Policies Towards Foreign Direct Investment

Despite government rhetoric welcoming foreign investment, the GBRV has thus far remained unwilling to adopt systemic changes to protect and promote foreign investment. The 1999 constitution generally provides for equal treatment of foreign and domestic investment. Article 301 provides for equal treatment of national and foreign investment. Article 302 reserves the petroleum industry and other strategic sectors of public interest for the state. A 2014 foreign investment law reduced statutory rights of foreign investors (see below for details). The industry association CONINDUSTRIA (Confederacion Venezolana de Industriales) estimates that there were 700 state interventions (nationalizations or other seizures of private property) during the period 2002 to 2016. Venezuela does not have an active investment promotion agency.

Limits on Foreign Control and Right to Private Ownership and Establishment

A 2014 foreign investment law reduced foreign investors’ statutory rights compared to the prior regime. The law designated the Venezuelan currency commission, the National Center for Foreign Commerce (CENCOEX) as the regulatory authority for foreign investment, under oversight of the Commerce Ministry. The Petroleum and Mining Ministry and the Economy, Finance, and Public Banking Ministry have concurrent authority with CENCOEX for regulating their respective sectors. See Section 3 – Laws and Regulations on Foreign Direct Investment for more details on specifics.

Express limits on foreign ownership of investments are generally found in the energy and mining sector.

Energy and Mining

The GBRV retains state control of the hydrocarbons sector. The 2001 hydrocarbons law reserved for the state the rights of exploration, production, transportation and storage of petroleum and associated natural gas. Under these regulations, hydrocarbon activities must be carried out by state-owned enterprises such as PDVSA, or by a public-private partnership with at least 50 percent state ownership.

In 2005, the GBRV informed companies operating under service contracts that they needed to convert their existing contracts into joint ventures to conform to the 2001 Hydrocarbons Law. That same year, the Venezuelan government threatened to seize 33 services contracts if these foreign investors did not migrate their existing contracts to the new format. Sixteen of those oil companies signed memoranda of understanding, converting their contracts to joint ventures. Minority partners seeking to exit joint venture investments in the petroleum sector have faced difficulties securing requisite GBRV approval to do so.

In contrast to the framework for petroleum, the 1999 Gaseous Hydrocarbons Law offers more favorable terms to investors within the unassociated natural gas sector, which is mostly offshore. This law opened the sector to private investment, both domestic and foreign, and created a licensing system for exploration and production regulated by the former Ministry of Energy and Mines (now the Ministry of Petroleum). Venezuela retained ownership of all natural gas in situ, but PDVSA involvement was not required for gas development projects (although the law allows PDVSA to back into 35 percent ownership of any natural gas project once the private partners have declared commerciality). The law prohibited vertical integration of the gas business from the wellhead to the consumer.

In 2008, the Organic Law on the Restructuring of the Internal Liquid Fuels Market came into effect. The law mandates government control of domestic transportation and wholesale of liquid fuels and set a 60-day period for negotiations with the affected companies. The law does not define liquid fuels, which created uncertainty as to whether it applies to products other than gasoline and diesel fuel. This law affected companies that had investments in the downstream sector.

In 2009, Venezuela enacted the Organic Law that Reserve to the State the Assets and Services related to Hydrocarbon Primary Activities. The law affected petroleum service companies involved in the injection of water, steam, or gas as secondary recovery methods, as well as services rendered for the performance of primary activities on Lake Maracaibo. It provided for the rendering of contracts previously executed between PDVSA and private companies. All contracts and activities governed by this law are subject to domestic law and are the exclusive jurisdiction of Venezuelan courts. The GBRV nationalized more than 75 companies, including three U.S. firms. In 2014, the GBRV announced it had reached an agreement to compensate the Venezuelan owners of a small number of the expropriated firms.

Despite Venezuela’s expropriations in the petroleum sector and the costly and difficult operating environment, since 2009, several international companies have agreed to create joint venture companies with PDVSA to extract crude oil. A number of these joint ventures are in the Faja del Orinoco (the Orinoco Heavy Oil Belt), where most of Venezuela’s reserves are located. Venezuela’s oil production and reserves also account for the continued presence of major foreign oilfield service companies. Nevertheless, some service companies operating in Venezuela have left and others have shrunk due to the problem of late payments from PDVSA that began in late 2008, nationalizations, and the threat of nationalizations.

In 2009, Venezuela’s Organic Law for the Development of Petrochemical Activities entered into force. The law reserves basic and intermediate petrochemical activities to the state. It allows the state, through the Ministry of Petroleum, to create mixed companies in which the GBRV will control at least 50 percent of the shareholder equity and exercise effective control over company decisions. Such mixed companies can only exist for a maximum of 25 years, extendable for periods of 15 years by mutual agreement of the parties and with national assembly approval.

The GBRV has modified laws and regulations, and adjusted loan terms with foreign oil companies, to encourage investment in the energy sector. The GBRV revised in February 2013 the Law of Special Contributions for Extraordinary and Exorbitant Prices, commonly called the windfall profit tax. The revision reduced the measure’s tax burden by raising the price per barrel at which a graduated scale of tax rates would apply. The rates are: 20 percent for USD 60-80/barrel; 80 percent for USD 81-100/barrel; 90 percent for USD 101-110/barrel; and 95 percent for more than USD 110/barrel. Foreign companies involved in joint ventures to develop the Orinoco Heavy Oil Belt have sought GBRV clarification regarding whether the new windfall profit tax rates would apply to the joint ventures’ production of extra-heavy crude.

