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Venezuela legal profile

Proelium Law LLP

LEGAL SYSTEM OVERVIEW

The Venezuelan legal system is one of civil law based upon the Spanish Civil Code. There is a hierarchy of law: The Constitution forms the supreme national law. Organic law is subsequent, followed by ordinary law, enabling law and Presidential decrees.[1] Nevertheless, the newly formed Constituent Assembly, tasked with rewriting the constitution and formed entirely from President Maduro’s supporters, means that in reality Maduro’s will and decrees are currently the supreme law in Venezuela; The Constituent Assembly’s authority supersedes that of all others but as of yet has remained loyal to President Maduro. As such, separation of powers is non-existent and Maduro effectively has unrestricted legislative powers.

The judiciary’s independence is guaranteed by Article 254 of the Constitution and the court system consists of the High Tribunal of Justice, high courts, first-instance courts and municipality courts. Nevertheless, the courts are not independent. They are highly politicised and packed with Maduro loyalists. This has led to extremely high levels of impunity and over 90% of all crimes go unpunished. For example, of 200 official investigations for corruption during the 2014 protests, only five led to charges being pressed. Judges, often fearing political or physical retaliation against them overwhelming rule in favour of the state in cases that involve the government. This widespread impunity occurred alongside 2100 extrajudicial killings by security forces over the period 2012-2014, a trend which has continued.[2] The legal framework for settling disputes or challenging regulation is extremely inefficient and the corrupt judiciary creates further issues. Nevertheless, Venezuela is a member of the 1958 New York Convention, and should apply the Convention to cases which are considered commercial under Venezuelan law.

Corruption extends from the judiciary to all government offices. Venezuelan Anti-Corruption Law criminalises a number of corrupt practices including extortion, bribery and abuses of office and the receiving of gifts in return for providing undue advantage. This law also extends to third parties. However, there are no legal provisions criminalising the bribery of foreign officials. Furthermore, the above practices are systemic throughout the state and judiciary owing to weak enforcement of the law, inefficient legal systems and a corrupt judiciary.[3]

The Venezuelan Civil Code 1982 is based upon the Spanish Civil Code. The scope of the code is extremely broad, covering torts, property, obligations, personal and family law. Title Three, Chapter One, Section One, beginning at Article 1133, regulates contract law, including defining contracts, differing types and consent.[4] Particularly crucial to doing business in Venezuela is the Commercial Code 1955 which regulates commercial entities, negotiations, insolvency and business entities. For matters that the Commercial Code cannot solve, the Civil Code is referred to.[5] The principal legal framework that regulates Venezuela’s oil industry is the Hydrocarbons Law 2001, amended 2006, as well as a number of mandates, presidential decrees and resolutions.

Venezuela is a signatory to a number of international treaties including the Geneva Conventions, including Protocol I and II, United Nations Convention Against Corruption and the United Nations Framework Convention on Climate Change.

Venezuela is also a member of numerous multilateral organisations including the Organisation of Petroleum Exporting Countries, World Trade Organisation and the International Monetary Fund. It is also a suspended member of the Southern Common Market (MERCOSUR). Venezuela’s adherence to international law is questionable, largely owing to a lack of implementation and enforcement rather than regulation. Thus, the international community does not view Venezuela as a credible international partner.[6]

BUSINESS SECTOR

Since the beginning of his presidency, Maduro’s inadequate macro and microeconomic policies have drastically and negatively affected the Venezuelan economy. The problem has been exacerbated by Venezuela’s heavy reliance on mineral products and especially petroleum products; these form over 90% of Venezuela’s imports, 25% of GDP and roughly 50% of the central government’s operating revenue.[7] As such, poor economic planning and the crash in oil prices has left the Venezuelan economy in turmoil. GDP is forecast to further contract and Venezuela faces major stagflation: inflation is set to finish 2017 at 720%, and expected to raise to 2350% in 2018.[8] Furthermore, the Bolivar’s value has plummeted: the government set exchange rates and price control do not represent the true worth of the Bolivar.

Venezuela ranks 188 of 190 in the World Bank’s Ease of Doing Business Index, and 190 of 190 in the World Bank’s Ease of Starting a Business index. Indeed, the World Bank estimates that it takes an average on 230 days to register a business, a process consisting of twenty steps and a number of payments.[9] A number of obstacles face firms wishing to establish in Venezuela. Government controlled foreign currency exchange makes it difficult to access currency for imports; there are many domestic price controls; there are high corruption and crime rates; the labour force is largely unskilled and there are strong, protective labour regulations.

