purchase of currency in the forward market, provided that the exchange rate future to which these transactions are listed can be conducted at a reasonable cost to the nation. This coverage can be made up of 3,700 million dollars.

3. Tariff reform approved by the National Tariff Board, to continue to be discussed, reducing production costs of enterprises, encouraging imports and thus the demand for currency.

4. The Agriculture Ministry will establish, through Finagro, a facility whose value may be up to 50 billion pesos, to support the implementation of hedges by agricultural sector exporters.

5.  The income tax exemption will be eliminated for interest on loans contracted with foreign entities, except those obtained by Colombian credit institutions, short-term, arising from bank overdrafts, and those for foreign trade activity. Collection is to be done through withholding at source. This will equalize the tax treatment for internal and external credit and discourage external debt operations, easing exchange market pressures.

Decree 2105 of 1996 from the Ministry of Finance and Public Credit is amended, with a view
to limit the activities considered relevant to the economic and social development of the country, which exclude debt currently generating sources of income.   The amendment will provide that this exclusion applies only to debt for foreign trade activities. This becomes more expensive, by way of withholding, the foreign debt.

6. Will support the bill that transfers control of the payment of royalties to the DIAN, with a view to a further increase collection.  These measures are aimed at reducing the fiscal deficit of the nation and the pressure they can generate for external borrowing requirements.


UPDATED Election Analysis — The Midterm Elections and US Trade

November 9, 2010

The midterm elections of 2010 and the widely anticipated shift toward a more Republican Congress will bring significant changes to domestic and foreign policy which will have a major effect on our clients’ business both here and abroad. A lot of people are asking me what the election means for the US-Colombia Trade Promotion Agreement (in Spanish, the “TLC”).  My colleagues in the Government Relations Practice Group of Arent Fox have prepared a special analysis and commentary on the proposed US-Colombia Trade Promotion Agreement as a result of the mid-term election results.

Read Former Congressman Phil English’s assessment here.

Bogota Hotels Development Update

November 5, 2010

By Maria Gladys Escobar in La Republica

Translated by iGoogle/Hunter Carter

Work Begins on Two Hotels In The Capital

Bogotá. The development of new hotels continues and it shows. The work of two complexes  already started located in exclusive neighborhoods such as Santa Barbara and Business Center in Ciudad Salitre to invest about $ 150,000 million.


 These hotels are characterized by the fact that they will be attached to business complexes, as their services are aimed at businessmen.


The firm Aldea Proyectos will invest over 216 billion pesos for the Edificio Tierra Firme which is next to Santa Barbara Business Center, which is part of a 5-star hotel that will have 11 floors and 176 rooms.


 It is estimated that the hotel alone will cost about COP$100,000 million, due to its luxury finishes.


 The Project Manager of the firm, Julian Nieto Bonilla said the company decided to begin construction after completing negotiations with the company that will manage the hotel, but for now there is an agreement not to disclose the brand.


 “Much of the building is for offices and we have achieved a good level of pre-sales and 48 percent of the spaces are already sold,” said Bonilla.


Edificio Tierra Firme will be a 28-story project comprising 66,805 square meters distributed on 23 floors for offices. The rest of the project will include audience space, the main restaurant, cultural center, concert hall, pool, spa area, gym, medical center, terraces, shops.  Part of this project is a 5-star hotel that has 11 floors and 176 rooms.


 The goal of Aldea Proyectos is that the building, located at 9th Avenue and 114th Street, will begin operations in April 2014.  Bonilla explained that this is a work of modern architecture that will use cutting edge technology and apply sustainable design concepts and to allow saving energy and water.


 In general, the building will save between 20% and 30% of energy, which achieved with windows that allow natural light into energy avoiding.  Additionally, the glass will control the entry of sunlight, making sure the office environment is not warm and thus optimize the use of air conditioners.


 It expects similar savings in water by collecting rainwater to be used in medical offices and treated gray water from showers and sinks out for reuse in toilets.


Holiday Inn


A Holiday Inn hotel located in Ciudad Salitre, is expected to have a total investment US$22 million (about COP$50,000 million).


 “The hotel services take into account the needs of businessmen, who are our target customers,” said Felipe Galeano, manager of Metro Hotels and of the Project.


 During a recent visit to Colombia of a large delegation of American executives from Holiday Inn, was seen to be making good progress.


 The Hotel will feature 191 rooms, 8 meeting rooms for events and automated Convention Center, all meeting the highest standards of quality, design, construction and technology.  Notably, the hotel will be part of the Centro Empresarial Arrecife [Reef Business Centre], which is located between Avenues El Dorado and the Constitution.


 The building is notable for having high safety standards as there are stairs with pressurized injection and extraction of smoke and total substitution of light in case of an emergency.  According to Alvaro Diago, vice president, Latin America and the Caribbean for IHG, “the Bogota Airport Holiday Inn chain icon will be in Latin America because of the importance of Bogota in the regional economy and proximity to the El Dorado airport.”  This Hotel is key part of the expansion strategy of the Holiday Inn brand in Colombia.


 It is noteworthy that construction is performed by the firms of Metro Operación Inmobiliaria and Construcciones Arrecife,


 Remodeling of the Hotel Estelar La Fontana

 Also notable in the development of the hotel sector is the Hotel Estelar La Fontana, which recently completed renovations that have been proceeding on its premises for a year.  Among the renovations and repairs, representing an investment of COP$3,000 million, were technological renovations, furniture, electrical fittings, air conditioning and wood finishes.  Starting this month, visitors to the hotel can enjoy their new design.

“NOEL” beats “Noah” in Colombian Trademark Dispute

November 4, 2010

Posted By Rodrigo Ramírez Herrera to IP tango on 11/04/2010 09:39:00

Translation by Hunter Carter

A trademark dispute about cookies in Colombia has been resolved by a ruling that holds that in considering a generic phrase to assess the risk of confusion between conflicting marks, only the dominant distinctive elements should be considered.

The mark Condimentos Noe Puro (“Pure Spices Noe”) was recorded in the SIC (Superintendency of Industry and Commerce of Colombia), by Resolution No. 1229406, 2003, dismissed as unfounded the opposition to the registration filed by Galletas Noel SA.  The Superintendent in charge of keeping records based its decision on the “overall impression of ‘Noe’ and ‘Noel,’ no similarities are seen directly or indirectly that generate confusion” since the former term refers a biblical character [Noah] who is easy to remember and would not confuse the consumer with Noel, a term used to identify Papa Noel (Santa Clause). The graphic version of the mark applied for includes a boat and each candle represents a letter of the word Noe “Noah” – which is sufficient to distinguish the two products.

However Galletas Noel SA took the matter to the Council of State by an Action for Annulment and Re-establishment of law brought against the decisions of the SIC No. 2294 of April 30, 2003, 021981 of July 2003 and 022992 of August 25, 2003, by which the trademark “NOE PURO” was registered.  Galletas Noel argued that it violated Article 61 of the Constitution, which provides that the state must protect the right of a trademark holder, and further argued that the term “condimentos” (spices) is generic for cloves and cinnamon, and “Pure” refers to a quality of the products of Class 30 of the Gazetteer of Nice: coffee, tea, cocoa, sugar, rice, tapioca, sago , coffee substitutes, flour and preparations made from cereals, bread, pastry and confectionery, ices, honey, molasses, yeast, baking powder, salt, mustard, vinegar, sauces (condiments), spices, ice, and this general quality requires that “Noah” be compared directly with “Noel Noe.”

The Council of State, in process number 11001032400020040004401, determined that the two marks “Noe Seasonings Pure” and “Noel” cover goods in Class 30 of the Gazetteer of Nice, invoking the first requirement for non-registrability referred to in Article 136 paragraph (a) of Decision 486 of the Andean Community on a Common Regime for Intellectual Property (of which Colombia is a party), referring to “the identity or relationship between the products that claim to be protected by the mark.

In addition and consistent with the preliminary interpretation of the Court of Justice of the Andean Community in this case (Proceso19-IP-2009), at the request of the State Council, it was determined that comparing the marks, the court must identify what is the predominant element — if the word or graphic – determine likelihood of confusion. So, words of common usage, generic, or descriptive belong in the public domain and should not belong to a trademark holder and be put outside of general use. This interpretation was used by the State Council to rule that the terms “Seasonings” and “Pure” are generic, and therefore to make the “comparison between the signs” are not to be taken into account, leaving only the comparison between the words “Noe” (Noah) and “Noel.”