Since the December 2015 opposition coalition victory in the National Assembly, there have been public discussions about the executive branch’s ability to enter into contracts of national interest, including joint ventures in the extractive sector, without legislative approval. In February 2016, President Maduro declared through decree powers that the Mining Arc of Orinoco, a 111,843 square kilometer zone in Bolivar State, was certified for exploitation and presented favorable investment terms to certain international mining companies. The opposition-controlled National Assembly has repeatedly warned that contracts signed between the executive branch and foreign companies without the legislature’s approval would not be honored by future governments. See Section 3 on the transparency of the regulatory system for more information.

Other Investment Policy Reviews

The World Trade Organization (WTO) last conducted a Trade Policy Review of Venezuela in 2002.

Business Facilitation

Starting and owning a business in Venezuela remains a challenging endeavor. Utilizing the services of a lawyer is necessary to navigate the time-consuming process. Venezuela is ranked 187 of 190 overall in the World Bank’s 2017 Doing Business report and is ranked 189 in the ease of starting a business. On average starting a business takes 20 procedures and 230 days. The first step involves reserving a company name through the Commercial Registry (Registro Mercantil) which has some information online (http://www.saren.gob.ve/ ) but remains a largely manual process.

Outward Investment

No formal outward investment is promoted or incentivized in Venezuela. Domestic investors are not restricted from investing abroad, but the tight restrictions on obtaining foreign currency hinder such efforts.

Venezuela has bilateral investment treaties with Argentina, Barbados, Belarus, Belgium and Luxembourg, Brazil, Canada, Chile, Costa Rica, Cuba, Czech Republic, Denmark, Ecuador, France, Germany, Iran, Islamic Republic, Italy, Lithuania, the Netherlands, Paraguay, Peru, Portugal, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, Uruguay, and Vietnam.

Effective November 1, 2008, Venezuela revoked its Bilateral Investment Treaty with the Netherlands. Revocation did not have immediate consequences for investments made prior to the date of revocation. The BIT remains in force for these investments for a period of 15 years.

Bilateral Taxation Treaties

The United States and Venezuela have a bilateral tax treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed in 1999. The provisions of the treaty apply to the following taxes in existence at the time of the entry into force: a) in Venezuela: the tax on income and the business assets tax; b) in the United States: the Federal income taxes imposed by the Internal Revenue Code (but excluding social security contributions), and to any identical or substantially similar taxes that imposed after the date of signature.

Transparency of the Regulatory System

Venezuela’s regulatory and legal system lacks transparency, is unpredictable, and suffers from corruption. The GBRV’s ruling United Socialist Party of Venezuela (PSUV) and its allies control the executive branch, including all regulatory agencies, the judiciary, the electoral authority, and a theoretically independent branch composed of the Attorney General, the Comptroller General, and the Public Defender (or ombudsman). International observers believe the executive branch exercises undue influence over the judicial, regulatory, and electoral authorities. In December 2015 a coalition of opposition parties won control of the National Assembly. Proposed laws are generally presented for two rounds of discussion in the National Assembly, but the PSUV-dominated Supreme Court has struck down all laws that the opposition-controlled National Assembly has passed, to date. The Supreme Court has ruled that the president has the ability to issue new laws by decree, circumventing the normal legislative process. Executive agencies generally develop and promulgate implementing regulations without consulting private sector representatives of the affected sectors. Regulations are inconsistently enforced.

International Regulatory Considerations

Venezuela is a member of the Southern Common Market (Mercosur), a full customs union and a trading bloc. After joining in July 2012, Venezuela had four years to fully adopt the trade bloc regulations. Venezuela’s membership was suspended in December 2016 due to its failure to implement 200 Mercosur norms and regulations. Venezuela has been a member of the World Trade Organization since 1995.

Legal System and Judicial Independence

Venezuela’s legal system is based on the civil law tradition, reflecting Napoleonic and continental European influences. The commercial and civil codes address most business matters. The investment law stipulates that foreign investments shall be subject to the jurisdiction of Venezuelan courts and any bodies in which Venezuela might participate within the framework of Latin American and Caribbean integration. Venezuelan legal analysts have conflicting views regarding whether the law eliminates the possibility of arbitration. The legal system is generally slow and inefficient, and lacks independence from the executive branch.

International Arbitration

Venezuelan law provides for commercial arbitration, based on The United Nations Commission on International Trade Law’s (UNCITRAL) model arbitration law. The private sector Venezuelan Business Center of Arbitration and Conciliation (CEDCA) offers arbitration services. Additional information is available at http://www.cedca.org.ve/ . Venezuela withdrew from the International Centre for Settlement of Investment Disputes (ICSID) in 2012.

Laws and Regulations on Foreign Direct Investment

Navigating the various investment law requirements remains challenging (see Section 2 – Limits on Foreign Control and Right to Private Ownership and Establishment). Obtaining legal counsel is recommended to ensure compliance with laws and regulations.

