VENEZUELA Country Profile

General Information

Political Climate


Venezuela has for decades been characterised by great social inequality and rampant corruption, which have periodically led to a popular disillusionment with politics. This situation formed the basis for the election of President Hugo Chávez Frías in December 1998 on the promise of massive social reforms, nationalisation of strategic sectors, fighting corruption and a rapture with the long-ruling political elite, infamous for its interlocking system of privileges. Chávez's controversial policy of '21st century socialism' has led to radical political and social changes. Political unrest and deep social cleavages between supporters and opponents have been characteristic of Chávez's time in office. As a result of an opposition election boycott in 2005, all seats in the National Assembly are held by pro-Chávez parties. His government controls the legislature, judiciary, the state oil company and the majority of state governments. Chávez remains very popular among the poor majority of Venezuelans, mainly because of his social programmes aimed at helping Venezuela's poor. On the other hand, he is extremely unpopular among the Venezuelan elite and business community. The main private sector association, Fedecamaras, is vehemently opposed to the Chávez administration and played a leading role in the mobilisation of anti-government protests in 2001 and a coup attempt against Chávez in April 2002. The opposition accuses the government of being undemocratic, disrespecting private property rights and inhibiting freedom of speech.

Public opinion concerning the level of corruption and the effectiveness of government anti-corruption efforts are fairly mixed in Venezuela. Transparency International's Global Corruption Barometer 2009 reports that two out of three respondents consider the government's efforts to fight corruption to be ineffective. Latinobarómetro 2008 (see English version) reveals that public distrust in the political system is very high. For example, public officials in Venezuela are believed to be highly corrupt, and the majority of respondents believe that the occurrence of corruption is more prevalent in the political system than in the general society. On the other hand, it also reveals that 39% of respondents believe that there has been 'some' or 'much' progress in fighting corruption and that the government's efforts to fight corruption are effective. Hence, Chávez's strong rhetoric against corruption seems to have had an effect on Venezuelans' perception of the problem: while most perceive the level of corruption to be an increasingly pervasive problem in the country, they also perceive government anti-corruption efforts and institutions as positively affecting the situation. Still, however, petty corruption is a large problem in the country, and both Latinobarómetro 2008 and the Global Corruption Barometer 2009 reveal that Venezuela ranks among the countries in the region where most households have been victim to corruption themselves.

Corruption is a significant problem in Venezuela, and a systemic culture of corruption exists at most levels of society. At state level, an increasing overlap between Chávez's United Socialist Party and the state has led to the abuse of public resources for electoral campaigns, as reported by the Bertelsmann Foundation 2010. Freedom House 2009 also points to the non-transparent administration of state resources when reporting that several large development funds are controlled by the executive branch without any oversight. According to Global Integrity 2009, the Comision Permanente de Contraloria, which has the power to provide oversight of public funds is controlled solely by the ruling party.

However, the fight against corruption is on the political agenda in Venezuela. Since his inauguration, Chávez has openly declared a zero tolerance policy towards corruption, which has been demonstrated by several public initiatives. His administration has passed an Anti-Corruption Law (in Spanish) in 2003 and established a number of agencies that are mandated to deal with corruption, gathered under an umbrella institution called Poder Ciudadano (in Spanish). However, despite the agencies' formal independence, the government has been criticised for interfering in their affairs in order to secure political support, and for using them as tools to investigate and prosecute opposition members. An example of this is the accusation by the Public Prosecutor's Office in March 2009 of former presidential candidate and mayor of Maracaibo, Manuel Rosales, for corruption and illicit enrichment. According to several sources such as Herald Tribune and Reuters, thousands of opposition supporters protested in Maracaibo against the attempt to arrest the opposition leader, claiming that it was a case of political persecution. Rosales fled to Peru where he was granted political asylum in May 2009. In June 2008, the opposition protested in Caracas after a top anti-corruption official unveiled a blacklist of people, primarily of opposition members, under investigation for corruption. The list could be used to bar key opposition candidates from running in future elections. However, critics claim that the ban is unconstitutional, as none of the individuals on the blacklist have been convicted of a crime. Incidents like these have made the opposition claim that the government uses its institutional anti-corruption set up to dispense with political opponents.

Business and Corruption

The management of Venezuela's oil wealth has been a dominant economic and political issue for most of the past 100 years. Venezuela has a huge investment and economic growth potential and its natural resource wealth has made it an attractive place to invest. Officially, Venezuela welcomes foreign investment and provides equal treatment to local and foreign companies. Nevertheless, political and regulatory uncertainty has seriously weakened Venezuela's capacity to attract foreign investment, as reported by companies in the World Economic Forum Global Competitiveness Report 2009-2010. Other factors too, such as heavy bureaucracy and corruption, inhibit the business climate and should be noted by investors considering doing business in Venezuela.

Companies operating in Venezuela have experienced a change in conditions under Chávez's presidency. After his re-election in late 2006, Chávez proclaimed that he would accelerate the drive towards '21st century socialism' by further nationalising the economy, and according to US Department of State 2009, some of Chávez' reforms have led to reduced property rights. The Bertelsmann Foundation 2010 do also state, that property rights are not protected sufficiently in Venezuela, as the government has started taking over so called 'strategic interests' of the people, such in the areas of food production, processing and distribution, construction materials, utilities, media, telecommunications, buildings, real estate and hotels. Acting in 'the people's interest' the government requires no proof in order to seize private goods. Private investment has generally been deterred by this uncertain legal and regulatory framework, although many companies with existing investments in Venezuela have been recording high profits thanks to high economic growth. The current government's emphasis on nationalisation has led several observers to conclude that the business operating climate has worsened and is continuing to do so. However, other economic observers, such as Bloomberg News, commenting on Venezuela's increasing dependence on oil revenues argue that due to the falling oil prices attributed to the global economic slowdown, Chávez may consequently be forced to relax his ambitions of further nationalisation of strategic sectors. He may also have to open the doors for foreign investors to attract investments if the current crisis prevails.