On this background, the Council of State found that the conflicting marks are similar from a phonetic, graphic, visual, and auditory spelling points of view.  The only difference is that “Noel” ends with the knife “L,” which gives little difference in the marks.

Finally, the Council of State determined that while the term “Noah” is a name of a biblical character and “Noel” is a word commonly used to evoke Christmas, “the similarities between the signs are crucial to generate a risk of confusion, because they are also the same international class 30, so that consumers can easily confuse this, the origin and quality of products and also affect the right of who was the owner of a brand. “Therefore, it was decided to cancel the resolutions of the SIC to consider the marks  “cannot peacefully coexist in the market” and create a likelihood of confusion of the public consumer, and ordered the revocation of registration.

Posted By Rodrigo Ramírez Herrera to IP tango on 11/04/2010 09:39:00

ELECTION ALERT: US-Colombia Trade Agreement — Arent Fox 2010 Midterm Election Analysis

November 4, 2010

The midterm elections of 2010 and the widely anticipated shift toward a more Republican Congress will bring significant changes to domestic and foreign policy which will have a major effect on our clients’ business both here and abroad. A lot of people are asking me what the election means for the US-Colombia Trade Promotion Agreement (in Spanish, the “TLC”).  My colleagues in the Government Relations Practice Group of Arent Fox haveprepared a special analysis and commentary on the proposed US-Colombia Trade Promotion Agreement as a result of the mid-term election results.

Read Former Congressman Phil English’s assessment here.

(Read the prepared remarks of US Chamber of Commerce Vice President for International Affairs John Murphy, delivered October 21, 2010, before the election, here.)

The Context

Republicans will assume control of the U.S. House of Representatives, while a narrower Democratic majority retains control of the Senate. While the Republican leadership has historically been sympathetic to “free trade” legislation, many of the new Members of Congress, especially in the House, were elected on a “pro-jobs” platform.

This is the third election in a row in which a significant number of incumbents have been unseated as a result of public unease with Congress’ performance. An unprecedented number of Members of Congress who have never taken a position on “free trade” legislation, and fewer still who have any familiarity with the facts and issues of importance to Colombia, will take office in January 2011.

Who will be the new committee leaders? How well did the “champions” of the US-Colombia agreement do in the elections?

Our collective experience tells us that the increased polarization in Congress and the specter of divided government mean that there will be plenty of new policy initiatives that may crowd out trade legislation. There is some faint hope for increased bipartisan action in the 112th Congress. The voters have clearly indicated that they want results – not partisan bickering and political gamesmanship. The most likely incoming Speaker of the House, Rep. John Boehner, R-Ohio, is a mainstream Republican with a long track record of working with Democrats on those issues where they can find common ground. The most likely new House Majority Leader, Rep. Eric Cantor, R-Va., has disavowed any prospect that the House would shut down the government in a showdown with President Obama. Both new Republican leaders, however, will have to deal with a freshman class that is not likely conciliatory.

Increased partisan differences may mean gridlock even on issues where there might otherwise be common ground. The Administration’s position in favor of the US-Colombia agreement has not resulted in passage before now – but will it be appoint of agreement? Will it come up in the “lame-duck” session between the election and the inauguration of the new Congress in January?

The Discussion

We will have a half hour discussion, with time for questions, with former Arent Fox Senior Government Relations Advisor Rep. Phil English, R-Pa, a former Member of the US House of Representatives. Phil, who served seven terms in the House, representing Western Pennsylvania’s 3rd District from 1995 to 2009, has a special perspective on the incoming leadership of the House. As a Member of Congress, Phil became a strong advocate in the areas of health care, energy, tax, and trade policy. He was a long-time member of the Joint Economic Committee, and Co-Chair of the Congressional Economic Leadership Institute. While serving on the Trade Subcommittee, Phil was a Co-Chair of the Congressional Service Industries Caucus and a member of the President’s Export Council. He was a Congressional Representative to the World Trade Organization Ministerial Meetings and Advisor to the OECD Congressional Leadership Group. Phil is an advocate of public diplomacy and America’s role in world affairs. He served as Co-Chair of the House European Union Caucus, the House Brazil Caucus, the House Morocco Caucus, the House Swiss Caucus, and the House World Bank Caucus.

Before the conference call, Phil will share with participants a short written assessment of the trade picture to help frame the conversation.

We will also hear from Craig Engle about the changes in and agenda of the US Senate. Craig, the founder of the Arent Fox Political Law Group, served as General Counsel to the National Republican Senatorial Committee (NRSC) from 1995-2000. Craig regularly acts as counselor to Members of the US Senate, their campaign committees, and candidates on all aspects of election and office-holder laws The Washington Post has described Craig as “a lawyer, a very important lawyer.” In 2006, 2007, 2008, 2009 and 2010, Chambers USA recognized Craig as one of the nation’s leading political law attorneys.

The Colombia Law & Business Forum – A Big Success

October 24, 2010

On October 14, 2010, The Colombian American Association held “The Colombia Law and Business Forum,” sponsored and hosted by Arent Fox LLP in association with ProExport Colombia and The Colombia Law & Business Post.

Latin America and Colombia are hot emerging markets drawing significant investor attention. This event was geared towards financial and strategic investors already in, or considering a move to, Latin America and Colombia, to increase understanding and access to this burgeoning economy.

The main speaker was one of Colombia’s leading business executives, David Emilio Bojanini Garcia. The forum also included (i) a panel of investment bankers who discussed innovative infrastructure projects in Latin America; (ii) a legal panel discussion among transactional lawyers regarding “structuring for success” from the M&A, private equity, and tax perspectives; and (iii) an Arent Fox legal panel addressing risk management issues.


  • Juan Carlos Gonzalez, Vice President Foreign Investment, ProExport – To download Presentation please click here

Keynote Speaker

  • David Emilio Bojanini Garcia, Chairman, Suramericana Inversiones – To download Presentation please click here

Infrastructure Investment Panel

  • David Stone, Managing Director, Pan American Capital Partners
  • Ralph Scholtz, Managing Director, BNP Paribas

Managing Risks Legal Panel Discussion

  • Hunter Carter, Partner, Arent Fox LLP – To download Presentation please click here
  • Matthew Nolan, Partner, Arent Fox LLP – To download Presentation please click here
  • Ricardo Fischer, Partner, Arent Fox LLP – To download Presentation please click here

Investor Presentations

  • BancolombiaAlejandro Mejia – To download Presentation please click here
  • Grupo Chaid NemeRafael Londono – To download Presentation please click here
  • Grupo ÉxitoJaime Moya – To download Presentation please click here
  • Grupo Nacional de ChocolatesAna Maria Giraldo – To download Presentation please click here

Structuring for Success Legal Panel

  • Bruce Wolfson, General Counsel, The Rohatyn Group – To download Presentation please click here
  • Alvaro Cala, Partner, Brigard & Urrutia
  • Adrian Rodriquez, Partner, Lewins & Wills Colombia – To download Presentation please click here

Congratulations To Juan Manuel Prieto, to Posse Herrera & Ruiz, and Alejandro Delgado Moreno

October 24, 2010

Congratulations to Juan Manuel Prieto

Juan Manuel Prieto, the senior partner at Prieto & Carrizosa, has been named Colombia’s new ambassador to Italy.

Congratulations To Posse Herrera & Ruiz Abogados of Bogotá.

The hard-working lawyers at Posse Herrera & Ruiz recently sent out the following announcement of their selection by Chambers as the top firm in Colombia.

Dear clients and friends,

We are very pleased and honored to share with you that Chambers and Partners, one of the most prestigious international law firm ranking guides, named Posse Herrera & Ruiz as Colombian Law Firm of the Year. This award was presented last September 16, at the Chambers Latin America Awards for Excellence 2010.

We are especially grateful to you for your support and patronage, which contributed greatly to this important recognition.

Congratulations Alejandro Delgado Moreno

Bogota law blogger Alejandro Delgado Moreno, whose site is under my “links” tab down the right, has accepted a position as an advisor to the new Minister of Technology, Information, and Communications (or “MinTIC” as they say).