Short term prospects in most sectors are bleak, but in niche sectors or for investors with a high tolerance of risk and long-term outlook there are opportunities. Venezuela has the world’s largest proven oil reserves, totalling 300 billion barrels, and it is the hydrocarbon sector that provides the greatest opportunity to foreign investment. Venezuela’s oil infrastructure could be modernised in numerous aspects and there are aspirations for increased production, particularly in the Orinoco Belt. All natural resources are state owned however and any foreign involvement in the hydrocarbon industry must be through a joint venture with the state oil company, PDVSA, which must have an equity share of at least 50% in any venture. Further opportunities may exist in electricity infrastructure, the mining sector and technical education schemes.[10] Given the heavy state interference in the economy, the safest forms of market entry are deemed to be through joint ventures, or working with local agents and distributors.

COUNTRY OVERVIEW

The Bolivarian Republic of Venezuela is situated in northern South America, neighbouring Guyana, Brazil and Colombia. Venezuela has a population of 31.3 million, making it the 42nd most populous country in the world. The capital, Caracas, contains 2.92 million citizens whilst Maracaibo, Valencia, Maracay and Barquisimeto all contain over a million inhabitants.

Spanish is the official language although the constitution also guarantees the official nature of indigenous languages. The nation is nominally Roman Catholic and the vast majority of religious practitioners follow the Roman Church.[11]

Venezuela is a very high-risk country in terms of the political-economic situation and in relation to the business climate.[12] The security risk is also high. Violent crime is common throughout Venezuela’s cities and border region, with lethal force frequently being used against those that resist. Large political protests and demonstrations have also been met with lethal force by security services and pro-government militias.[13]

Venezuela suffers from endemic corruption. It is ranked 166 of 176 in Transparency International’s 2016 Corruption Index.[14] Almost all sectors of the Venezuelan economy and state, including judiciary, suffer from corruption and government officials engage in corrupt practices with impunity.

Furthermore, Venezuela is a mono-economy with a heavy reliance on mineral resources. GDP currently stands at US$215.31 billion and contracted by 12% in 2016 in real terms. Real GDP growth is forecast to remain negative for the near future.[15] The official currency of Venezuela is the Bolivar.

Venezuela is officially a federal presidential republic and nominally democratic institutions exist but in reality, it is an authoritarian state. President Nicolas Maduro is both the head of government and the wielder of executive power in practice. Legislative power rests with the elected National Assembly, which is currently controlled by the opposition. In July 2017, however, the Constituent Assembly was formed from a contentious election in order to rewrite the Constitution and wield executive power until the Constitution is rewritten. Nevertheless, the entire Assembly is formed from Maduro’s allies and includes his wife and son. The Constituent Assembly has extended their mandate and granted themselves wide-ranging powers to write and pass legislation, thus assuming the powers of the National Assembly which is no longer a relevant institution.[16] As such, the Assembly is an extension of Maduro’s will, passing favourable legislation and rubber stamping Presidential decrees.

Report Footnotes

[1] http://www.nyulawglobal.org/globalex/Venezuela.html.

[2] http://www.business-anti-corruption.com/country-profiles/venezuela; http://www.bti-project.org/en/reports/country-reports/detail/itc/VEN/.

[3] http://www.business-anti-corruption.com/country-profiles/venezuela.

[4] http://www.wipo.int/wipolex/en/text.jsp?file_id=130145.

[5] http://www.nyulawglobal.org/globalex/Venezuela1.html#PrimarySourcesofLegalInformation.

[6] http://www.bti-project.org/en/reports/country-reports/detail/itc/VEN/.

[7] https://atlas.media.mit.edu/en/profile/country/ven/; http://www.bti-project.org/en/reports/country-reports/detail/itc/VEN.

[8] http://www.imf.org/external/datamapper/PCPIPCH@WEO/VEN.

[9] http://www.doingbusiness.org/data/exploreeconomies/venezuela#paying-taxes.

[10] https://www.gov.uk/government/publications/exporting-to-venezuela/exporting-to-venezuela#business-behaviour-in-venezuela; https://www.export.gov/apex/article2?id=Venezuela-Market-Opportunities.

[11] https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html.

[12] https://globaledge.msu.edu/countries/venezuela/risk.

[13] https://www.gov.uk/foreign-travel-advice/venezuela.

[14] https://www.transparency.org/news/feature/corruption_perceptions_index_2016#table.

[15] http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD.

[16] https://www.washingtonpost.com/world/venezuelas-pro-government-assembly-moves-to-take-power-from-elected-congress/2017/08/18/9c6cd0a2-8416-11e7-9e7a-20fa8d7a0db6_story.html?utm_term=.5ed5f208c17e; https://www.nytimes.com/2017/11/03/world/americas/venezuela-national-assembly-maduro.html.

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