Access to foreign exchange is a major barrier to trade in Venezuela. Foreign exchange control is administrated by the Foreign Exchange Commission (Comisión de Administración de Divisas - CADIVI), which authorises the purchase and sale of foreign currency. The Transparency International Global Corruption Report 2009 reports that the government's management of foreign currency makes access to foreign currency a cumbersome bureaucratic process. Applicants fulfilling all the requirements to obtain foreign currency, might still have their application denied and there are no appeal mechanisms. The same report also reveals that CADIVI's officials allegedly request illegal commissions of up to 30% of the total value of the currency request in order to speed up the process.

Several sources indicate that corruption is a key constraint for doing business in Venezuela. In Transparency International Global Corruption Barometer 2009, the private sector scores 3.5 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt'). According to the World Bank & IFC Enterprise Surveys 2006, 40% of the companies surveyed identify corruption as a major constraint to doing business. They also cite transport security, customs and ports as serious problems for their business activities. Corruption and heavy bureaucracy combined with political, policy and social instability make Venezuela an uncertain place to do business. According to Transparency International Venezuela (in Spanish), competitive bidding in public procurement processes might be infrequent, as the law governing public procurement includes many exceptions to the principle of open tender. The US Department of State 2009 reports that a great majority of public contracts are awarded without open competition and Global Integrity 2009 states that political considerations prevail in most procurement cases. Foreign investors considering establishing themselves in Venezuela are generally advised to consult with experienced attorneys, to develop, implement and strengthen integrity systems, and to carry out extensive due diligence before committing funds or when already doing business in the country.

Regulatory Environment

The World Economic Forum Global Competitiveness Report 2009-2010 reveals that the regulatory environment in Venezuela constitutes a significant burden for companies. Apart from policy instability, the surveyed companies ranked foreign currency, inefficient government bureaucracy, as well as restrictive labour regulations as some of the most problematic factors for doing business in Venezuela. Freedom House 2009 additionally reports that the Chávez administration has done little to cut down on bureaucratic regulations or registration and licensing requirements. Complicated and sometimes contradictory regulations foster inconsistencies in public officials' interpretations and applications thereof. Global Integrity 2009 reports that due to the often very time-consuming process of obtaining licenses, many companies resort to irregular methods in order to shorten the waiting time and hire an agent, a so-called 'gestor', with connection to decision-makers. Compared to the regional averages, starting a company and obtaining business licences in Venezuela can be very time-consuming and bureaucratic. According to the World Bank & IFC Doing Business 2010, it takes an average of 141 days and 16 procedures to start a company in Venezuela. However, the process is relatively inexpensive and no minimum capital is required. According to the World Bank & IFC Enterprise Surveys 2006, almost 34% of senior management time is spent dealing with regulatory requirements and 34% of the surveyed companies identify licensing and permits as a major constraint for doing business.

According to the US Department of State 2009, the Venezuelan Constitution of 1999 (in Spanish) governing foreign investment in Venezuela generally give equal treatment to local and foreign companies, except in certain sectors, such as media, engineering and pharmacy, in which Venezuelan nationals or the state must hold at least 80% of the equity. Nationalisation of all important economic sectors of society is a high priority for the Chávez administration, and several sectors have already been subject to the nationalisation reform, most importantly the oil sector. The Hydrocarbons Law (in Spanish) ensures that all oil production and distribution activities are the domain of the Venezuelan state. As a result, foreign companies already operating in this sector in 2001 had their operating agreements and licences invalidated, and royalties for certain projects were raised considerably. One example would be the many Orinoco crude oil projects for which royalties were raised from 16.6% to 33.3%, as reported by The New York Times. In 2005, companies with operating contracts were informed that they had to convert the contracts into joint ventures that conformed to the Hydrocarbons Law. Foreign-owned companies operating in the Orinoco Belt, such as ConocoPhillips, Chevron, ExxonMobil, BP, Statoil and Total were forced into joint ventures with the state-owned oil company, Petróleos de Venezuela, S.A. ( PDVSA) in May 2007, giving it a minimum of 60% ownership. These controversial regulatory measures have led to reluctance on the part of international oil companies to invest further in Venezuela. Foreign companies considering investing in Venezuela are advised to contact the Venezuelan Council for Investment Promotion (CONAPRI - Consejo Nacional de Promoción de Inversiones), which is a private non-profit organisation providing relevant information on investment legislation, registration requirements, visas and licences.

Protection and enforcement of Intellectual Property Rights in Venezuela is often criticised by IPR advocates and pirated products are freely available throughout the country. In 2008 the Industrial Property Law of 1955 was resurrected. The law expressly prohibits IPR for pharmaceuticals, foodstuff and other products. Since 2005 Venezuela is listed in the US Special 301 "Priority Watch List". Venezuela's legal system is accessible to foreign entities seeking to resolve investment disputes and foreign investors may pursue property claims through the legal system. US Department of State 2009 reports that while the legal system is often slow, inefficient and corrupt, foreign entities do not generally suffer discrimination in legal proceedings. Venezuela is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958; however, there are special regulations that define which arbitration body Venezuelan state-owned companies can use. For instance, the 2001 Hydrocarbon Law prohibits the PDVSA from entering into agreements that provide for international arbitration. Access the Lexadin World Law Guide for a collection of legislation in Venezuela.

Judicial System

Individual Corruption

According to Transparency International Global Corruption Barometer 2009, Venezuelans perceive the judiciary/legal system to be among the most corrupt sectors in the country. However, according to Latinobarómetro 2007 (see English version), Venezuela is the country in the region where most citizens (one out of three) believe that they generally have equal access to the judicial system. Among the Latin American countries included in Latinobarómetro 2008 (see English version), Venezuela is the country where the largest percentage of respondents believes that it is possible to get a favourable sentence by bribing a judge.