Alejandro Delgado Moreno


Despacho Viceministra de Tecnologías de la Información y las Comunicaciones

Ministerio de Tecnologías de la Información y las Comunicaciones

Edificio Murillo Toro Cra. 8a entre Calles 12 y 13

Bogotá, Colombia

Teléfono: +57 (1) 3442254

Fax: +57 (1) 3443434


Managing Corporate Taxation in Colombia (Lewin & Wills)

September 28, 2010

A top Bogotá tax law firm has published a detailed description of Colombian corporate taxation.

Alfredo Lewin and Adrian Rodriguez wrote Managing Corporate Taxation in Latin American Countries 2010 – Colombia for LATAXNET (Latin American Tax Network ) covering rates, withholding, loss carry-forwards, incentives, and a host of other important topics. This is an incredible and valuable resource. (The link is to the file they helpfully posted with chapters on all Latin American countries.)

Chiquita continued: Illegal Foreign Payments? Suit Dismissed Against Dole Food Co. For Supporting Colombian Paramilitaries

September 25, 2010

 When a California judge this week threw out a case against Dole Food Co. for supporting Colombian terror groups, the decision received little attention, but it is important news.  Readers of this site know that there is a hot debate burning over whether American courts applying American law can provide redress to survivors of victims of kidnapping and murder by the FARC guerillas and the paramilitaries of the AUC.  

The Dole decision in California only indirectly bears on that debate.  Because it was filed in state court, the case sounded in typical wrongful death theories. Plaintiff’s counsel Terry Collingsworth, however, has told the AP he will re-file the case in federal court. There we can expect the allegation of theories I have studied in other posts in this series under the Alien Tort Actions Statute (overseas wrongful death), the Anti-Terrorism Act (i.e., material support of terrorism), and other federal statutes, potentially including the Foreign Corrupt Practices Act.  (I will review the detailed allegations and the legal theories asserted against Dole Food in a later post.)

This week, a much-heralded bombing killed the military leader of the FARC (and many others). (This excellent article for the AP by Cali-based journalist Frank Bajak contains a lot of useful description and background. The Wall Street Journal’s article is here. )  Colombians erupted in joyous relief and talk of possible peace could be heard everywhere. In the raid, government forces captured a treasure trove of information to help sustain anti-FARC actions: 15 laptop computers, 94 USB drives, and 14 external hard drives.

Much has changed in Colombia in the last several years. Tens of thousands of the AUC paramilitaries demobilized under the Law of Justice and Peace (although subsequent cases of human rights abuses and criminal activity by former paramilitaries have been documented.) While the guerilla armies of the FARC and the ELN have not demobilized, government forces have been decimating them. Once these forces controlled half of the Colombian territory; today, as President Santos told a banquet I attended this week that they do not control “one centimeter.” Once numbering nearly 40,000, today estimates are difficult but come in around 6-8,000.

During the bad times, companies like Chiquita, Coca-Cola, Dole, and Drummond Coal that had significant land and personnel operations are accused of having paid the illegal forces a vacuna (“vaccine”) for security protection, which the companies describe as extortion. Recent security successes, however, incomplete or imperfect, have undoubtedly brought major economic improvements to the country, now seen as Latin America’s most business friendly. Gone are the days when foreign investors faced a country half governed by lawless forces.

The score is now at least three-to-one in throwing out cases against foreign corporations doing business in Colombia during the years when the paramilitaries and guerillas extorted payments, and perhaps other forms of support. As reviewed in my other posts on the Chiquita case, Cases against Coca-Cola and Drummond Coal have been dismissed, like the case against Dole, before the trial stage. However, the Florida federal court found legally sufficient the as-yet-unproven allegations against Chiquita of active, self-interested complicity with the paramilitaries. These are claims that Chiquita hotly disputes, saying the US government would have charged Chiquita with that kind of conduct if there had been any merit to these allegations, in the case where Chiquita pled guilty and paid a relatively low fine.

The facts in each case vary, and the law is in sharp dispute, so we will have to stay tuned to see what develops if the case against Dole Food Co. moves forward to federal court.

The Colombia Law and Business Forum – October 14

September 25, 2010
There are a limited number of seats available for this in-depth, high-level conference reviewing major law and business issues in Colombia today. Two legal panels will join the audience in reviewing and addressing the presentations of numerous major business and investment leaders. By taking a close look at the business issues through a legal lens, I, the conference chair, hope to lower barriers, increase understanding, improve connections, and enhance the investment environment.


83rd Anniversary

In association with:

 ProExport Colombian Government Trade Bureau

Media Outreach Partner: 

The Colombia Law & Business Post 


The Colombia Law and Business Forum

Thursday, October 14, 2010

8:00 – 8:30 AM    Buffet Breakfast and Informal Conversation

8:30 – 9:15 AM   Main Speaker:

David Emilio Bojanini Garcia

Chairman, Suramericana Inversiones

Mr. Bojanini will discuss the recipe for success of the Grupo Empresarial Antioqueño – a leading Colombian business group in banking, insurance, cement, foods, and many other sectors.

9:15 – 10:00 AM  — Infrastructure Panel

•        David Stone, Managing Director, Pan American Capital Partners

•        Ralph Scholtz, Managing Director, BNP Paribas

 Two investment bankers present their perspectives on their different infrastructure projects.

10:00 – 10:45 AM — Legal Panel: Structuring For Success

•        Bruce Wolfson, General Counsel, The Rohatyn Group  (Private Equity)

•        Carlos Urrutia Valenzuela, Managing Partner, Brigard & Urrutia (M&A)

•        Adrian Rodriguez, Lewin & Wills (Tax)

10:45 – 11:45 AM — Four “Road Show” Presentations By Colombian Firms Seeking Investors

11:45 AM – 12:30 PM — Legal Panel:  Managing Risks

•        Hunter T. Carter, Arent Fox (Litigation)

•        Matthew Nolan, Arent Fox (Trade Regulation, OFAC)

•        Ricardo Fischer, Arent Fox (Intellectual Property)

12:30 – 2 PM — Breakout Sessions With Road Show Presenters and Light Lunch



Arent Fox LLP

1675 Broadway  (Between 52nd & 53rd Streets)

New York,  NY

Members: $ 125

Non-members: $ 250

Space is limited. Register Now! 

Or call (212) 233-7776 or fax registration below to (212) 233-7779.

We look forward to seeing you at the event  

Thank you!



“The Colombia Law & Business Forum”~ Thursday, October 14, 2010

Name:                                               Title:

Company:                                          Division:


City:                                                  State:                                    Zip:

Tel:                                                    Fax:


No. of attendees:                               Amount:                              

Check No.:

Credit Card: ___AX   ___MC   ___VISA           Card No.:       

Expiration:                      Signature:       

_____ $ 125 for members and guests:

           ___CAA  ___EAA ___PAA ___VAAUS

_____ $ 250 for non-members

If you prefer to pay by check, please make it payable to Colombian American Association and mail it to 30 Vesey Street, Suite 506, New York, New York 10007


Name                                                 Company


Announcing Colombia Law & Business Forum, October 14, 2010 in New York

August 31, 2010

On October 14, the Colombian American Association will hold a conference entitled “The Colombia Law and Business Forum.

Our keynote speaker will be David Bojanini, Chairman of Suramericana Inversiones (also known as the Grupo Empresarial Antioqueño or the Sindicato Antioqueño).  We will also hear from David Stone, Managing Director of Pan American Capital Partners, on their infrastructure fund and projects.  

This half-day event will include presentations by up to six Colombian firms seeking investors, a panel of lawyers discussing “structuring for success” led by Bruce Wolfson of The Rohatyn Group, and a panel of lawyers discussing various topics for “managing risk,” that I will be chairing. 

The co-sponsors are Arent Fox LLP and ProExport, the Colombian Government Trade Bureau. The event will be held at Arent Fox LLP in New York City from 8 AM until noon.

For more information, please contact me, the conference chair, at or 

Linda A. Calvet 
Executive Secretary

Colombian, Ecuadorean, Peruvian, and Venezuelan
American Associations

212-233-7779 fax

Announcing Private Equity Study of Colombia, Brazil, Mexico

August 31, 2010

I am pleased to announce the publication this week in the Latin America Law and Business Report of the New York City Bar’s Report “Private Equity Developments In Brazil, Colombia, and Mexico.” As LALBR describes our work: 

Private Equity Regulation in Brazil, Colombia and Mexico

A report by the New York City Bar Association Committee on Inter-American Affairs explores some of the key legal factors that may have an impact on the growth of private equity investment in Brazil, Colombia and Mexico. Factors studied include corporate governance, preferred stock provisions and minority shareholders’ rights. Page 9

The site requires a subscription, which can be obtained on a trial basis (and which makes a lot of sense on a long-term basis).