A 2014 foreign investment law designates the Venezuelan currency commission, the National Center for Foreign Commerce (CENCOEX) as the regulatory authority for foreign investment, under oversight of the Commerce Ministry. This law stipulates the following legal entities and physical persons are subject to its measures: foreign businesses (51 percent or more owned by non-Venezuelans) and their affiliates and subsidiaries (50 percent or more owned by a foreign business); national companies subject to a strategic plan by two or more states; national companies that capture foreign investment as defined by the law; Venezuelans and non-Venezuelans resident abroad who invest in Venezuela; non-Venezuelans resident in Venezuela who undertake investments in Venezuela. The law defines an investment as any legally obtained resources used for the production of goods and services, particularly those of national origin or manufacturing, that contribute to creating jobs, promoting small and medium enterprises (SMEs), local production chains, and innovation. It also includes financial, tangible, and non-tangible assets, as well as reinvested earnings.

Tangible goods are required to make up at least 75 percent of the value of the foreign investment. Foreign investment must be for a minimum value of USD 1 million and for at least five years, CENCOEX may exceptionally approve an investment of no less than USD 100,000 for the promotion of SMEs. After the initial five years and payment of any financial obligations, a foreign investor may repatriate up to 85 percent of the registered foreign investment. This condition is waived if the foreign investor instead sells the business to local investors who will continue to operate the business. In those cases, the foreign investor may repatriate 100 percent of the investment.

The payout of earnings and dividends is done in the local currency in Venezuela. No more than 80 percent of earnings may be repatriated in hard currency in any fiscal year. The GBRV may undertake special measures regarding foreign investments and technology transfer, including limiting earnings and capital repatriation, if extraordinary circumstances affect Venezuela’s balance of payments or international reserves. Neither CENCOEX, nor its predecessor, CADIVI, has authorized USD sales for purposes of earnings or capital repatriation since 2008 (see Section 6 on Foreign Exchange and Remittances).

By law, all foreign investors must contribute to the production of goods and services to satisfy domestic demand and promote non-traditional exports; aid in economic development, research, and innovation; participate in Venezuelan government economic policies; implement responsible business conduct programs consistent with international standards; and align to the objectives of Venezuela’s national economic policy. Failure to comply subjects a foreign investor to revocation of the foreign investment registration and monetary fines.

Foreign investors will enjoy rights as foreign investors once CENCOEX or another competent authority provides them with a foreign investment registration. New regulations should be available on CENCOEX’s website: http://www.cencoex.gob.ve/ .

Competition and Anti-Trust Laws

Procompetencia, the Superintendence for the Promotion and Protection of Free Competition, is the government agency responsible for regulating businesses to ensure competition exists to benefit consumers and producers. In theory, the agency also helps the Ministry of Commerce development public policies by carrying out studies on economic sectors, research the impact of prices on markets, and review commercial laws. However, its role has been significantly diminished over the past several years as the government has elected to use more direct methods to intervene in cases of perceived anti-competitive behavior.

According to the website http://www.procompetencia.gob.ve/ , Procompetencia has been rebranded as the Anti-Monopoly Superintendence with the slogan “Combating the Economic War.”

Expropriation and Compensation

According to the Law on Expropriation for Public Cause or Social Use (2002), Article 2 explains that expropriation is justified when the State acts “for the benefit of a public or social interest” and can be undertaken through the forced transfer of property or other rights of individuals to the government pending a final judgment by the judiciary and “timely” payment of fair compensation.

Article 3 states that assets are considered of public interest/use when they directly provide uses or improvements for common benefit. This executive power has been interpreted broadly, used regularly as a threat to force businesses to act in accordance with the government’s wishes, and carried out frequently in the last fifteen years. In many cases, companies have argued that they have not received the payment of adequate compensation, if any, and foreign companies regularly seek judicial rulings on expropriation outside Venezuela’s jurisdiction when possible (see below).

Investment Disputes

The industry association CONINDUSTRIA (Confederación Venezolana de Industriales) estimates that there were 700 state interventions (nationalizations or other seizures of private property) during the period 2002 to 2016. The GBRV has not specifically targeted U.S. firms in its expropriations, but many expropriations and investment disputes have involved U.S. businesses. At leave five investment disputes involving firms with U.S. affiliations are ongoing at the International Centre for Settlement of Investment Disputes (ICSID).

Dispute Settlement

ICSID Convention and New York Convention

On January 24, 2012, the GBRV withdrew as a member state from the ICSID Convention. Twenty-four cases pending before ICSID remain active. These pending cases are not affected by Venezuela’s renunciation of the ICSID convention. Between the date of the notice of renunciation and the date when it became effective, foreign investors had an additional six months to file new claims against Venezuela. Because the United States and Venezuela do not have a bilateral investment treaty, ICSID may not have jurisdiction to consider claims raised by U.S. businesses against the GBRV. Some businesses have instead filed claims based on the jurisdiction in which subsidiaries of the U.S. based parent corporation are located, when a bilateral investment treaty is in place in that jurisdiction. Since 2013, ICSID has returned judgments in favor of several claimants. The GBRV has sought to annul ICSID’s judgments within the ICSID forum and to challenge claimants’ efforts to enforce the judgments in U.S. and European courts.

Venezuela is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and a member of the International Chamber of Commerce’s International Court of Arbitration, which covers commercial disputes.

Investor-State Dispute Settlement

The United States does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with Venezuela. Numerous investment disputes involving U.S. companies have occurred over the past 10 years. Venezuela has a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

No alternative dispute solution mechanisms are available as a means to settle disputes between two private parties. Venezuelan court processes are not transparent or consistent in their methods of reaching decisions.