Business Corruption

Venezuela's legal system is accessible to foreign companies seeking to resolve investment disputes. According to the US Department of State 2009, foreign entities are generally not discriminated against in legal proceedings. However, the legal system is plagued by inefficiency and corruption, as shown by the World Economic Forum Global Competitiveness Report 2009-2010, where companies rank the Venezuelan judiciary extremely poorly in terms of efficiency and independence from external influence.

According to Global Integrity 2004, small companies rarely bring legal suits to court due to the high costs of doing so.

Political Corruption

According to several sources, such as the Bertelsmann Foundation 2010, judicial independence has declined under President Chávez. The 1999 Constitution had the Supreme Court replaced by the Supreme Tribunal of Justice, which in turn had its independence limited by a 2004 Court-Packing Law. The legislation allows the National Assembly to appoint and remove judges by a simple majority vote. This thus allows the Chávez government to use its majority in the legislature to obtain an overwhelming majority of seats on the Supreme Tribunal of Justice. The Supreme Court's Judicial Committee has the power to hire and fire temporary judges without cause and without explanation and according to the US Department of State 2009, it has done so many times. In 2008, 4 out of 10 judges were employed in provisional positions.

It should be noted that Chávez's judicial reforms are objects of much public debate. Whereas supporters believe that he has enhanced transparency within the judicial system after having inherited a notoriously corrupt judiciary, his opponents generally believe that he has made the judiciary a mere instrument of the country's political forces.

An example of the judiciary's lack of independence is the arrest of judge Maria Lourdes Afiuni. US Department of State 2009 reports that in December 2009, Afiuni granted conditional release pending retrial to banker Eligio Cedeno, who was detained since 2007 on charges of embezzlement and flouting government currency controls and whose case had been annulled and reopened several times in different courts. Afiuni was arrested shortly after her ruling and detained on charges of corruption, aiding in the evasion of justice, abuse of power and conspiracy and President Chávez has demanded that she will get the maximum penalty of 35 years. According to Associated Press, several critical voices, such as the Caracas bar association, state that the case demonstrates the weakness of the Venezuelan judicial system and the pressure that the executive branch puts on the judiciary.

According to Freedom House 2009, the courts rarely rule against the government and government officials accused of corruption almost never face trial.

The US Department of State 2008 reports that in 2008, a former attorney general Isaias Rodriguez was accused of paying a witness to give false testimony to implicate critics of the government in the case of a prosecutor who was killed in a car bomb explosion in 2004. After the witness confessed receiving VEF 1,075,000 from Rodriguez to give false testimony, the government reportedly reopened the case. According to El Universal, Rodriguez was appointed as Venezuela's ambassador to Spain in June 2009.

Frequency

The World Bank & IFC: Doing Business 2010:
- It requires an average of 29 administrative procedures and 510 days at a cost of 43.7% of the claim for a company to enforce a commercial contract in Venezuela.

- Comparative regional averages are 40 administrative procedures, 707 days and 31.3% of the claim.

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the independence of the judiciary from influences of members of government, citizens, or companies a score of 1.4 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent').

- Business executives give both the efficiency of the legal framework for private companies to settle disputes and to challenge the legality of government actions and/or regulations a score of 2 and 1.6 respectively on a 7-point scale (1 being 'extremely inefficient' and 7 'highly efficient').

Transparency International: Global Corruption Barometer 2009:
- 14% of the surveyed citizens consider the judiciary to be extremely corrupt.

- Citizens give the judiciary/legal system a score of 4.1 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt').

Latinobarómetro: Annual Report 2008 (see English version):
- 54% of respondents in this public survey believe that it is possible to bribe a judge in order to get a favourable sentence. This is the highest percentage of all countries included in the survey.

Police

Individual Corruption

In the Transparency International Global Corruption Barometer 2009, the police are perceived by the responding citizens to be a very corrupt institution. This is backed by the Latinobarómetro 2008 (see English version) which reveals that Venezuela is one of the countries in the region where most respondents believe that it is possible to bribe a policeman in order to avoid a fine or arrest.

According to the US Department of State 2009, corruption is a serious problem among all police forces. Police members are poorly trained and paid. Brutality and other acts of violence are the main problem. According to the Minister of Interior and Justice, 1,948 police officers were accused of misconduct in 2007, including human rights violations. Although hundreds of investigations are carried out each year, impunity is still the rule as very few are convicted.

Business Corruption

As shown in the World Economic Forum Global Competitiveness Report 2009-2010, companies have a low degree of confidence in the Venezuelan police. Consequently, there has been an increasing reliance on private security to protect foreign companies and expatriate staff, particularly in the oil sector.

Global Integrity 2009 reports on a case of police extortion of a businessman who was under investigation by the National District Attorney. On pretext of searching for evidence police officers from the Corps of Scientific, Penal and Criminal Investigations entered the businessman's house and extorted him to pay VEF 6.000 to avoid troubles. After consulting with his attorney, the businessman accepted to pay off the officers in order to avoid that they planted false evidence that could damage his case.

Political Corruption

According to US Department of State 2009, corruption and abuse of power plague the Venezuelan police. The police are not free of political interference; the government uses police forces to repress political demonstrations and President Chávez has in several cases tried to take over control with the police in cities or provinces lead by the opposition.

In December 2009 following the killing of two National Guardsmen in Tachira state, Chávez claimed that the police forces in Tachira and Zulia, whose governors are members of the opposition, had failed to control Colombian paramilitary activity and warned that he had ordered the Defense Minister to seize state police headquarters if they continued "to openly defy the public authority".

In 2003, Chávez refused to comply with a Supreme Tribunal of Justice ruling that ordered the return of control of the Caracas police force from the federal government to the city's mayor who belonged to the political opposition. The government alleges that the police force was repressing pro-government demonstrations, while Chávez's opponents claim that the decision to take over the Caracas police force undermined the autonomy of the civilian police.