The report’s chapters are:

I. Corporate Governance Regimes

II. Preferred Stock Provisions

III.  Anti-Dilution Rights

IV. Liability of Managers, Directors, and Shareholders; Board Membership

V.  Minority Shareholders’ Rights

VI. Exit Strategies and Implementation Via Drag-Along, Tag-Along, and Registration Rights

VII. Regulatory Issues: Fund Formation, Fund Operation, and Restrictions on Foreign Investment in Funds

VIII. Tax Issues

IX. Dispute Resolution

As one of the report’s co-authors, and now Chair of the Committee on Inter-American Affairs that produced the report, I want to acknowledge the hard work of all our co-authors:

Editor-in-Chief          John E. Rogers, Strasburger & Price, New York

Former Chair              Steven M. Kahaner, Marste & Co., New York


Janine Burman Nicolau   New York
Hunter T. Carter Arent Fox LLP New York
Steven M. Kahaner Marste & Co. (Juriscribe) New York
Alexandria C. Nichols   New York
Leonora Olmedo Forastieri Abogados New York and Mexico
Clayton Steele Posse Herrera y Ruiz Bogotá
Mark S. Tibberts Fulbright & Jaworski New York


Alessia Abello Posse Herrera y Ruiz Bogotá
Marcio Mello Silva Baptista Tozzini, Freire, Teixeira y Silva New York
Claudia Barrero Prieto y Carrizosa Bogotá
Luiz Dardes DLA Piper  
Gustavo Eiben Aureos Capital Greenwich, CT
Gabriel Falcao Vieira Machado Meyer Sendacz e Opice Advogados São Paolo
Juan Pablo Martinez SAI Abogados S.C. México
Carlos Fradique-Mendez L. Brigard & Urrutia Bogotá
Jaime Herrera Posse Herrera y Ruiz Bogotá
Scott McDonough Alta Growth Capital México
Felipe Ortiz-Monasterio Aureos Capital México
Eduardo Ocampo Muñoz Manso y Ocampo S.C. México
Adriana Carolina Ospina Brigard & Urrutia Bogotá
Daniella Tavares Machado Meyer Sendacz e Opice Advogados Rio de Janeiro
Juan Pablo Visoso Nexxus Capital México
Bruce Wolfson The Rohatyn Group New York

Chiquita Brands Part III-C: Of Bananas, Money, Guns, and Drugs: What Did Chiquita Really Do?

July 23, 2010

Readers of my other posts about the Chiquita story will have seized on one of the central issues in determining Chiquita’s liability to the wrongful death claimants under the Anti-Terrorism Act and the Alien Tort Claims Act — how close is the relationship is between Chiquita’s payments to the FARC guerillas and the paramilitaries of the AUC, on the one hand, and the kidnappings and murders that resulted?

The federal court hearing the cases, Judge Marra presiding, ruled against Chiquita in the New Times Missionaries case that allegations of substantial payments over a long period of time preceding the kidnappings and murders are sufficient if proven to make Chiquita liable, without more in terms of actual knowledge of these specific acts of violence. Legal observers and the parties hotly debate whether this standard of “causation” is too loose.  As discussed in Part IIIA of this series, Judge Marra ruled that if Chiquita’s payments were a “substantial factor” in the deaths it is sufficient to make Chiquita liable.  Plaintiffs argue that the payments alone are enough, no knowledge of murders, kidnapping, or the means for them are needed.

Chiquita angrily denies any involvement in guns and drugs.  Chiquita says no such evidence turned up in the DOJ investigation.  Chiquita’s Board appointed a Special Committee that found no evidence of anything more than the payments that were admitted, specifically denying, in a footnote, any Chiquita involvement in arms shipments. Read my discussion of the Special Committee report here and the report itself is here.  

But there are detailed allegations, which purport to be drawn from knowledgeable (if questionable) sources, that Chiquita was doing more than making extorted security payments. Former National Security Council official Lee Wolosky, now at Boies Schiller, filed a complaint on behalf of hundreds of plaintiffs against Chiquita in Henao Montes v. Chiquita Brands, No. 0:10-cv-60573 (S.D. Fla.) which is consolidated for pre-trial briefing with Does 1-976 v. Chiquita Brands International, Inc., No. 10-cv-00404-RJL (D.D.C.)).  The complaint alleges that plaintiffs are either survivors of Colombian nationals who were murdered by the paramilitaries of the AUC, or were themselves injured by the AUC in Colombia, and seek to collect damages from Chiquita under the ATS, the Torture Victim Protection Act, 28 U.S.C. § 1350 note, and state tort law.

These plaintiffs come right out and accuse Chiquita of direct involvement in drug and weapons shipments, to demonstrate a close link between the Chiquita payments and other actions, on the one hand, and acts of kidnapping and murder, on the other.  And they cite some pretty bad people, and some pretty serious organizations, as support.

So who’s right? In Part 1 below, I am going to use an old trick of some judges, and hear the Defendant Chiquita’s argument first that the allegations do not measure up to the legal standard. Then, in Part 2, I will set forth in detail many of the operative allegations from the Henao Montes complaint.

You be the judge.


 In response to the Henao Montes complaint, Chiquita filed a motion to dismiss all the cases, arguing:

The individual claims are set out in now-familiar long strings of short, conclusory paragraphs with virtually no detail about any of the alleged incidents and no facts purporting to tie Chiquita to any asserted death or injury.  (My emphasis.)

As to Chiquita’s role in these purported offenses, the Montes plaintiffs allege that

Chiquita was extorted by the FARC, which motivated Chiquita to pay the AUC…. [T]he new plaintiffs do not explain why Chiquita would want to have its own workers killed or why Chiquita was not equally prone to extortion from the ruthless and violent AUC, which was notorious for attacking those who resisted its demands… [I]n direct contravention of the facts recited in the plea agreement on which they rely [that Chiquita was “instructed” to make payments to the AUC and that “failure to make the payments could result in physical harm to Banadex personnel and property], plaintiffs ask the Court to accept as plausible their unsupported theory that Chiquita paid the AUC in exchange for the AUC’s violent “services” in “pacifying” the banana-growing regions.

Plaintiffs repeat the sensational, and entirely conclusory, allegations that Chiquita

engaged in weapons and drug trafficking. Here too, apart from misstatements or speculation, no facts are alleged to support the bald assertion that Chiquita—a U.S. public corporation that was thoroughly investigated by the U.S. Department of Justice for its extorted monetary payments to these armed groups—engaged in gun running and drug trafficking.

If the Supreme Court’s directives in Twombly and Iqbal mean anything, Federal Rule of Civil Procedure 8 requires more than a plaintiff’s say-so that a public company engaged in a side business of arms and narcotics smuggling, and that the U.S. Department of Justice chose to overlook it

Chiquita crystallized its legal arguments as follows:

  • The theory of liability for “material support of terrorism” does not satisfy the Alien Tort Statute, as construed by the US Supreme Court in Sosa v. Alvarez-Machain, 542 U.S. 592 (2004), which requires clearly defined or universally recognized violations of international law.  Neither the International Convention for the Suppression of the Financing of Terrorism, 39 I.L.M. 270 (December 9, 1997) (“Financing Convention”) nor the hodgepodge of other sources on which plaintiffs rely establishes a universal and clearly defined norm sufficient to give rise to subject matter jurisdiction under Sosa.
  • Trying this case would be intrusive and disruptive to the foreign relations of the United States, as this Court would be called upon to adjudicate plaintiffs’ assertions that the current president and the president-elect of the Republic of Colombia, a close ally of the United States, are complicit in mass murder. These are exactly the considerations the Supreme Court had in mind when it commanded the lower courts to exercise great  caution in recognizing new causes of action under the ATS.
  • A violation of international law ordinarily requires state action, i.e., allegations establishing the direct participation of a government or public official in each of the particular killings or injuries alleged (relying on the appellate decision dismissing allegations against Coca-Cola, Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252 (11th Cir. 2009)).
  • The theory of “crimes against humanity” continues to be unrecognized as an actionable violation of international law, and in any event plaintiffs do not allege any facts tying the alleged killings to an “attack” on a civilian population.
  • Claims that Chiquita was an “accessory” require that the accessory share the wrongful “purpose” of the primary violator.
  • While they may have pled facts sufficient to trigger an inference that Chiquita made payments to the AUC knowing that the AUC would engage in violent conduct, the Complaints lack any facts giving rise to a plausible inference that Chiquita shared the murderous intent of the paramilitaries.
  • Chiquita’s payments to both sides—coupled with plaintiffs’ ready admission that both of these notoriously violent, armed groups routinely extorted private business and that the AUC sought the “elimination of anyone . . . who opposed or complicated [its] control” — support the “obvious alternative explanation,” Iqbal, 129 S. Ct. at 1951, that Chiquita was extorted by both when they controlled the areas where Banadex operated.

