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The biggest news for the small group of local financial firms in Ecuador this year was almost entirely legislative. In October 2011, the country's left-leaning President Rafael Correa approved the Organic Law for the Regulation and Control of Market Power....

The biggest news for the small group of local financial firms in Ecuador this year was almost entirely legislative. In October 2011, the country's left-leaning President Rafael Correa approved the Organic Law for the Regulation and Control of Market Power. The law includes anti-trust provisions, the most important of which state that news media organisations and banks can no longer own interests in companies whose business is not directly related to their own.

The news media portion of the law is viewed as relating directly to a 2011 libel suit Correa brought against the Ecuadorian newspaper El Universo following articles published after renegade police trapped Correa in a hospital for 12 hours in a protest against government austerity measures. The case resulted in a $40 million judgment against the paper and prison terms for a journalist and the editors involved.

From a business perspective, the more impactful part of the new law concerned the banking industry. This year numerous banks in Ecuador, both foreign and domestic, were forced to divest themselves of non-banking operations, most specifically in the insurance industry. The resulting transactions created a lot of work for firms in Ecuador, but it has many in the country worried that the government has too much involvement in the economy and too great an ability to interfere in the private sector of the financial system. For a country still recovering from its 2008 debt default, there is a great deal of concern as to how government involvement in industry will affect the overall financial picture.

The legal market in Ecuador still remains quite small and there are only a handful of firms that engage in large-scale financial work, however those that do tend to employ bilingual attorneys fully capable of serving large and small corporate clients both domestic and foreign.

CONTEXT AND TRENDS Still largely an oil-based economy, Ecuador has an agreement in place under which it supplies oil to China in return for billions of dollars a year in financing from various Chinese banks that pre-pay for Ecuadorian crude oil. Some of this money is being used for things like renewing the country's energy model with government projects like the Coca-Codo Sinclair hydroelectric plant on Ecuador's Coca River....

Still largely an oil-based economy, Ecuador has an agreement in place under which it supplies oil to China in return for billions of dollars a year in financing from various Chinese banks that pre-pay for Ecuadorian crude oil. Some of this money is being used for things like renewing the country's energy model with government projects like the Coca-Codo Sinclair hydroelectric plant on Ecuador's Coca River. The project was first researched in the 1970's, but has only recently been begun using the financing from the Chinese. Some in the country are worried, however, that environmental concerns are being minimised and that, like many projects utilising Chinese financing, this effort will be undertaken by Chinese companies using Chinese equipment and labour (China's Sinohydro Corporation is building the Coca-Codo Sinclair plant).

Ecuador is experiencing its first large projects in areas like mining though and most firms reported being quite busy over the last year. Despite having a reputation for lacking respect for international arbitration proceedings, many lawyers were surprised by the amount of work that was generated by litigation and arbitration cases involving Correa's government.

As previously mentioned, the new anti-trust law generated a great deal of transactional work for Ecuador's financial firms this year. The impact on the legal market was significant, although some lawyers are concerned about its execution. "Our firm has really been growing because of the new [anti-trust] law – the law is very big and the authority very powerful," explains one. "On the one hand you have this law that says companies have to divest certain businesses or file for pre-merger control, but on the other hand the government hasn't even set up the places to properly file yet."

M&A activity was also on the rise in Ecuador this year, but not for the larger deals that many firms are accustomed to: "I would say that in terms of acquisitions, this year was very interesting even though Ecuador did not receive a big amount of foreign investment," notes a partner. "In terms of overall transactions, though, there's been an increase over the last year, mostly in the $10 million to $40 million range."

Mining saw a big uptick, too, despite the country's relative inexperience in the industry. "Mining was big this year, but for Ecuador mining is very new," comments one attorney. "The country has no experts, no companies and no history in the business. The industry is way ahead of the market and legislation here and in many cases companies have to explain their business to the government."

There was a perceived decrease in oil and gas investment last year, despite the country's links with China. One partner observes, "In terms of the legal practice, oil and gas slowed down this year. Like other industries such as banking it was due to government regulations." Another attorney adds, "[Ecuador] will have a terrible problem if oil prices go down. Our country's budget is not prepared for a reduction of even 20%."

Project finance was also popular in recent months, but once again attorneys expressed concern that Ecuador is paying too heavy a price to obtain financing for much-needed infrastructure projects: "The Chinese found an opportunity in Ecuador – our country is desperate for money," notes one, adding, "[Chinese] banks finance the projects, then dictate the terms so that Chinese companies, Chinese equipment, and Chinese labour are used. It's a win/win situation for China, but not necessarily for Ecuador."

MAJOR LATERAL HIRES

Javier Robalino Orellana
From: Pérez Bustamante & Ponce
To: Paz Horowitz Robalino Garcés

Juan Carlos Pérez
From: Paz Horowitz Robalino Garcés
To: In-house position

Rodrigo Garcés Velalcázar
From: DRET Consultores
To: Paz Horowitz Robalino Garcés

MAJOR LEGISLATION CHANGES

Organic Law for the Regulation and Control of Market Power
Approved as of October 2011