According to several observers, the Venezuelan police are suffering from a culture of impunity. Extra-judicial killings, unlawful arrests, torture and other human rights violations happen frequently as reported by the US Department of State 2009. The Guardian cites in a September 2009 article the Venezuelan Justice and Interior Minister who states that about 20% of the country's crime is committed by the police.

Frequency

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the reliability of the Venezuelan police services to enforce law and order a score of 2 on a 7-point scale (1 being 'cannot be relied upon at all' and 7 being 'can always be relied upon').

Human Rights Watch: World Report 2009:
- 6,068 police and National Guard officials were implicated in alleged extrajudicial killings between 2000 and 2007; only 1,142 had been charged, and only 204 convicted.

Transparency International: Global Corruption Barometer 2009:
- 36% of the surveyed citizens report to have paid a bribe to the police within the last 12 months.

Latinobarómetro: Annual Report 2008 (see English version):
- 60% of respondents in this public survey believe that it is possible to bribe a police official to avoid a fine or arrest.

Licences, Infrastructure and Public Utilities

Individual Corruption

According to the Transparency International Global Corruption Barometer 2009, Venezuelan citizens commonly consider bribes to be the most effective way to obtain public services that are characterised by unpredictable procedures and duplicated functions.

Citizens report that petty corruption is widespread, for e.g. in the form of a small 'fee' to avoid waiting in a long queue for an identification card.

Business Corruption

It is common for public officials to demand bribes in exchange for approving public utility supply contracts. The process of obtaining licences is also often expedited by facilitation payments and gifts to licensing authorities. Global Integrity 2009 reports that companies often resort to the use of an agent, a so-called 'gestor', with ties to decision-makers to cut down the time it takes to obtain necessary licenses.

Electricity theft is a major issue. It is estimated that around 25% of all electricity consumption is stolen. The greatest losses are suffered by state-owned generators.

Political Corruption

Public investment in transportation infrastructure has increased in recent years financed by the state oil company PDSVA. As these projects are also undertaken by PDSVA, they are not subject to the normal procedure of prior cost-analysis before approval. This has allegedly led to increasing corruption and mismanagement, which has had severe consequences for the quality of the projects carried out. In early 2006, for example, a crucial 16 kilometre stretch of motorway linking Caracas to the main airport and a principal seaport had to be closed because of the risk of collapse of one of its bridges.

Frequency

The World Bank & IFC: Doing Business 2010:
- Building a warehouse in Venezuela requires a company to undergo an average of 11 administrative procedures, taking an average of 395 days at a cost of 233% of income per capita.

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give government administrative requirements (permits, regulations, reporting) in Venezuela a score of 1.8 on a 7-point scale (1 being 'extremely burdensome' and 7 'not burdensome at all' and the mean of the results of the 133 surveyed countries being 3.3).

Transparency International: Global Corruption Barometer 2009:
- 64% of households who had contact with registry and permit services in 2008 report to have paid a bribe.

The World Bank & IFC: Enterprise Surveys 2006:
- 34% of surveyed companies indicate business licences and permits as a major constraint to doing business.

- 5% of surveyed companies expect to give gifts to obtain an operating licence, which takes almost 42 days on average to obtain.

- It takes 31 days on average to obtain a construction-related permit.

Land Administration

Individual Corruption

Individual property rights are protected by law. However, according to Global Integrity 2004, there have been cases of land and property invasions in which the authorities have failed to react, thus failing to protect the rights of the owners.

According to a press release in May 2006 by the Human Rights Ombudsman, several peasants were killed and some were wounded between 1999 and 2006 because of their activities in defence of land claims, particularly after the Law on Land and Agrarian Development entered into force in 2001. The law allows the government to take over and redistribute land it identifies as unused. According to the Ombudsman, contract killers hired by private landowners appear to have been responsible for most of the killings. According to a 2007 New York Times article, more than 160 peasants were killed by hired gunmen in Venezuela between 2001 and 2007.

Business Corruption

A 2001 Law on Land and Agrarian Development states that property which is not being used for agricultural or other productive purposes can be redistributed by the government. The Government claims to have seized 4.7 million acres of land since 1998 and according to the US Department of State 2009, a part of this land was expropriated without compensation. Furthermore, cement and steel manufacturers that export the majority of their goods have been told that they will be expropriated if they do not start committing more goods to the national market.

Political Corruption

The National Land Institute (INTI) is the key institution involved in implementing land reforms. INTI identifies, administers and regulates landed property and distributes land. According to INTI, an estimated 10 million hectares of land was under dispute in 2006.

Frequency

The World Bank & IFC: Doing Business 2010:
- Registering property requires a company to pay a little over 2.2% of the property value on average and to go through 8 administrative procedures, which take an average of 47 days - well below the regional average of 70.4 days.

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the protection of property rights, including financial assets, in Venezuela a score of 2.1 on a 7-point scale (1 being 'very weak' and 7 'very strong').

The New York Times: 'Clash of Hope and Fear as Venezuela Seizes Land', 17 May 2007:
- 5% of the population was estimated to possess 80% of the country's private land before a land reform was initiated in 2002.

- The government has seized over 3.4 million acres of land and resettled more than 15,000 families since 2002.

Tax Administration

Individual Corruption

Household surveys by Latinobarómetro 2006 (see English version) and the Transparency International Global Corruption Barometer 2009 reveal that citizens perceive tax officials to be relatively corrupt and that they do not have much confidence in the way the government is spending tax revenues.

Business Corruption

According to the World Bank & IFC Doing Business 2010, the costs and procedural burden of paying taxes in Venezuela are far beyond the regional averages. The US Department of State 2009 reports that non-transparent tax regulations are a source of uncertainty to foreign companies operating in Venezuela.

Political Corruption

According to Global Integrity 2009, political considerations play a role in the enforcement of tax laws. Opposition leaders, journalists and companies who are critical of the Venezuelan government are considered "special contributors" who are regularly visited, audited and supervised by the National Customs and Tax Administration Service (SENIAT), while the administration is more lenient with less critical contributors.