Chiquita raises a number of other defenses, such as the statute of limitation and failure to plead necessary elements of state law causes of action, and argues the “prudential limitation on Article III standing non-resident aliens cannot sue in U.S. courts absent compelling circumstances.” (Emphasis mine.)


 So, how do the allegations measure up against these arguments?  I excerpt here for the reader the core of the (unproven) allegations from the Henao Montes complaint (with some notations by me) that specifically allege not only material financial support, but crucial financial support, as well as weapons and narcotics shipments, and that Chiquita did these things to boost profits, control workers, and maintain operations.

C.        Chiquita Purposefully Aided And Abetted The AUC’s Use Of The Paramilitary Terrorism Tactics.

 355.     Until approximately 1997, leftist guerillas controlled the rural northern areas of Colombia, including the banana-growing regions in and around Santa Marta and Urabá.

356.     At all times relevant to the allegations in this Complaint, the Colombian security forces were unable to defeat the leftist guerillas operating in the banana-growing regions and were unable to protect landowners and businesses from guerilla attacks, kidnappings for ransom, massacres, murders, and extortion. The Colombian security forces effectively ceded control of the banana-growing regions to the FARC and the ELN.

357.     Without any opposition from Colombian security forces, leftist guerillas in the Santa Marta and Urabá banana-growing regions created an environment of violence, fear, and danger. Landowners and businesses were regularly subjected to kidnappings for ransom, murders, property damage, extortion, and war taxes. Banana workers and citizens in communities surrounding the banana farms were repeatedly subjected to murder, torture, and massacre by leftist guerillas.

358.     In or around 1982, Chiquita stopped banana operations in Colombia, in part because of the political turmoil and violence pervading the banana-growing regions.

Ed. Note: Plaintiffs argue that Chiquita would later face the choice of leaving, but stayed instead, and got involved in the violence.

359.     In 1989, Chiquita returned to Colombia and resumed banana operations in Santa Marta and Urabá. Upon returning, Chiquita formed Banadex to control all of its business operations in Colombia. By the mid-1990s, all of Chiquita’s Colombian subsidiaries were consolidated under the management of Banadex and its general manager.

360.     Chiquita purchased a large number of banana farms and became a large landowner with approximately 9,500 acres of farmland in the Santa Marta and Urabá banana-growing regions.

361.     Chiquita also steadily increased its workforce to support its expanding banana operations. By the mid-1990’s, it employed, through Banadex,  aapproximately 4,000 people in the banana-growing regions.

362.     At the time it resumed operations in Colombia, Chiquita knew that leftist guerillas controlled the banana-growing regions in and around Santa Marta and Urabá. Chiquita knew the leftist guerillas were hostile to its business interests. Chiquita knew the leftist guerillas would demand the payment of war taxes and that the leftist guerillas controlled the banana-growing regions through almost daily acts of violence, including murder, kidnapping for ransom, and extortion.

Ed. Note: The following allegations detail how Chiquita itself was savaged by the violence of the guerillas. Chiquita says these attacks demonstrate it had no choice but to pay extortion and was not aligned with the extortionists, while the Henao Montes plaintiffs allege Chiquita settled into a pact with the paramilitaries and that payments and other support were less “extortion” than they were some kind of necessary evil.

363.     At the time it resumed operations in Colombian, Chiquita knew that its executives, employees, and property would be subject to attack by leftist guerillas.

364.     Notwithstanding its knowledge, Chiquita first resumed, and then steadily expanded, banana operations in the leftist guerilla-controlled banana-growing regions in and around Santa Marta and Urabá. Chiquita knew it would be required to deal with the FARC and the ELN guerillas in the course of operating its business.

Ed. Note: These paragraphs are directed at Chiquita’s “mens rea” or criminal intent.

(1)        FARC And Other Leftist Guerillas Damaged Chiquita’s Banana Operations By Creating A Hostile And Dangerous Environment In Santa Marta and Urabá.

365.     Shortly after Chiquita resumed business operations in Santa Marta and Urabá, FARC and ELN guerillas began killing Chiquita’s banana workers and causing damage to its physical infrastructure.

366.     In and around the same period of time, the FARC began to extort Chiquita by demanding payments from the company. Chiquita executives understood that the FARC intended to kidnap its employees if the payments were not made.

367.     In order to continue doing business in the Colombian banana-growing regions, Chiquita began making regular payments to FARC and other leftist guerilla groups. At various times, Chiquita also made payments to the ELN. High-ranking officers in Chiquita’s world-wide headquarters were informed of, and approved, payments to the FARC and the ELN.

368.     Chiquita made regular payments to the FARC and the ELN from in or about 1989 through in or about 1997, when the FARC and the ELN controlled the Santa Marta and Urabá banana-growing regions.

Ed. Note: Both sides argue the significance of the extortion of Chiquita, with Chiquita claiming their choices were limited, while the Henao Montes plaintiffs contend Chiquita eventually retaliated against the guerillas in siding with the paramilitaries and, having little choice but to leave, cooperated actively with them.

369.     Notwithstanding regular payments, the FARC and the ELN guerillas continued to violently attack banana workers and infrastructure. The attacks significantly affected Chiquita’s operations in the Santa Marta and Urabá banana-growing regions.

370.     In 1990 or 1991, leftist guerillas kidnapped Chiquita’s security director in Colombia and held him for ransom. Chiquita was forced to negotiate for the director’s release.

371.     Between 1991 and 1997, leftist guerillas kidnapped and held for ransom at least three other Chiquita employees.

372.     In or about 1992, the ELN destroyed Chiquita’s wharf in the city of Turbo.

373.     During the four months between September and December 1993, leftist guerillas killed more than 220 banana workers in the Urabá region. Even though the area was experiencing high unemployment rates, the frequent slaughter of banana workers by the FARC and the ELN made it difficult for banana growers to find enough employees willing to work. According to press reports, the leftist guerilla-fueled violence resulted in a twenty percent reduction in the production and export of bananas from Urabá.

374.     During 1993, leftist guerillas forcibly shut down operations at a number of banana farms, preventing landowners and banana workers from cultivating the land. According to press reports, growers expected the leftist guerilla violence to reduce banana production for the year by up to twenty-five percent in comparison to the previous year.

375.     In 1995, leftist guerillas bombed a packing station owned and operated by Chiquita.

376.     On August 30, 1995, seventeen banana workers were massacred during a raid on a banana plantation by leftist guerrillas with automatic weapons. The guerillas lashed the banana workers hands behind their back, forced them to lay face-down on a muddy soccer field, then shot them in the head.

377.     On August 31, 1995, banana workers went on strike to demand protection from leftist guerillas. The strike shut down all banana operations in the Urabá region. At the time of the strike, Urabá accounted for 70% of all banana exports from Colombia.

378.     On September 20, 1995, leftist guerillas massacred twenty-six banana workers. Leftist guerillas made the workers lie down in a ditch beside the road and then shot them, point blank, in the back of the head. Leftist guerillas captured and shot the workers only a few minutes’ drive from a military base.

379.     The violence caused even more banana workers to flee Urabá. As a result, Chiquita and other banana producers continued to encounter difficulty finding enough employees. According to press reports, growers and producers in the area expected banana production to drop by twenty-five percent in comparison to the previous year.

380.     In 1996, leftist guerillas bombed another packing station owned and operated by Chiquita.

381.     In or around 1996 or 1997, leftist guerillas ambushed, shot, and wounded Chiquita’s Colombian Quality Control Director and his bodyguard while they were inspecting banana farms in a company car. The leftist guerillas spared the Quality Control Director’s life only after discovering that he was not the general manager of Banadex, who was their intended target and was reportedly Chiquita’s most senior employee in Colombia.