Bankruptcy Regulations

Venezuela’s bankruptcy laws are outdated and inadequate to permit the reorganization of a debtor as a going concern. Insolvent companies that file for bankruptcy or reorganization generally lose control of their businesses and assets to a receiver and a bankruptcy judge, giving creditors fewer options to assert their interests in the process, compared to bankruptcy proceedings in other jurisdictions. All financial and commercial unsecured creditors are treated equally, but they are subordinated to the debtor’s employees, who are due unpaid wages and other labor benefits, as well as to certain taxes. The bankruptcy trustee and advisors also have a statutory preference over all other creditors. Under the commercial code, all creditors that are not secured by a legal and valid security interest, or have a preference as mandated by law (e.g., the debtor’s employees) must be treated equally by the bankruptcy court. Lawyers say Venezuela’s bankruptcy laws incentivize debtors and creditors to negotiate settlements outside the context of formal bankruptcy proceedings.

Investment Incentives

Investment incentives are generally found in the energy and mining sector as described in the Industrial Promotion section.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Free Trade Zone Law provides for free trade zones and free ports. The three existing free trade zones are located in the Paraguana Peninsula, in the state of Falcon, which also has a tourism investment promotion provision; Atuja in the state of Zulia; and the municipalities of Libertador, Campo Elias, Sucre; and Santos Marquina in the state of Merida, but only for cultural, scientific, and technological goods. These zones provide exemptions from most import and export duties and offer foreign-owned firms the same investment opportunities as Venezuelan firms. Venezuela has two free ports that also enjoy exemptions from most tariff duties: Margarita Island (part of Nueva Esparta state) and Santa Elena de Uairen in the state of Bolivar.

Performance and Data Localization Requirements

Venezuela’s 2014 investment law contains mandatory language regarding the development of local suppliers, domestic research and development, and non-traditional exports, but it remains to be determined whether the GBRV will enforce these rules in a manner that constitutes a local content requirement. Venezuela’s telecommunications law gives regulatory authorities powers to access and intervene in telecommunications infrastructure and services in the interest of national security, defense, and public order. Venezuela’s law against computer crimes criminalizes a range of conducts, including unauthorized access to systems, espionage, and sabotage. No information is available regarding requirements that foreign investors store data in Venezuela, although anecdotally many foreign firms store data outside the country.

Real Property

Expropriations, weak public sector institutions, corruption, and lack of judicial independence undermine real property rights in Venezuela. Mortgages and property liens exist. Real estate lawyers say land registries are generally reliable, although in some cases are subject to abuse and corruption. In 2015, the World Bank ranked Venezuela 130 out of 189 countries for ease of registering property. The World Bank said registering a property interest takes nine administrative procedures, 52 days, and costs 2.5 percent of the property value. Venezuela has a law on indigenous land rights which provides general definitions of indigenous peoples’ lands and use rights and assigns the laws implementation to the environment ministry. Data are unavailable on the percentage of Venezuelan land lacking clear title.

A 2013 decree law capped commercial rental rates at 250 VEF/square-meter, which represented 50-75 percent reductions from prior market prices. The law prohibits commercial rent contracts in any currency other than VEF; private arbitration for the resolution of conflicts between landlords and tenants; and foreign companies administering commercial rental contracts.

Intellectual Property Rights

Venezuela’s Intellectual Property Rights (IPR) regime remains inefficient and ineffective. Its 1955 Industrial Property Law (IPL), the primary IPR legislation governing trademarks and patents, conflicts with the 1999 Venezuelan Constitution, domestic labor law, and international agreements to which Venezuela is a signatory. In its current form, the IPL is outdated and incapable of addressing modern IPR issues. It also conflicts with the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The 2012 Organic Law of Labor and Workers further complicated Venezuela’s IPR regime because article 325 provides that any intellectual property generated by public sector entities, or using public sector funds, automatically becomes part of the public domain. In 2016, renewed efforts by the National Assembly to update Venezuelan IP law to bring it into compliance with international standards stalled as other more pressing social, political, and economic issues took priority.

In July 2012, recognizing the 1955 industrial property law was outdated and at odds with multiple national and international legal structures, the Venezuelan Supreme Court (TSJ) urged the National Assembly to revise the industrial property law and reconcile it with Article 98 of the 1999 constitution. However, the initiative failed and there have been no new developments since 2014. In 2015, the Autonomous Intellectual Property Service (SAPI) adjusted the fee structure for patents and trademarks, forcing all foreign rights holders to pay fees in dollars at the strongest exchange rate. Limited improvements have occurred in specific areas, such as law enforcement cooperation and the 2015 launch of a “one-stop” SAPI website.

As a WTO member, the GBRV is obligated to adhere to the requirement of the TRIPS Agreement. However, its failure to grant any patents since in 2007 violates TRIPS Articles 2.1 and 62.2. Venezuela is a member of the World Intellectual Property Organization (WIPO). It is also a party to the Berne Convention for the Protection of Literary and Artistic Works, the Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of Their Phonograms, the Universal Copyright Convention, Paris Convention for the Protection of Industrial Property, and the Rome Convention for the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations. Venezuela has not ratified the WIPO Copyright Treaty or the WIPO Performances and Phonograms Treaty, nor is it a party to the Madrid Protocol on Trademarks or the Patent Law Treaty.