Frequency

The World Bank & IFC: Doing Business 2010:
- A medium-sized company must make an average of 71 payments and spend 864 hours a year managing the administrative burden of paying taxes at a total tax rate of 61.1% of profits.

Transparency International: Global Corruption Barometer 2009:
- 23% of households who had contact with tax revenue authorities in 2008 report to have paid a bribe.

Latinobarómetro: Annual Report 2006 (see English Version):
- 45% of the Venezuelan households surveyed doubted that their tax money would be spent appropriately by the government.

The World Bank & IFC: Enterprise Surveys 2006:
- 22% of companies consider tax administration as a major constraint for their operations.

- 2.5% of companies expect to give gifts in meetings with tax inspectors.

Customs Administration

Individual Corruption

The Transparency International Global Corruption Barometer 2005 reveals that citizens identify the customs administration as one of the most corrupt institutions in the country.

Business Corruption

Venezuela's seas and airports are notorious for their high levels of red tape and corrupt practices. Corruption within the customs service is one of the greatest barriers to trade in Venezuela. According to the US Department of State 2008, companies should note that problems with approval of import permits and licences by relevant offices have occasionally led to delays and cancelled shipments.

Political Corruption

According to Globovision, in 2006, the former Presidential candidate Roberto Smith revealed that private companies paid 'intermediaries', some of them former workers of the tax office Seniat, so that they would be exempted from paying custom duties. Smith presented e-mails, documents and bank statements showing that at least three people, all former workers of Seniat had managed to gain about USD 1 million in commissions.

Frequency

The World Bank & IFC: Doing Business 2010:
- Exporting a standardised shipment of goods requires 8 documents and takes an average of 49 days at a cost of USD 2,590 per container.

- Importing a standardised shipment of goods requires 9 documents and takes an average of 71 days at a cost of USD 2,868 per container.

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the efficiency of customs procedures (formalities regulating the entry and exit of merchandise) in Venezuela a score of 1.8 on a 7-point scale (1 being 'extremely inefficient' and 7 'extremely efficient').

The World Bank & IFC: Enterprise Surveys 2006:
- It takes more than 68 days on average to obtain an import licence.

- It takes an average of 14 days to clear exports through customs.

- 26% of companies identify customs and trade regulations as a major constraint.

Transparency International: Global Corruption Barometer 2005:
- Citizens give the customs administration a score of 3.5 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt').

Public Procurement and Contracting

Business Corruption

According to the Venezuelan regulation on tenders, national and international tenders should be treated equally. However, local preferences in government procurement are increasingly applied. The president can authorise temporary changes in the bidding process under certain circumstances, such as to promote national development or to offset adverse conditions for national tenders. Those changes could include, among other things, reservation of contract for nationals and requirements for domestic contents. Besides that, according to the Bertelsmann Foundation 2008, the communitarian sector, that is cooperatives and socialist productions units, often receive privileges in government procurement.

The business community asserts that corruption continues to be an important problem in public contracting. Tenders are frequently not published, although this is a requirement. There have been many complaints over subjective decisions made without legal justification. Fair bidding practices are being neglected in favour of quick and direct handouts of public contracts. In practice, public procurement officials have a great deal of discretionary power over procurement processes. Companies should note that it is common among public procurement officials to demand commissions in exchange for awarding contracts. It is recommended that companies use a specialised public procurement due diligence tool in order to mitigate the risks associated with public procurement in Venezuela.

In the process of nationalising the oil sector, private companies had their operating service agreements cancelled and were forced into joint ventures with the state oil company, PDVSA, without negotiation. Concerns have thus been raised over the respect for contracts.

Read more about public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

According to the US Department of State 2009 and Global Integrity 2009, public contracting lacks transparency and effective competition in the awarding of contracts. Contracts tend to be handed out without a proper tendering process and are instead given in accordance with political preferences.

Examples of corruption cases include the Supreme Court judge Luis Velazquez, who has been investigated for taking kickbacks involving a new judicial building.

The Bolivar 2000 Plan - managed by the armed forces and emphasising social service work - has been permeated by corrupt practices. Former General Comptroller Eduardo Roche Lander found irregularities in the Bolivar 2000 Plan, among them purchases that were either not properly documented or were validated using forged invoices and overpricing by as much as 2,000% in certain cases. There were also examples of contracts having been made with nonexistent suppliers. Around half of the programme's budget of USD 300 million was never accounted for. Lander was subsequently removed from his post by the National Assembly.

Read more about public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 1.8 on a 7-point scale (1 being 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 1.9 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').

Environment, Natural Resources and Extractive Industry

Business Corruption

To make the country's agricultural sector more efficient in order to achieve food self-sufficiency, the government established an agricultural development fund known as Fondafa. The administration and disbursement of money from the fund have reportedly been influenced by corruption. According to official figures, despite a 50% increase in farm credits issued by Fondafa in 2005, the number of hectares planted nationwide rose by a paltry 1.4%. Investigations point to collaboration between corrupt bureaucrats and rural companies that have allegedly channelled Fondafa credits into phantom agricultural cooperatives.

In a Save the Children UK 2005 survey measuring company performance in revenue transparency in the oil and gas industries around the world, foreign companies operating in Venezuela score very low. In general, companies with a good score in other countries scored low on their performance in Venezuela. Shell, for example, had a high score on transparency performance in Nigeria but a remarkably lower score in Venezuela.

Political Corruption

Corruption within the state oil company PDVSA's employment of personnel and in the sale of oil is significant. High-ranking officers and advisors to PDVSA have been involved in scandals related to kickbacks and dubious land acquisitions without the government taking appropriate action. The PDVSA stopped publishing its annual financial statements in 2003.

According to Transparencia Venezuela 2004, transparency in the PDVSA is seriously lacking, and internal controls have been minimised since the Minister of Mines and Petroleum became President of the PDVSA, as the PDVSA is thus both managed and monitored by the same individual.