382.     In or around 1996 or 1997, leftist guerillas ambushed two cars carrying the general manager of Banadex and Chiquita executives who were traveling to a company farm in Santa Marta. The leftist guerillas opened fire on both cars with automatic weapons. Chiquita’s employees escaped unharmed and evaded capture only because they were inside bullet-proof vehicles.

(2)        Colombian Security Forces Were Incapable Of Defending Chiquita Against Leftist Guerilla Attacks.

383.     At all times relevant to the allegations in this Complaint, Colombian security forces were incapable of defending Chiquita, its executives, employees, and infrastructure, from attacks by FARC and ELN guerillas.

384.     Local and national law enforcement agencies were incapable of defending Chiquita against the FARC and the ELN guerillas. Local law enforcement agencies lacked the weapons, training, and personnel to successfully confront the leftist guerillas. In addition, the effectiveness of most local police agencies was degraded by rampant corruption. The national police force was equally ineffective at confronting leftist guerillas and incapable of defending Chiquita from attack.

385.     Colombia’s military could not defend Chiquita. In fact, the military was unable to defend itself from attack by leftist guerillas. Throughout the 1980’s and 1990’s, the FARC and the ELN regularly attacked military bases, killed soldiers, and stole weapons, munitions, and equipment.

386.     On several occasions, the Colombian Army demonstrated its inability to protect Chiquita from attack by leftist guerillas. For example, following the destruction of its wharf in Turbo, Chiquita asked the military for help. The military informed Chiquita that it could not respond promptly because it did not have flashlights and fuel.

387.     In late 1994, the military notified Chiquita that intelligence indicated that leftist guerillas intended to attack two Chiquita facilities. In a January 8, 1995 letter concerning the impending attacks, Brigadier General Alvarez Vargas of the Colombian Army informed the company that the military could not provide protection. Instead, General Alvarez recommended that the company “make a greater commitment to increase and improve [its] own security.”

(3)        Chiquita Agreed To Provide The AUC With Practical Assistance And Material Support To Pacify The Banana-Growing Regions.

388.     In late 1996 or early 1997, the Banadex general manager, and another Chiquita employee from Colombia, participated in a meeting of banana growers to discuss security issues arising from leftist guerilla activity in the Santa Marta and Urabá regions. The meeting was also attended by Carlos Castaño, the leader of the AUC. (“Castaño Meeting”).

389.     Chiquita’s employees recognized Castaño and were familiar with the AUC. Among other things, they knew the AUC was a participant in the War against the leftist guerillas. They also knew that the AUC used the Paramilitary Terrorism Tactics as part of its strategy for defeating the leftist guerillas and protecting landowners and businesses. From information widely reported in the Colombian media, Chiquita’s employees knew that the AUC’s tactics included, among other things, massacres, extra-judicial killings, forced disappearances, torture, and forced displacements.

Ed. Note: This is the “turning point,” in the Henao Montes allegations, when Chiquita first aligned with the AUC to provide Chiquita with security.

390.     During the Castaño Meeting, Castaño told Chiquita’s executives that the AUC had begun a sustained offensive to drive the leftist guerillas out of the Santa Marta and Urabá regions. Because of what they knew about Castaño and the AUC, Chiquita’s executives understood that the AUC intended to use the Paramilitary Terrorism Tactics.

391.     Castaño asked Chiquita to support the AUC in its War effort against the leftist guerillas in two ways. First, Castaño asked Chiquita to stop making payments to the leftist guerillas. Second, Castaño asked Chiquita to begin paying the AUC.

392.     Castaño informed Chiquita’s executives that the AUC would use money it received from Chiquita to finance Paramilitary Terrorism Tactics that would be used to drive the leftist guerillas out of the Santa Marta and Urabá banana-growing regions; protect the company, its executives, employees, and infrastructure from future attacks by leftist guerillas; and create a business and work environment that would enable Chiquita’s Colombian banana-growing operations to thrive.

393.     At the Castaño Meeting, and at all relevant times thereafter, Chiquita took sides with the AUC in the War against the leftist guerillas and helped to finance and assist the AUC’s efforts in that War.

394.     At the Castaño Meeting, and at all relevant times thereafter, Chiquita agreed, and acted with the intent, to aid and abet the AUC’s use of Paramilitary Terrorism Tactics to drive leftist guerillas out of, and maintain control over, the Santa Marta and Urabá banana-growing regions.

Ed. Note: The next few paragraphs state the crux of the complaint: Chiquita provides assistance and support to the AUC knowing it engages in “Paramilitary Terrorism Tactics” in order for Chiquita to be secure from the guerillas, this support substantially caused the AUC’s violence, and the support was criminal, not the acts of an innocent victim.

395.     Following the Castaño Meeting, Chiquita knowingly and intentionally provided practical assistance and material support to enable the AUC to use Paramilitary Terrorism Tactics for the purpose of (i) driving leftist guerillas out of the Santa Marta and Urabá banana regions; (ii) maintaining control over the banana-growing regions; and (iii) creating an environment where the company’s banana-growing operations could prosper.

396.     According to information developed by the Attorney General for the Republic of Colombia, the agreement between Chiquita and the AUC constituted a “criminal relationship” to bring about the “bloody pacification” of the banana-growing regions.

397.     The assistance provided by Chiquita had a substantial effect on the AUC’s ability to successfully employ the Paramilitary Terrorism Tactics in the two regions. Chiquita knew the AUC was using its assistance to employ the Paramilitary Terrorism Tactics.

(4)        Chiquita Purposefully Assisted The AUC When It Made More Than 100 Payments Totaling Over $1.7 Million Between 1996 And 2004.

398.     For more than seven years – from in or about 1996 through on or about February 4, 2004 – Chiquita, through Banadex, paid money to the AUC in Santa Marta and Urabá. Chiquita paid the AUC, directly or indirectly, nearly every month. From in or about 1996 through on or about February 4, 2004, Chiquita made over 100 payments to the AUC totaling over $1.7 million.

(i)         High-Ranking Company Officers And Directors Knew That The AUC Engaged In The Paramilitary Terrorism Tactics And Approved The Payments.

399.     Chiquita’s payments to the AUC were reviewed and approved by senior executives of the corporation, including high-ranking officers, directors, and employees. No later than in or about September 2000, Chiquita’s senior executives knew that the corporation was paying the AUC and that the AUC was a violent, paramilitary organization led by Carlos Castaño. An in-house attorney for Chiquita conducted an internal investigation into the payments and provided a high-ranking officer in the company with a memorandum detailing that investigation. The results of that internal investigation were discussed at a meeting of the Audit Committee of the Board of Directors in the company’s Cincinnati headquarters in or about September 2000.

Ed. Note: To paraphrase the Watergate mantra, “What did Chiquita executives know and when did they know it?”  It is alleged they learned through an in-house attorney’s investigation and report. In the compliance world, this is a big “red flag.”

400.     For several years, from in or about 1996 until April 2002, Chiquita paid the AUC by check through various convivir in both the Santa Marta and Urabá regions. The checks were nearly always made out to the convivir and were drawn from Banadex’s bank accounts. Chiquita recorded these payments in its corporate books and records as “security payments” or payments for “security” or “security services.”

401.     In or about April 2002, Chiquita seated a new Board of Directors and Audit Committee following its emergence from bankruptcy.

402.     On or about April 23, 2002, at a meeting of the Audit Committee of the Board of Directors in Chiquita’s Cincinnati headquarters, the Audit Committee adopted new procedures for secretly paying the AUC. Pursuant to the new procedures, Chiquita’s executives in Colombia would issue checks payable to an individual employee who would endorse the checks. After converting the check to cash, another Chiquita employee in Colombia was assigned to deliver the funds, in cash, to the AUC.

Ed. Note: The allegation that the Audit Committee knew of, and directed the means for, secret payments is something Chiquita argues was necessary and plaintiffs argue shows a guilty mind.

403.     Beginning in or about June 2002, Chiquita began paying the AUC in the Santa Marta region of Colombia directly, secretly, and in cash according to new procedures established by Chiquita’s senior executives. The Chiquita employee to whom the AUC checks were made payable maintained a private ledger of the payments that did not reflect that the AUC was the ultimate and intended recipient of the payments.