According to a multi-year study by the Business Software Alliance (BSA) released in 2014, Venezuela ranked as one of the top 20 economies worldwide for unlicensed software and an estimated 88 percent of the software used in Venezuela in 2014 was unlicensed. The commercial value, if all unlicensed products were purchased legally, would be roughly USD 1 billion. According to the BSA report, the amount more than doubled from 2007 to 2013. No Venezuelan markets were identified in 2016’s U.S. Department of Commerce “Notorious Markets” Report. The World Economic Forum’s Global Competitiveness Report for 2016-2017 ranked Venezuela last out of 138 countries in IP protection. The Property Rights Alliance’s 2016 International Property Rights Index (IPRI) once again ranked Venezuela last out of 128 countries, after slightly improving to 125 out of 129 countries in 2015.

Patents and Trademarks

SAPI has issued no new patents since 2007. Venezuela’s 1955 IPL provides that patents of invention, improvement, model, or industrial drawing are valid for five or ten years, depending on the preference of the filer. Patents for technologies developed abroad may be valid for five years or until the original foreign patent term expires, whichever is shorter. These patent durations violate the 20-year patent-term required under the TRIPS Agreement. Article 15 of the IPL excludes several items, including medicine and pharmaceuticals, financial systems and plans, industrial processes, and speculative or theoretical inventions, from patent protection in violation of Article 27 of the TRIPS Agreement.

Venezuelan IP lawyers note that SAPI’s handling of trademarks is less hostile to rights-holders than its handling of patents, but trademark issues continue to be a problem. Trademarks must be filed with SAPI and published in SAPI’s official Gazette. SAPI grants trademarks for 15 years, and they may be renewed for successive 15-year periods. Trademarks are valid from the date SAPI publishes them in its bulletin. The registration process averages 12-14 months, but the process can take significantly longer if a third party opposes the registration. SAPI continues to reject, under Article 33 of the IPL, most applications for trademarks bearing geographical indications. Data provided by IP attorneys show a steady decline of trademark registrations, from 30,000 in 2005 to 20,000 in 2015. The decrease is due, in part, to companies pursuing trademarks in other Andean countries such as Colombia where IP laws have more clarity and stronger enforcement. From a legal perspective, companies feel trademarks obtained in other AC countries may still be enforceable in Venezuela at a later date. In addition, new fee structures that have increased the overall price for trademarks for foreign companies could also be a factor. Implemented in May 2015, the new fee structure forces foreign rights holders to pay patent and trademark fees in U.S. dollars calculated at the strongest exchange rate, currently 10 bolivars per U.S. dollar, rather than the weaker DICOM rate of approximately 710 bolivars per U.S. dollar. Legal representatives in Venezuela and their foreign rights holders have complained that although the higher fees apply equally to domestic and foreign companies when expressed in bolivars, the regulation requiring foreign rights holders to pay the fees in U.S. dollars at the official exchange rate is discriminatory. The overall effect is a substantial increase in patent and trademark fees for foreign rights holders because they can no longer use more preferential exchange rates for these transactions.

Copyrights

Creative works are protected under the 1993 Copyright Law, the Berne Convention, and the Universal Copyright Convention. The law is modern and comprehensive and extends copyright protection to all creative works including computer software.

Enforcement

Lengthy legal processes, inexperienced judges, and insufficient investigative and prosecutorial resources significantly hamper IP enforcement in Venezuela. The GBRV abolished the Venezuelan copyright and trademark enforcement branch of the federal police in 2010. Although the GBRV has not replaced this organization, SENIAT, the Venezuelan tax and customs authority, occasionally conducts low-level raids against known illegal markets or small vendors of counterfeit goods. In February 2016, SENIAT officials met with Mexican Institute of Industrial Property (IMPI) to finalize a draft Memorandum of Understanding between the two countries to facilitate cooperation on industrial IP. Legal experts, however, note that IP laws are unevenly enforced and cases can take years to resolve without guarantee of a positive outcome. The process is so slow and the penalties are so low that the system does not deter counterfeiters.

Data from industry representatives indicates that copyright piracy, including piracy over the Internet, and trademark counterfeiting remains widespread. Venezuela remains non-compliant with Section Four, Part Three, of the TRIPS Agreement, which mandates special requirements related to border enforcement measures. However, there are examples of cooperation. According to an Interpol press release, Venezuelan law enforcement officials participated in an international operation (Operation Jupiter VII) in October 2015 against criminal organizations involved in counterfeiting of goods that included 11 South American countries.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Resources for Rights Holders

• Embassy Caracas Economic Section: CaracasEcon@state.gov, 58-0212-975-8402
• The Venezuelan-American Chamber of Commerce: www.VenAmCham.org 
• U.S. Patent and Trademark Office (USPTO): www.uspto.gov , 1-800-786-9199
• National Intellectual Property Rights Coordination Center: www.iprcenter.gov 
• International Trade Administration, U.S. Department of Commerce: www.stopfakes.gov 

For a list of local lawyers, please visit: http://photos.state.gov/libraries/venezuela/19452/public/Commercial_Law_
Firms_List.pdf 

Capital Markets and Portfolio Investment

Venezuela’s financial services sector is heavily regulated. In 2010 the GBRV passed laws to reform the financial sector, including the Organic Law of the National Financial System, the regulatory framework for banks, insurance companies, and the capital markets; the Law for Insurance Activity; the Capital Markets Law, which created a state-run securities exchange; the Bicentennial Public Securities Exchange (BPVB); and the Law of Banking Sector Institutions. Financial services account for a relatively small but growing share of GDP. According to BCV data, financial services represented seven percent of GDP in the first three quarters of 2015, the latest data available. Financial services growth until 2014 was driven by increasing monetary liquidity (M2) resulting from loose fiscal and monetary policy and strict currency controls, which traps VEF earnings in Venezuela.