Public Anti-Corruption Initiatives

  • Legislation: Venezuela has an anti-corruption law, but observers generally agree that its enforcement is very weak. The Anti-Corruption Law 2003 (in Spanish) criminalises passive and active corruption (Art. 60, 61), extortion (Art. 63, 67) and money laundering. Furthermore, it establishes citizens' right to information and obligates the state to publish and make publicly available an account of public goods and expenses three times annually. However, the government does not publish expenditures in a detailed and timely fashion, and according to international observes, such information is difficult to obtain. The law requires public employees to present a sworn declaration of personal assets within 30 days of assuming a post as well as 30 days after leaving it. The law also allows for the extradition of corrupt officials, prohibits them from holding public office in the future and includes a prohibition on officials having secret foreign bank accounts. The Anti-Corruption Law also seeks to maximise penalties. For example, public officials found guilty in smaller corruption charges can receive sanctions ranging from 90 days suspension from office to removal from their position. Public officials found guilty of bribing or receiving commissions from foreign company representatives can be sentenced to between 10 and 20 years in prison. Venezuela has signed and ratified three important international conventions: the UN Convention against Corruption (UNCAC), the OAS Inter-American Convention Against Corruption and the UN Convention against Transnational Organized Crime. For further information on legislation in Venezuela, see the Lexadin World Law Guide.

  • Government Strategies: In principle, fighting corruption is a high priority for the Chávez administration, which is reflected in many of Chávez's speeches, by the creation of a solid legal framework and several public agencies mandated to deal with corruption. At the moment, the Ministry of Economy and Finance/SENIAT is running a 'Zero Tax Evasion' (in Spanish) campaign aimed at increasing Venezuelan tax revenues and reducing tax evasion and a 'Zero Contraband' (in Spanish) campaign intended to strengthen the Venezuelan customs system. However, apart from these initiatives and the creation of anti-corruption legislation and entities, the government's will towards genuinely curbing corruption has been questioned by several international observers and the political opposition. Moreover, the centralisation of power that occured under Chavez's government has eliminated important checks and balances in the state system and thus enhanced Venezuela's overall vulnerability to corruption.

  • Anti-Corruption Agencies: Three public agencies mandated to deal with corruption have been established under a public umbrella organisation called Poder Ciudadano (in Spanish), headed by the Moral Council of the Republic. These agencies are the Public Prosecutor, the Comptroller General and the Human Rights Ombudsman, which are all described in more detail below. Poder Ciudadano was created under the 1999 Constitution as the central political branch to coordinate the fight against corruption. The Organic Law of Poder Ciudadano (in Spanish) provides Poder Ciudadano (through its sub-agencies) with the authority to educate against, prevent, investigate and sanction 'acts against public ethics and moral', including corruption and non-transparency. Furthermore, the law establishes that the Poder Ciudadano and its sub-agencies are independent from other public agencies and that they enjoy functional, financial and administrative autonomy. However, Chávez has tried to interfere in the affairs of Poder Ciudadano by impeding the formulation of effective and clear responses to complaints about corruption submitted by civic organisations and political opposition parties.

  • General Public Prosecutor's Office: As one of the organs under Poder Ciudadano, the Fiscal General de la República (in Spanish) heads the Public Ministry, which is the central entity created to execute legal action under the state. Its main tasks are to handle criminal cases, including corruption. It also provides contact information for its representatives in each state to whom crimes can be reported and who provide for the protection of victims of crime. Its website has several public services, including free hotlines for crime victims who need protection as well as a reporting mechanism to which criminal transgressions and corruption can be reported (see the 'Whistle-Blowing' section below).

  • Comptroller General of the Republic: The Contraloría General de la República (in Spanish), as part of Poder Ciudadano, serves as a watchdog agency by controlling the revenues of and expenses incurred by the government. Although the agency is intended to be politically independent, observers cite that the staff is often appointed on the basis of cronyism and political clientelism. The processing of accusations by the institution is often delayed for more than a year, depending on the charges pressed against the individual responsible for the acts of corruption. According to Global Integrity 2009, the agency is subject to political interference and thus hindered in carrying out its mission.

  • Ombudsman: The Venezuelan Human Rights Ombudsman (in Spanish, Defensor del Pueblo) forms the third agency that makes up Poder Ciudadano. It is responsible for providing suitable legal instruments for the protection of fundamental rights and for compelling the government to adhere to the constitution and rule of law. However, according to Global Integrity 2009, the agency is not independent, but controlled by the ruling party and unable to carry out its mandate without political interference. In 2004, legislation expanded the powers of the Human Rights Ombudsman to include scrutiny of abuse of power and flaws in the provision of services.

  • E-Governance: E-governance is relatively well-developed in Venezuela and practically all public ministries have web pages providing information on their work. For example, foreign investors may find relevant information on customs and tax regulations on the National Customs and Tax Administration Service (in Spanish, SENIAT - Servicio Nacional Integrado de Administracion Tributaria de Venezuela) website, which is headed by the Ministry of Economy and Finance.

  • Public Procurement: In 2008, the government approved the Public Contracting Law and repealed the 2001 Law of Tenders. Transparency International Venezuela has criticised the new Public Contracting Law for including even more exceptions to the principle of open tender, which has given reason for speculations that open bidding will be more the exception than the rule. The law, for example, does not apply to all contracts made in connection with international agreements of cooperation between Venezuela and other countries. The central government agency providing guidance to bidders and sellers is the National Contracting Service (in Spanish only). However, the best source of assistance to foreign companies with no previous experience in Venezuela may be Licitaciones Venezuela (in Spanish only), which is a private entity that provides practical information on the procurement environment in Venezuela. Public tenders are publicised in newspapers and in the website of the contracting institution and of the National Contracting Service. Anyone wanting to participate in public tenders or sell to a Venezuelan governmental agency must be registered in the National Register of Contractors (in Spanish), which is maintained by the Central Office of Statistics and Informatics. The National Register can open sub-registers, normally found in all the ministries and governmental agencies which regularly purchase goods or services. The Public Contracting Law does not have any appeal mechanism; however eventual disputes that arise during the procurement process can be taken to the courts and alternatively a complaint can be made to the Comptroller General.