(ii)        Chiquita Continued To Assist The AUC Even After The United States Government Designation Made The Payments A Felony.

404.     The United States government designated the AUC as an FTO on September 10, 2001. That designation was well publicized in the American public media. The AUC’s designation was first reported in the national press by the Wall Street Journal and New York Times, among others, on September 11, 2001. It was later reported in the local press in Cincinnati, Ohio where Chiquita’s headquarters were located. The Cincinnati Post reported the AUC’s FTO designation on October 6, 2001, and the Cincinnati Enquirer reported the designation on October 17, 2001. The AUC’s designation was even more widely reported in public media in Colombia.

Ed. Note: To defeat Chiquita’s innocent victim defense, the Henao Montes plaintiffs argue that Chiquita disregarded published information it could not have missed, as Chiquita argues, that it was now actively funding a banned terrorist organization, thus elevating the seriousness of the actions. This occurred the day before the 9/11 attacks, at a time when attention to terrorist support was at an all-time high.

405.     Chiquita had information about the AUC’S designation as an FTO specifically and global security threats generally through an Internet-based, password-protected subscription service that it paid money to receive. On or about September 30, 2002, a Chiquita employee, from a computer within Chiquita’s Cincinnati headquarters, accessed the service’s “Colombia-Update page,” which contained the following reporting on the AUC. “US terrorist designation International condemnation of AUC human rights abuses culminated in 2001 with the US State Department’s decision to include the paramilitaries in its annual list of foreign terrorist organizations. This designation permits the US authorities to implement a range of measures against the AUC, including denying AUC members US entry visas; freezing AUC bank accounts in the US; and barring US companies from contact with the personnel accused of AUC connections.”

406.     Even after learning that the United States government had formally designated the AUC as an FTO, Chiquita continued to make payments to the AUC in the Santa Marta and Urabá regions of Colombia without applying for a required government license. From on or about September 10, 2001, through on or about February 4, 2004, Chiquita made 50 payments to the AUC totaling over $825,000.

(iii)       Chiquita Continued To Assist The AUC Against The Advice Of Its Outside Counsel In The United States.

407.     On or about February 20, 2003, high-ranking officers and employees of Chiquita spoke with attorneys in the District of Columbia office of a national law firm (“outside counsel”) about the United States government’s designation of the AUC as an FTO and Chiquita’s ongoing payments to the AUC.

Ed. Note: The following allegations of acting against attorney advice go to Chiquita’s criminal intent.

408.     Beginning on or about February 21, 2003, outside counsel advised Chiquita that the payments were illegal under United States law and that Chiquita should immediately stop paying the AUC directly or indirectly. Among other things, outside counsel, in words and in substance, advised Chiquita:

· “Must stop payments.” (notes, dated February 21, 2003)

· “Bottom Line: CANNOT MAKE THE PAYMENT” “Advised NOT TO MAKE ALTERNATIVE PAYMENT through CONVIVIR” “General rule: Cannot do indirectly what you cannot do directly” “Concluded with: CANNOT MAKE THE PAYMENT” (memo, dated February 26, 2003)

· “You voluntarily put yourself in this position. Duress defense can wear out through repetition. Buz [business] decision to stay in harm’s way. Chiquita should leave Columbia.” (notes, dated March 10, 2003)

· “[T]he company should not continue to make the Santa Marta payments, given the AUC’s designation as a foreign terrorist organization[.]” (memo, dated March 11, 2003)

· “[T]he company should not make the payment.” (memo, dated March 27, 2003)

409.     Chiquita ignored the legal advice of its outside counsel and continued to make unlawful payments to the AUC. In February and March 2003, Chiquita made cash payments to the AUC totaling $36,871.

410.     On or about April 3, 2003, a member of the board of directors and a high-ranking officer reported to the full board of directors that Chiquita was making payments to a designated FTO. The board agreed to disclose the payments to the DOJ.

Ed. Note: When can/should extortion victims report the crime to local or US government officials?  Here, the Henao Montes plaintiffs allege that Chiquita ignored what DOJ officials said, but the Special Committee report concluded that DOJ was statements were reasonably misunderstood by company officials.

411.     On or about April 4, 2003, according to the notes of Chiquita’s outside counsel concerning a discussion about the AUC payments, high-ranking Chiquita executives were of the opinion to “just let them sue us, come after us.”

412.     On or about April 8, 2003, high-ranking Chiquita executives instructed the company to continue making make payments to the AUC.

413.     On or about April 24, 2003, a director and high-ranking officer of Chiquita, together with Chiquita’s outside counsel, met with DOJ officials. The DOJ officials told Chiquita that the company’s payments to the AUC were illegal and could not continue.

414.     However, Chiquita continued to make payments to the AUC. Between May 12, 2003 and September 1, 2003, Chiquita made nine cash payments totaling approximately $140,866.

415.     On or about September 8, 2003, Chiquita’s outside counsel advised Chiquita in writing that DOJ officials had repeatedly stated that they could not condone current or future payments to the AUC.

416.     Despite this warning, Chiquita continued to make payments to the AUC. Between September 8, 2003 and December 16, 2003, Chiquita made six cash payments totaling approximately $126,250.

417.     On or about December 22, 2003, a member of Chiquita’s board of directors warned other board members in an email that the company appeared to be “committing a felony” by continuing to make the AUC payments.

418.     Despite this warning, Chiquita continued to make payments to the AUC. Between December 22, 2003 and February 4, 2004, Chiquita made three more cash payments to the AUC totaling approximately $43,023.

419.     On March 13, 2007, the United States filed a criminal information against Chiquita in the United States District Court for the District of Columbia.

420.     On or about March 19, 2007, Chiquita pleaded guilty to one count of Engaging in Transactions with a Specially-Designated Global Terrorist, in violation of 50 U.S.C. § 1705(b) and 31 C.F.R 594.204. In conformity with its plea agreement, Chiquita agreed to a criminal fine of $25 million and was placed on corporate probation for a period of five years.

Ed. Note: The next few paragraphs relate Chiquita’s financial assistance to the violent acts of the AUC.

421.     The financial assistance Chiquita provided to the AUC had a substantial effect on the AUC’s ability to carry out its plan to drive leftist guerillas out of the Santa Marta and Urabá banana-growing regions and its ability to maintain control after regaining the regions from the leftist guerillas.

422.     According to Jose Gregorio Mangones Lugo (“Mangones”), an AUC leader of the William Rivas Front in the Santa Marta banana region, the income the AUC received from Chiquita was essential to its operations in the area. In a normal month, eighty to ninety percent of the income for the William Rivas Front came from banana companies, including Chiquita. The William Rivas Front used the funds it received from Chiquita to pay salaries for paramilitary soldiers, purchase weapons and supplies for the soldiers, and to provide transportation for its operations. Without the payments from Chiquita, the AUC’s William Rivas Front could not have prosecuted the War and used the Paramilitary Terrorism Tactics.

423.     According to Mangones, during the period of time Chiquita made payments to the AUC, the AUC killed many civilians in the Santa Marta region as part of what the AUC “had to do in order to win” the War against the leftist guerillas. Among those killed by the AUC were some individuals targeted for assassination by Chiquita executives in Colombia.

424.     Chiquita made the payments to the AUC for the purpose of facilitating the AUC’s ability to combat the leftist guerillas and employ the Paramilitary Terrorism Tactics for which it had become notorious, including massacres, extra-judicial killings, forced disappearances, torture, and forced displacements of civilians accused of being leftist guerillas and their sympathizers or supporters.

425.     As a result of the funding it received from Chiquita, the AUC had the resources needed to carry out the War against leftist guerillas, their sympathizers, and supporters and to maintain control over the banana-growing regions.

426.     As a result of the funding it received from Chiquita, the AUC killed, injured, or forcibly disappeared the individuals identified in Paragraphs 9 to 252 of this Complaint using Paramilitary Terrorism Tactics.

Ed. Note: The following allegations are the explosive ones (no pun intended – this is serious stuff). Nicaraguan arms offloaded through Chiquita facilities with its knowledge would, if true, seriously change the character of the case. But wasn’t this information known to the US government when it prosecuted Chiquita? Why did it not come out?