Venezuelan capital markets are underdeveloped and thinly traded. The leading Caracas stock market index, the Caracas Stock Exchange Index, nearly tripled in bolivars year on year as of April 1, 2017. Private analysts attribute the rise to government spending-driven increases in M2 and currency controls that trap the liquidity in Venezuela, although Venezuela’s inflation has eroded any local currency increase in real terms. Activity in Venezuela’s securities market has decreased in recent years due to nationalizations of previously listed firms and the GBRV’s seizure of 51 brokerages, since 2010, mostly on charges of illegal trading in a now defunct foreign exchange market.

Venezuela’s primary stock market is the Caracas Stock Exchange (BVC). On January 31, 2011, the GBRV launched the BPVB, under the November 2010 securities market law, to sell government and corporate bonds and to compete with the BVC. The BPVB was empowered to trade both VEF- and USD-denominated securities, but as of April 2014 it had only traded VEF-denominated debt. Private brokerages have not been allowed to participate in the BPVB. Trading volumes in both the BVC and the BPVB are low and dominated by fixed-income public- and private-sector securities offering negative real interest rates due to an excess of VEF liquidity trapped in Venezuela by currency controls.

Foreign investors can buy or sell stocks and bonds in Venezuelan capital markets as long as they have registered with the securities regulator, the Superintendent of Securities (SNV). Venezuela’s 2014 foreign investment law requires foreign investors to obtain a foreign investment registration before they invest directly in Venezuelan firms.

Money and Banking System

Venezuelan credit markets are heavily regulated. The BCV and the Superintendent of Banks (SUDEBAN) regulate Venezuela’s banking sector. The 2010 law of banking sector institutions describes banking as a public service and banks as public utilities, permitting the GBRV to nationalize financial institutions without National Assembly approval. The public sector’s share of total bank assets has grown in recent years, primarily through GBRV nationalizations. According SUDEBAN data, in February 2017 there were 31 banking institutions – 24 private and 7 public – down from 59 in November 2009. Public-sector banks held an estimated 33 percent of total banking sector assets in February 2017.

Venezuela’s banking sector is heavily distorted by the GBRV’s and BCV’s expansive fiscal and monetary policies, which combined with currency controls trap local currency liquidity in the economy, fuel inflation, reduce loan default rates, and inflate banking sector profitability indicators. Universal and commercial banks enjoyed return on equity of roughly 72 percent in the twelve months to February 2017, with a sector-wide default rate of less than 1 percent, driven by M2 growth and currency controls that constrain capital transfers out of Venezuela. Financial analysts believe reform to the currency control regime would have to be paired with banking sector reforms to avoid widespread stress to the financial system.

The BCV sets maximum and minimum interest rates banks can charge. Limits, as of April 2017, included 24 percent on commercial and personal loans, 29 percent on credit cards, and 16 percent on car loans. With inflation of 180 percent in 2015 and estimated at nearly 500 percent in 2016, real interest rates are negative, giving banks a disincentive to lend. Banks are required to allocate roughly 59 percent of their portfolio for loans to the housing, agriculture, small business, manufacturing, and tourism sectors, at preferential interest rates that have been negative, in real terms, since 2012. Universal and commercial banks are prohibited from making commercial loans for terms longer than three years. The BCV also regulates interest rates on savings accounts and time deposits. Limits as of April 2017 have included 16 percent on savings account balances from 0 to VEF 20,000, 12.5 percent on savings account balances above VEF 20,000, and 14.5 percent on certificates of deposit. Such rates have been negative, in real terms, since 2009, discouraging household saving and incentivizing domestic consumption and the purchase of U.S. dollars in the parallel market as a more stable store of value. Faced with negative real interest rates on bank deposits and VEF-denominated securities, multinationals with VEF earnings trapped in Venezuela have increasingly invested in commercial real estate in an attempt to mitigate inflation risks.

The majority of banking sector assets is concentrated in the country’s five largest banks. Total banking assets, at roughly USD 1.5 billion (at the official 10 VEF/USD exchange rate), grew 192 percent from February 2016 to February 2017. Public and private universal and commercial banks control 99 percent of total banking sector assets. The three largest private universal banks are: Banesco, with 15 percent of total sector assets March 2016; Banco Provincial, with 12 percent; and, Banco Mercantil, with 11 percent. Banesco and Banco Mercantil are Venezuelan-owned, while Banco Provincial is majority-owned by BBVA of Spain. Citibank is the only U.S.-owned universal bank with a presence in Venezuela. The two largest state universal banks are Banco de Venezuela and Banco Bicentenario. The GBRV nationalized Banco de Venezuela from Spain-based Banco Santander in May 2009. Banco de Venezuela is now the country’s largest bank, with 20 percent of total sector assets in March 2016. Banco Bicentenario was formed in 2010 through the nationalization of four private banks; it held six percent of assets as of March 2016.

The BCV promulgated regulations in September 2012 outlining conditions under which businesses and individuals may open USD-denominated bank accounts at Venezuelan universal and commercial banks. Venezuelan residents may use such accounts for international transfers, overseas debit card transactions, and transactions through the DICOM FX mechanism (see Section 6 on Foreign Exchange and Remittances). Venezuelans may not withdraw U.S. dollars from such accounts in Venezuela, however.