  • Whistle-Blowing: The General Public Prosecutor's Office has a reporting mechanism on its website where it is stated that any person, victim or not, can report any illegal act. On the website, the link Denuncias (in Spanish only) contains information about how to report and to whom. Filing complaints to the General Public Prosecutor's Office cannot be done anonymously. The Human Rights Ombudsman's Office also has a reporting mechanism (in Spanish only) on its website to which complaints can be filed against the office's officials by e-mail and to which human rights violations and public service complaints can be reported. The Anti-Corruption Law does not contain any provisions on protection of whistleblowers. On the contrary, it declares that those who falsely denounce or accuse another person in the public administration of committing acts of corruption will be punished with a prison sentence of one to three years. As a signatory to the Inter-American Convention against Corruption, Venezuela has yet to enact a law protecting public sector whistleblowers along the lines set down in the Organisation of American States' model anti-corruption statutes.

  • General Comments on the Public Anti-Corruption Initiatives: Both the executive and legislative branches have shown great interest in fighting corruption through public institutions, which is demonstrated by the creation of a comprehensive legislative framework and several agencies mandated to deal with cases of corruption. However, the effectiveness of the agencies has been deemed very low because of the high degree of executive interference in the agencies' affairs. Furthermore, observers generally agree that the Chávez administration has done little to clarify bureaucratic regulations or to reduce the number of direct contact points between public officials and citizens and companies that are known for increasing the possibility for corrupt behaviour. Despite promises to fight corruption, anti-corruption efforts have been sporadic, and there have only been a few high-profile convictions for corruption and embezzlement during Chávez's time in office. According to Freedom House 2008 and other observers, the Anti-Corruption Law 2003 has not improved government transparency. Moreover, the centralisation of power that occurred under Chavez's government has eliminated important checks and balances in the state system and thus enhanced Venezuela's overall vulnerability to corruption.

Private Anti-Corruption Initiatives

  • Media: The constitution guarantees freedom of expression. However, according to Freedom House 2009, exercising that right is difficult, especially after the passing of the 2004 Law on Social Responsibility of Radio and Television that gives the government authority to control the content of radio and television programmes. Furthermore, a 2004 Journalism Law provides for compulsory registration of journalists with the national journalism association and punishes reporters accused of 'illegal' conduct with prison sentences of up to six months. The so-called 'insult' laws (leyes de desacato) from 2005 increased penalties for insulting public authorities and makes it possible to imprison people for insulting 'by speech or in writing' the President, the Vice President, the President of the Legislature, the Chief Justice and numerous other government officials or for showing them 'lack of respect in any other way'. According to Human Rights Watch 2008, the 'insult' laws have often impeded investigative journalism on corruption cases, as the official accused in an article can sue the reporter for defamation. According to a January 2009 article by IPS, journalists investigating corruption and organised crime increasingly are victims of violence and killings, and self-censorship happens to a great extent. Investigative reporting on political corruption can also be at high risk, as exemplified by the case of journalist Gustavo Azocar. The US Department of State 2009 reports that Azocar was on trial for alleged illegal enrichment and was detained in July 2009 following his publication on the internet, in violation of a court gag order, of excerpts from his trial. Azocar claims, supported by the National College of Journalists and Reporters Without Borders, that his prosecution is politically motivated because of his reporting on corruption in the government and among the president's relatives. In May 2007, Chávez closed the only opposition television station and his government now controls three national television stations, eight radiobroadcasters, a state news agency, an international news channel and a daily newspaper, which all run pro-government ads. According to some observers, the strengthening of government control over the media can partly be seen as a reaction to the events prior to the military coup in April 2002, when several of the private opposition television stations had openly been highly critical towards the government and allegedly backed the instigators. Nonetheless, media freedom in Venezuela is ranked poorly in various indexes. For example, Freedom House 2009 assesses Venezuela's press environment as 'not free' and ranks the country 160th out of 195 countries, while Reporters Without Borders 2010 ranks Venezuela 124th out of 175 countries. For more information on the media environment in Venezuela, see the Human Rights Watch 2008 report: 'A Decade Under Chávez'.

  • Civil Society: Many international observers as well as the Venezuelan political opposition believe that the Chávez government has weakened civil society in Venezuela. In 2000, the Supreme Tribunal of Justice ruled that NGOs with non-Venezuelan leaders or foreign government funding are not part of 'civil society'. As a result, they cannot represent citizens in court or bring their own legal actions. According to Freedom House 2009, the Chávez government has also undermined the legitimacy of human rights and other civil society organisations by questioning their relations to international groups. Furthermore, Amnesty International states that the lack of independence of the judiciary, harassment of human rights defenders and the use of administrative and tax proceedings restrict freedom of expression. Supporters of Chávez have sought to justify the marginalisation of some human rights and civil society groups by arguing that they are pursuing partisan agendas aimed at destabilising the country and removing Chávez from office. According to Human Rights Watch 2008, authorities in Venezuela have so far ignored, harassed or intimidated civil society groups on controversial issues, such as prison violence, rather than including them in policy discussions.

