IIEffective Insolvency and Creditor Rights Systems
A 2009 U.S. Country Commercial Guide for Paraguay reported that the legal framework for insolvency is comprised of the Commercial and Civil codes. The policy objective under Paraguayan bankruptcy law is to give priority for claims first to employees, then to the state, and finally to private creditors. The report cautions that widespread “corruption, patronage and bias” hinder the judicial process. Beyond this information, however, there is insufficient information publicly available as to Paraguay's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.
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NCInternational Financial Reporting Standards
A 2006 World Bank ROSC on Accounting and Auditing in Paraguay concluded that the financial reporting framework in the country is “incomplete” and “fragmented.” Apart from the supervised sector (banks, insurance companies, listed companies, cooperatives, and state-owned enterprises) there are no legally binding accounting standards. The World Bank points out that although the Paraguayan College of Accountants (CCPY) adopted International Financial Reporting Standards (IFRSs) in 2003, its resolutions do not have legal authority and are considered to be merely guidelines. Regulatory agencies which supervise the financial sector and the tax authorities do have the power to mandate accounting standards within their jurisdiction; however, their standards differ from IFRSs. In 2007, in a response to a self-assessment questionnaire put forth by the International Federation of Accountants, the CCPY stated its intent to propose reforms to the laws in 2009 to mandate IFRSs as the applicable accounting standards in the country.
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IIPrinciples of Corporate Governance
There is insufficient publicly available information that directly addresses Paraguay's compliance with the Organization for Economic Co-operation and Development's (OECD) Principles of Corporate Governance. However, like other Latin American countries, Paraguay suffers from poor disclosure standards, insufficient shareholder protection, weak legal framework and enforcement, and a slow movement toward legal reform, according to a 2007 report “Corporate Governance in Latin America” by Chong and López-de-Silanes. A corporate governance code is not available in Paraguay, and the capital market is small. Chong and López-de-Silanes, as well as a 2003 OECD report, emphasize the importance for Paraguay to improve voting rights, minority shareholder protection, transparency, board practice, and legal framework and enforcement.
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NCInternational Standards on Auditing
A 2006 World Bank ROSC pointed out that in Paraguay different regulatory agencies establish rules for entities under their respective supervision and maintain separate registries for external auditors. The enforcement of the existing auditing requirements was found to be inadequate. Although the CCPY adopted International Standards on Auditing (ISAs) as early as 1999, not all of the subsequent revisions to ISAs have been incorporated into the Paraguayan requirements. Moreover, the CCPY’s resolutions do not have legal authority and are perceived as general guidelines. The regulatory agencies utilize ISAs to varying degrees, but only as complementary to their own standards. The World Bank therefore recommended making ISAs mandatory standards for auditing, establishing a professional oversight body responsible for setting and enforcing auditing standards, and harmonizing the statutory framework for auditing in the country.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2008, the IMF conducted a review of Paraguay’s anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force's (FATF) 40 recommendations and 9 special recommendations. The assessment concluded that Paraguay is non compliant with an overwhelming majority of the FATF's recommendations. Moreover, Paraguay is only partially compliant with recommendation 1 on the criminalization of money laundering. It is non compliant with special recommendation (SR) II on the criminalization of terrorist financing, SR IV (suspicious transaction reporting related to terrorism), recommendation 5 (customer due diligence), and partially compliant with recommendation 10 (record keeping) and recommendation 13 (suspicious transaction reporting). All the above recommendations are deemed core requirements by the FATF and a country has to achieve a compliance level of largely compliant or higher to be considered in accordance with the FATF's standards. In Paraguay, the Criminal Code criminalizes money laundering as an autonomous crime, punishable by a prison term of up to five years. At the time of the IMF assessment, Paraguayan authorities made amendments to the Penal Code which, according to the 2008 IMF report, will remedy a series of deficiencies detected in the law. Paraguay does not criminalize terrorist financing or have a scheme for freezing, seizing, or forfeiting assets related to the financing of terrorism. The IMF clarified that even in the areas where legal norms do exist, their application is ineffective, and there is no mechanism that would permit the authorities to freeze assets of suspicious terrorists according to the pertinent resolutions of the United Nations Security Council. Furthermore, according to a 2009 U.S. Department of State report, the Egmont Group, of which Paraguay is a member, threatened suspension from the group if Paraguay does not show reasonable progress in enacting anti-terrorism finance legislation. Notwithstanding these shortcomings, a 2008 annual report by the FATF lists Paraguay as one of the jurisdictions which have undertaken to implement the FATF's recommendations.
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IDCore Principles for Systemically Important Payment Systems
A 2008 World Bank publication on payment systems worldwide indicates that the check clearinghouse is the only large-value payment system in Paraguay, and there is no real-time gross settlement (RTGS) system in the country. Based on the results of the World Bank’s 2008 Global Payment Systems Survey, Cirasino and Garcia’s 2008 report evaluates a country's compliance with four distinct sub components which are broadly based on the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems. The component, "large value payment systems" addresses aspects of Core Principles (CP) III through CP X and Cirasino and Garcia conclude that Paraguay achieves a "low level of development” for this component. Paraguay achieves “low level of development” for the legal and regulatory framework component, which covers CP I and to some extent CP II. Finally the third component of interest in the Cirasino and Garcia report is the payment system oversight for which Paraguay achieves a “low level of development.” Similarly, a 2008 IMF report notes that the payment system in Paraguay does not comply with all the CPs. The 2008 IMF report recommends that the legal framework be improved to provide settlement finality and protection against bankruptcy, a RTGS system be introduced, and an Automated Clearing House be established. A 2009 IMF report mentions that the Paraguayan authorities are improving the legal framework and infrastructure of the payment system. A draft law, which addresses legal weaknesses, has been developed and is waiting for approval. A RTGS system is planned to be implemented in 2010. According to a 2009 report by Central Bank of Paraguay, the country is undergoing a payment system modernization project aimed at making the country’s payment system compliant with international standards.
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