Foreign Exchange and Remittances

Foreign Exchange

Since 2003, the GBRV has maintained strict currency controls. Venezuela’s foreign exchange (FX) regime has been in flux for several years, with multiple FX mechanisms and exchange rates introduced, modified, and eliminated. In March 2016, Venezuela again modified its official FX mechanisms, and now authorizes two official FX mechanisms to sell U.S. dollars to private sector firms and individuals. In practice, access to hard currency for the private sector has been severely limited in the last year.

The BCV oversees and provides daily information about the two FX mechanisms. The first, the Protected Rate, or DIPRO, sells USD at the official exchange rate of 10 VEF/USD for imports of goods and services deemed national priorities, primarily food, medicine, and medical supplies. Firms and individuals soliciting dollars from CENCOEX must register with the body and obtain supporting documentation from various GBRV ministries, e.g., certificates of non-national production of the proposed imports and statements of good standing with the tax authorities.

The second mechanism, the Complementary Rate or DICOM, is a managed floating rate, used for imports of non-priority goods and services. The government has not yet published regulations defining which sectors are eligible to purchase FX at either rate. The BCV publishes the DICOM rate daily.

Remittance Policies

Foreign investors in Venezuela have struggled to convert their VEF earnings into U.S. dollars. Since 2008, CENCOEX and its predecessor, CADIVI, virtually ceased approving the sale of U.S. dollars for earnings or capital repatriation. Multinational firms have announced numerous accounting losses due to exchange rate depreciation. As a result, many multinational firms have deconsolidated their Venezuelan subsidiary from their global financial statements. Venezuela’s investment law limits earnings repatriation to a maximum of 80 percent of local currency earnings in any fiscal year. Legally, foreign investors could purchase dollars through DICOM to repatriate earnings, at a significant devaluation compared to the DIPRO exchange rate, but DICOM has not been able to satisfy the demand for hard currency. There is also an unauthorized parallel market for dollars. Private websites hosted outside of Venezuela publish the parallel exchange rate. They report that the rate has been depreciating significantly reaching 4,400 VEF/USD on April 12, 2017, a devaluation of 74 percent since April 11, 2016 and a depreciation of 99 percent since April 2013.

The Organization for Economic Co-operation and Development’s (OECD) Financial Action Task Force (FATF) announced in February 2013 that Venezuela was no longer subject to FATF’s global anti-money-laundering/combatting terrorist finance (AML/CFT) monitoring process. FATF noted Venezuela would continue to work with the Caribbean FATF regional body to address AML/CFT deficiencies identified in Venezuela’s mutual evaluation report.

Sovereign Wealth Funds

Venezuela does not maintain a Sovereign Wealth Fund.

State Owned Enterprises (SOEs) are dominant in diverse sectors of the Venezuelan economy, including agribusiness, food, hydrocarbons, media, mining, telecommunications, and tourism. Private firms are at a disadvantage when competing with public enterprises, specifically in terms of accessing foreign currency at the official exchange rate. SOEs generally do not need to go through CENCOEX to request hard currency at the strongest official exchange rate, while private companies struggle with the official mechanisms’ limitations and process delays (see Section 6 on Foreign Exchange and Remittances).

In March 2012 the GBRV amended its customs and tax regimes to favor imports by the public sector over those of the private sector. The new rules exempt SOE importers from providing certain customs documentation and grant waivers on value-added taxes, customs duties, and fees on a broad range of imported products. The exemptions do not generally apply to the private sector. The GBRV has extended such benefits to certain private-sector firms. Financial analysts generally believe Venezuela’s SOEs contribute to macroeconomic imbalances and undermine domestic output.

OECD Guidelines on Corporate Governance of SOEs

The GBRV does not encourage its SOEs to adhere to the OECD Guidelines on Corporate Governance for SOEs. The CEO of PDVSA and the rest of PDVSA’s board members are appointed by the President. GBRV direct appointment of SOE executives is commonplace, such as in the Venezuelan Corporation of Guayana (CVG), a state holding company that includes firms in basic industries such as aluminum, iron ore mining, electricity generation, and steel. Venezuela is not a party to the WTO’s Agreement on Government Procurement. Private sector firms are at a disadvantage vis-a-vis SOEs in Venezuelan courts.

Privatization Program

The GBRV does not have privatization programs in place.

Article 135 of the Venezuelan constitution declares a general duty for all non-state actors to respect laws regarding social responsibility. Venezuela’s 2014 foreign investment law requires foreign investors to promote responsible business conduct (RBC) consistent with international standards. Various Venezuelan laws set forth requirements intended to advance principles generally included under the concept of RBC. GBRV regulation and enforcement of these laws is weak and uneven.

The Venezuelan private sector is generally aware of and promotes RBC. The Venezuelan-American Chamber of Commerce (VenAmCham), for its part, promotes RBC though its Social Alliance program, which organizes RBC-themed events. The Venezuelan Federation of Chambers of Commerce (Fedecamaras) promotes RBC through a standing working group devoted to the dissemination of best practices and an annual award to recognize RBC excellence.

OECD Guidelines for Multinational Enterprises

Venezuela does not encourage foreign or local firms to follow the OECD Guidelines for Multinational Enterprises or the UN Guiding Principles on Business and Human Rights.