  • Transparencia Venezuela: Transparencia Venezuela is the local chapter of Transparency International. It monitors and evaluates Venezuela's compliance with anti-corruption commitments made through the Inter-American Convention against Corruption and the United Nations Convention against Corruption (UNCAC). In Venezuela, civil society organisations (CSOs) are not allowed to receive foreign economic support. Thus, the government claims that Transparencia Venezuela is not a CSO because it is internationally funded. Therefore, the government does not recognise its participation in the official monitoring process. Furthermore, its critical 2006 report on Venezuela's compliance with the Inter-American Convention against Corruption (in Spanish) has been partly censored by the government. In fact, Human Rights Watch reports that the executive director of Transparencia Venezuela was prevented from briefing the panel of Organisation of American States on the conclusions of the above report in mid-2007, after her appearance was vetoed by Venezuelan officials. Transparencia Venezuela won the 2007 Changemakers Ending Corruption: Honesty Instituted competition for its 'Municipios Transparentes' (Transparent Municipalities) project, a group of programmes aimed at strengthening the capacities of the local governments and citizen and community organisations in matters related to the struggle against corruption.

Resources

The websites listed below provide useful facts on Venezuela as well as contacts and tools for companies operating in Venezuela:

 

Sources for further reading:

Conventions and Indices

UNCAC Status: Signed 10 December 2003. Ratified 2 February 2009.

Status on UNCAC Implementation
This field describes the country's status on the United Nations Convention against Corruption. Please note any declarations and reservations made upon ratification. The list of signatories can be found on the UNODC website. Read more about the UNCAC.

 

Other Relevant Conventions or Treaties:


Transparency CPI: 2009: 162/180 (Score: 1.9)

Transparency CPI
This field consists of the score for the country in question on the Corruption Perceptions Index from Transparency International as well as its ranking.

 

World Bank CORR Index (-2.5 - +2.5): 2008: - 1.13

World Bank Corruption Index
This field consists of the score for the country in question on the 'Control of Corruption' indicator in the World Bank Governance Research Indicator Country Snapshot (GRICS): 1996-2008.

 

OECD Country Risk Classification (0-7): 2010: 7

Country Risk Classification
The classification of countries by risk category has the aim of providing OECD countries with a basis for calculating the premium interest rate to be charged to cover the risk of non-repayment of export credits. Countries are placed in risk categories 0 - 7, with 0 being the lowest risk category and thus the least expensive. Conversely, premium group 7 is the highest risk category. Each classification is comprised of 2 components: 1) an assessment of the country's economic/financial situation, and 2) its overall political stability. Access the complete list of OECD Country Risk Classification figures.

 

Data Verification:

Latest update: April 2010

Data verified by: Global Advice Network

Information Network

 

Relevant Organisations

 

Transparencia Venezuela

Av. Andrés Eloy Blanco
Edf. Cámara de Comercio de Caracas, piso 2, Of. 215
Los Caobos
Caracas 1050

Tel: +58 212 576 0863
Fax: +58 212 573 3134
E-mail: prensa(at)transparencia.org.ve

Anti-corruption NGO. Local chapter of Transparency International.

ICC Venezuela

Calle Andrés Eloy Blanco No. 215
Los Caobos
Caracas 1050

Tel: +58 212 571 8831
Fax: +58 212 578 2456
E-mail: icc(at)iccvenezuela.org

The national committee of the International Chamber of Commerce (ICC) in Venezuela.

Venezuelan Chamber of Commerce

Avda. El Empalme
Casilla 2568 Urbanizacion El Bosque
1050 Caracas

Tel: +58 212 731 1711
Fax: +58 212 731 0246
E-mail: admon(at)fedecamaras.org.ve

Venezuelan business association.

Consejo Nacional de Promoción de Inversiones (CONAPRI)

Calle Guaicaipuro, Torre Forum, Ground Floor, Office LC-A. El Rosal
Distrito Capital
Caracas 1060

Tel: +58 212 951 6507/3692/4732
Fax: +58 212 953 3915

The Venezuelan Council for Investment Promotion provides business licences and credit to all major local companies and multinational subsidiaries. It promotes public and private investment initiatives in Venezuela.

 

Partner Embassies

 

General Consulate of Denmark

Prolongación Av. Trieste con Calle Miranda, Edificio Plumrose
Los Ruices Sur
Caracas 1071

Tel: +58 212 256 5542 / 257 9278/1974
Fax: +58 212 258 0147
E-mail: gkcaracas(at)plumrose.com

General Consulate of Denmark.

Honorary Consulate of Sweden

Torre Phelps Piso 19,
oficina A, Plaza Venezuela
Caracas

Tel: +58 212 781 6976/8422
Fax: +58 212 781 5932
E-mail: Consuladogensuecia(at)cantv.net

Consulate.

Embassy of the Netherlands

Edificio San Juan, Piso 9
Avenida San Juan Bosco
con 2a Transversal
Altamira
Caracas

Tel: +58 212 276 9300
Fax: +58 212 276 9311
E-mail: car(at)minbuza.nl

Embassy.

Embassy of Norway

Centro Lido
Piso 9, Ofic. 92-A
Avenida Francisco de Miranda
El Rosal
Caracas

Apartado 60532 Chacao
YV-1060-A
Caracas

Tel: +58 212 953 0269/0671/1973
Fax: +58 212 953 6877
E-mail: emb.caracas(at)mfa.no

Embassy.

British Embassy

Torre La Castellana, Piso 11
Avenida La Principal de la Castellana
Caracas 1061

Tel: +58 212 263 8411
Fax: +58 212 267 1275
E-mail: britishembassy(at)internet.ve

Embassy.

Embassy of Austria

Avenida Orinoco (entre Mucuchíes y Perijá), Las Mercedes, Torre D & D - Piso PT - Oficina PT-N
Caracas 1060

Postal Address:
Apartado 61.381
Caracas 1060-A

Tel: +58 212 999 1211
Fax: +58 212 993 2753/2275
E-mail: caracas-ob(at)bmeia.gv.at

Embassy.

Country Profile Sources

General Information Sources

Corruption Levels Sources

Judicial System

Police

Licences, Infrastructure and Public Utilities

Land Administration

Tax Administration

Customs Administration

Public Procurement and Contracting

Environment, Natural Resources and Extractive Industry

Public Anti-Corruption Initiatives Sources

Private Anti-Corruption Initiatives Sources