(5)        Chiquita Purposefully Assisted The AUC When It Facilitated The Shipment Of Arms And Ammunition Through Its Turbo Port Facilities.

427.     Chiquita facilitated the AUC’s use of Paramilitary Terrorism Tactics by making its seaport facilities in the city of Turbo available to the AUC for illegal arms shipments. Chiquita purposefully made its seaport available in order to assist the AUC in driving leftist guerillas out of the Santa Marta and Urabá banana-growing regions and maintaining control over the regions so the company’s banana-growing operations could prosper.

428.     In 2001, the Nicaraguan National Police made arrangements to exchange 3,000 AK-47 assault rifles and 5 million rounds of ammunition for weapons more suited to police work. The Nicaraguan National Police employed a private Guatemalan arms dealer to handle the exchange. The arms dealer, in turn, arranged to sell the AK-47 assault rifles and ammunition for $575,000 to an arms merchant based in Panama acting on behalf of the AUC.

429.     In November 2001, a vessel named the “Otterloo” left Nicaragua with Panama as its declared destination carrying the assault rifles and ammunition. Instead of sailing to Panama, the Otterloo traveled to Turbo, Colombia.

430.     Bills of lading, shipping invoices, and other documents identified Chiquita as the intended recipient of the arms and ammunition shipment.

431.     The arms and ammunition were off-loaded at sea from the Otterloo onto Chiquita’s barges by Chiquita’s employees and brought to Chiquita’s private warehouse facility where they were stored for a period of time. Chiquita employees and/or agents supervised a fictitious inspection of the shipping containers and arranged to load the weapons and ammunition onto trucks for delivery to the AUC.

Ed. Note: How valid are the arm’s allegations? They are attributed some weight by the General Secretariat of the OAS. But the allegations “upon information and belief” are really conclusions or inferences drawn by plaintiffs counsel, not facts they believe they already can prove.  What is the evidentiary probity of an interview with Carlos Castano, the notorious head of the AUC?

432.     A formal report by a General Secretariat of the Organization of American States concluded that the transfer of arms and ammunition to AUC could not have occurred without accomplices in Turbo.

433.     Plaintiffs are informed and believe that Chiquita facilitated at least four more arms and ammunition shipments through its Turbo port facilities. According to an interview with the Colombian newspaper El Tiempo, Castaño boasted in response to a question about the Otterloo incident, “This is the greatest achievement by the AUC so far. Through Central America, five shipments, 13 thousand rifles.”

434.     Chiquita was aware that it had substantially assisted the AUC’s use of Paramilitary Terrorism Tactics by helping them acquire a large number of military-grade assault rifles together with a large quantity of ammunition for those rifles. The arms had a substantial effect on the AUC’s ability to carry out its strategy to drive leftist guerillas out of the Santa Marta and Urabá banana-growing regions and to, thereafter, maintain control over the regions through the use of Paramilitary Terrorism Tactics.

435.     As a result of obtaining weapons with assistance from Chiquita, the AUC had the resources needed to carry out the War against leftist guerillas, their sympathizers, and supporters and to maintain control over the banana-growing regions.

436.     As a further result of obtaining weapons with assistance from Chiquita, the AUC killed, injured, or forcibly disappeared the individuals identified in Paragraphs 9 to 252 of this Complaint using Paramilitary Terrorism Tactics.

Ed. Note: The introduction of narcotics into the mix also changes the character of the case against Chiquita, like allegations of weapons shipments. The same skeptical questions must be asked, however.

And, in both cases, we will be watching to see whether the same Chiquita executives that felt it necessary to make the payments were advised of and permitted the additional cooperation on guns and drugs, and if so, how they will argue their innocence in the kidnappings and murders that followed.

(6)        Chiquita Purposefully Assisted The AUC When It Facilitated The Shipment Of Narcotics Through Its Turbo Port Facilities.

437.     Chiquita also purposefully assisted the AUC by allowing it to use the company’s private seaport facilities to smuggle large quantities of illegal drugs, especially cocaine, out of Colombia.

438.     According to Colombian prosecutors, the AUC shipped drugs on Chiquita’s boats carrying bananas to Europe. AUC leaders have stated that the AUC tied drugs to the hulls of banana ships at high sea to evade security agencies’ control points. On seven different occasions, the Colombian government seized cocaine hidden in banana shipments on Chiquita’s boats. More than one and one-half tons of cocaine has been found hidden in the company’s produce, valued at over $33 million dollars. Two of the ships on which drugs were found were named the Chiquita Bremen and the Chiquita Belgie.

439.     Upon information and belief, drug shipments could not have been attached to Chiquita’s banana boats, or hidden in the cargo, without the active collusion or willful ignorance of Chiquita employees.

440.     Chiquita knew the AUC obtained large sums of money from its illegal drug trafficking activities. Chiquita also knew the AUC used the money it obtained from drug trafficking activities to finance its participation in the War, including its use of the Paramilitary Terrorism Tactics. Chiquita purposefully allowed the AUC to use its banana boats and ships to help the AUC acquire money that could be used to support and facilitate its effort to drive leftist guerillas out of the Santa Marta and Urabá banana-growing regions and to, thereafter, maintain control over the regions using the Paramilitary Terrorism Tactics.

441.     By providing the AUC with access to its private port at Turbo and to freighters that are owned, operated, or controlled by the company, Chiquita had a substantial effect on the AUC’s ability to carry out its plan to drive leftist guerillas out of the Santa Marta and Urabá banana-growing regions and to maintain control over the regions.

442.     As a result of the funding it derived from drug trafficking activities carried out with assistance from Chiquita, the AUC had the resources needed to carry out the War against leftist guerillas, their sympathizers, and supporters and to maintain control over the banana-growing regions.

443.     As a further result of the funding it derived from drug trafficking activities carried out with assistance from Chiquita, the AUC killed, injured, or forcibly disappeared the individuals identified in Paragraphs 9 to 252 of this Complaint using Paramilitary Terrorism Tactics.

D.        Chiquita Took Sides With The AUC For The Benefits It Would Receive From The Defeat And Expulsion Of Leftist Guerillas, Sympathizers, And Supporters In The Banana-growing Regions.

444.     As a result of purposefully providing assistance and material support to the AUC, Chiquita received significant benefits arising from the AUC’s use of the Paramilitary Terrorism Tactics to drive the leftist guerillas, and their sympathizers and supporters, out of the Santa Marta and Urabá banana-growing regions. Chiquita received additional benefits when the AUC used the Paramilitary Terrorism Tactics to maintain control over the banana-growing regions.

445.     Because the AUC succeeded in driving the leftist guerillas out of the banana-growing regions, Chiquita executives in Colombia were no longer in constant danger of being kidnapped and held for ransom. Chiquita’s executives were no longer subject to great risk of being shot and killed by leftist guerillas. The AUC also protected Chiquita’s banana workers from attacks by leftist guerillas.

446.     The AUC used Paramilitary Terrorism Tactics to ensure that local people living in the banana-growing regions would never again entertain the idea of supporting or joining the leftist guerillas.

447.     The AUC guarded Chiquita’s farms and infrastructure to protect them from being bombed, burned or destroyed by leftist guerillas. The AUC stopped common criminals from hijacking banana shipments, looting company storage facilities, or damaging company infrastructure. The AUC also provided armed escorts to accompany major bananas shipments from the farm to storage facilities and then from storage facilities to the port for shipping.

448.     Chiquita also used the AUC to resolve complaints and problems with banana workers and labor unions. Among other things, when individual banana workers became “security problems,” Chiquita notified the AUC, which responded to the company’s instructions by executing the individual. According to AUC leaders, a large number of people were executed on Chiquita’s instructions in the Santa Marta region.

449.     The AUC also helped Chiquita by “pacifying” the labor union that represented banana workers in the region by assassinating its leftist president and installing a new union leader that would represent both the workers and Chiquita. Following the assassination, the AUC continued to oversee the labor unions on Chiquita’s behalf to ensure that union members did not attempt to take advantage of the company.

450.     Throughout the period of time it made payments to the AUC, Chiquita and the AUC communicated regularly to identify problems and resolve problems.

451.     As the AUC took and maintained control over the banana-growing regions, land prices improved and became stable, benefiting large landowners like Chiquita.

452.     By 2003, Chiquita’s operations in the Santa Marta and Urabá regions were the company’s most profitable banana-producing operation anywhere in the world.