Venezuela has comprehensive anti-corruption laws but enforcement is weak and inconsistent, as indicated by Venezuela’s ranking by Transparency International of 166 out of 176 countries in its 2016 corruption perceptions index. Corruption is endemic in Venezuela, including in government procurement; the awarding of authorizations, particularly in the foreign exchange regime; dispute settlement; the regulatory system; and customs and taxation. The GBRV does not provide protection to NGOs that investigate corruption and often subjects them to harassment.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Venezuela signed the UN Convention against Corruption on December 10, 2003, and ratified it on February 2, 2009. Venezuela has not adopted the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

The GBRV’s Public Ministry, roughly equivalent to the U.S. Attorney General’s Office, has telephonic and e-mail resources for victims to report crimes, including corruption. The Public Ministry’s contact information is:

Sede Principal del Ministerio Publico
Esquinas de Misericordia a Pele El Ojo y Avenida Mexico
Caracas>
58-0212-509-7211 (main)
58-0212-509-7464 (main)
58-0-800-FISCA-00 (speak to a Public Ministry attorney)
58-0-800-VICTIMA (victim hotline)
mp@mp.gob.ve

Transparency International’s Venezuela chapter, Transparencia Venezuela, offers consultation and services to victims of corruption. Transparencia Venezuela’s contact information is:

Avenida Andres Eloy Blanco
Edificio Camara de Comercio de Caracas
Piso 2
Oficina 2-15
Los Caobos
Caracas 1050
58-0212-576-0863
58-0212-573-3134
comunicaciones@transparencia.org.ve

Increased discontent over the political and economic management of the country by the current administration have led to anti-government protests in cities across the country, some of which have turned violent. Increased scarcity of basic foods and medicines over the last few years has also led to protests. In response, the government agency Superintendent of Fair Prices (SUNDDE) has at times taken action against private businesses it accuses of price gouging or other unfair practices by confiscating merchandise or forcing businesses to cut prices. Looting of stores has resulted after similar actions from SUNDDE in the past.

Several factors make human resources a challenge for domestic and foreign investors alike: heavily regulated labor markets; talent flight, as skilled Venezuelans have sought employment abroad due to physical insecurity and political and economic uncertainty; government programs that support poorer Venezuelans making it more difficult for companies to attract unskilled labor; and declining traditional trade unions, as the GBRV has supported the establishment of “parallel” unions aligned to government interests and new “workers militias” to monitor the activities of union members. Roughly 10 percent of the total workforce is unionized. The GBRV extended in December 2015 for three more years a firing freeze in place since 2002 that shields most private-sector workers from termination, including for cause. Venezuelan labor law explicitly forbids employers from using contractors in place of direct employees, since May 2015, labeling the practice as a fraud.

In April 2012, former President Chavez used a presidential decree law to pass a long-pending Organic Law of Labor and Workers. The law replaced a 1997 labor law, expanding workers’ rights and benefits. The law prohibits employer discrimination on the basis of race, sex, age, civil status, religion, political beliefs, social class, nationality, sexual orientation, union membership, criminal record, or disability. The law prohibits termination without legal justification and requires employers to consult labor courts regarding the lawfulness of a termination. The law also prohibits employers from hiring third-party contractors to perform ongoing, regular duties as a means of avoiding legal obligations owed to those on one’s payroll. The law guarantees a retirement pension for workers in both the formal and informal sectors.

The 2012 law reduced the legal workweek from 44 to 40 hours and guaranteed workers 15 days of vacation, plus one day for each additional year of employment, up to a total of 30 days per year. The law also introduced new rights for female workers with children, including: 26 weeks of paid maternity leave for mothers (six pre- and 20 post-natal); two breaks per day for mothers who are breastfeeding; and access to a lactation room, if they work for an employer with more than 20 employees. The law created guidelines for temporary workers, who can work 10-hours daily with a labor inspector’s permission; shift workers may not work more than 42 hours per week, on average, over any eight-week period. The GBRV promulgated regulations implementing the new labor law in May 2013.

In 2015, Venezuela saw continued protests and work stoppages by unions across the public and private sectors. While no official statistics are available for 2015, according to the non-governmental organization Venezuelan Observatory of Social Conflict the number of labor protests increased in 2015 compared to 2014 registering 1910 labor protest, an increment of approximately 26 percent compared with 2014. The GBRV has delayed negotiations over collective bargaining agreements for workers in the public sector, leaving more than two million public employees without collective contracts, including teachers and electrical workers. No figures from 2016 were available, but protests and work stoppages continued due to a variety of economic, social, and political concerns.

The GBRV’s statistics agency (INE) estimated the unemployment rate at 6.8 percent in 2015. INE estimated 41 percent of the employed worked in the informal sector and 59 percent in the formal sector. No official numbers have been released since the end of 2015.

Overseas Private Investment Corporation (OPIC) programs in Venezuela were suspended in 2005, due to Venezuela’s failure to cooperate in suppressing international narcotics trafficking. In 2014, the United States determined that Venezuela failed to make sufficient or meaningful efforts to adhere to its obligations under international counter-narcotics agreements and conventions. However, former President Obama issued a national interest waiver, determining that support for programs to aid Venezuela is vital to the national interest of the United States. Under this waiver, Venezuela is eligible for OPIC programs starting in 2015, but OPIC is not currently open for business in Venezuela.

The U.S. Export-Import Bank (ExIm Bank) has not provided new financing for projects in Venezuela since April 2003. Both OPIC and the Ex-Im Bank still retain significant exposure in Venezuela prior to suspending operations.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

U.S. Embassy Caracas Economic Section
Calle F con Calle Suapure
Urbanizacion Colinas de Valle Arriba
Caracas, Venezuela
58-0212-907-8441
CaracasEcon@state.gov