The error in trace file was
WF1399: Activity 'CustomActivityStep1_policy' validation failed: Property "RuleSetReference" has an invalid value. Rule set is invalid. Rule "main" validation failed. Type System.Globalization.CultureInfo is not marked as authorized in the application configuration file.
Error Details: Workflow compilation failed:
After reading this post I fixed it.
The fix as the message suggested was to give autorization to CultureInfo type. To do that I inserted the following line in web.config:
<authorizedType Assembly="mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089" Namespace="System.Globalization" TypeName="CultureInfo" Authorized="True"/>
on configuration/System.Workflow.ComponentModel.WorkflowCompiler/authorizedTypes