Venezuela

Judicial System

Businesses dealing with the Venezuelan judiciary face high corruption risks. The institution is ranked by Venezuelans as among the most corrupt institutions (GCB 2013). Furthermore, the courts lack independence and are highly politicized (HRR 2014, FitW 2015). The courts deteriorated when President Chávez was in power, as he packed the judiciary with loyalists. In 2013, the Supreme Court ruled in favor of the government in 94% of the cases involving the state, due to fear of retaliation (HRR 2014).

Business executives find that the legal framework for settling disputes and challenging regulation to be extremely inefficient (GCR 2015-2016). Companies should be aware that the corrupt and inefficient judiciary poses a hindrance for settling commercial disputes (ICS 2015). Enforcing contracts in Venezuela is less time-consuming but more costly compared to the regional averages (DB 2016).

Police

The security apparatus has a high corruption risk, and the police are ranked as the country’s most corrupt institution (GCB 2013). Companies evaluate the ability of the police to protect them from crime and to enforce the law as very weak. Most companies in Venezuela pay for security, while close to the same percentage identify crime, theft, and disorder as major constraints to doing business.

Police officers are generally poorly trained and funded, and impunity among police officers is a serious problem (HRR 2014). Furthermore, appointments to law enforcement agencies are sometimes based on non-professional criteria, and party loyalties may be considered in some cases (GI 2011).

Public Services

The public services sector carries a high corruption risk. Public institutions are rather opaque, and the unpredictable regulatory system suffers from corruption and a lack of transparency (ICS 2015). Irregular payments and bribes are reportedly widespread, and companies often complain about the burden of government regulations (GCR 2015-2016). Furthermore, business inspections carried out by government officials to ensure public health and safety standards are usually carried out in an arbitrary and ad hoc manner. Bribes are often paid by companies in return for favorable treatment or expedited processing (GI 2011).

Dealing with construction permits is more time-consuming but less costly than the regional average, while starting a business is much more time-consuming and more costly than elsewhere in the South Asian region (DB 2016).

Land Administration

Venezuela’s land administration carries a high corruption risk. Corruption and over-regulation negatively affect property rights (FitW 2015). Property rights are guaranteed under the Constitution but are not respected in practice (BTI 2014). Likewise, businesses perceive property rights to be very poorly protected (GCR 2015-2016). Authorities sometimes expropriate land and private property arbitrarily and without compensation (BTI 2014). The Law on Fair Prices and Costs has rendered administrative prices the norm putting further strain on private property rights (BTI 2014).

Registering property in Venezuela is less time-consuming and less costly compared to the regional average (DB 2016).

Tax Administration

The tax administration carries a moderate risk of corruption for business. Tax laws are not enforced uniformly and without discrimination, and tax evasion is common (GI 2011). Nonetheless, only a small percentage of companies have reported giving gifts when interacting with tax officials. The costs and procedural burden of paying taxes in Venezuela are far greater than the regional averages (DB 2016).

Customs Administration

Dealing with imports and exports involves a high corruption risk for business. The border administration lacks transparency, and irregular payments are widespread when trading across Venezuela’s borders (GETR 2014). Customs and excise laws are not always enforced uniformly or without discrimination, and some groups, most notably well-connected individuals or companies, are likely to evade customs and excise laws due to corruption and connections (GI 2011). Furthermore, customs procedures are very burdensome (GCR 2015-2016). In addition, smuggling represents a major problem, with gasoline smuggling alone costing the government several USD billions each year (FitW 2015).

Foreign investors may find relevant information on customs and tax regulations on the SENIAT (in Spanish, Servicio Nacional Integrado de Administracion Tributaria de Venezuela) website.

Public Procurement

The public procurement sector carries a high risk of corruption. More than two-thirds of companies reported that they expect to give gifts to officials in order to secure government contracts. Public funds are often diverted to individuals and companies due to corruption, and favoritism among procurement officials is widespread (GCR 2015-2016). In fact, most public contracts are subject to ’emergency’ policies, and thereby are exempt from open tenders (BTI 2014). Furthermore, impunity is reportedly widespread among procurement officials, while companies that are found guilty of corruption are not blacklisted (BTI 2014).

The National Development Fund (FONDEN) is responsible for overseeing public spending. FONDEN holds the status of a corporation owned by the Venezuelan Finance Ministry, exempting it from being subject to the reporting and disclosure requirements that apply to government entities, in part contributing to the diversion of public funds (BTI 2014). Companies are generally recommended to use a specialized public procurement due diligence tool to mitigate the corruption risks associated with public procurement in Venezuela.

Natural Resources

Transparency in the natural resources sector is weak. Reportedly, business inspections by government officials to ensure public environmental standards are often carried out in an arbitrary and ad hoc manner, also bribes are usually extracted from companies in return for favorable treatment or expedited processing (GI 2011).

Legislation

The Venezuelan Anti-Corruption Law (in Spanish) criminalizes active and passive bribery, abuse of office, extortion and money laundering, punishable by prison time that ranges between three to ten years. The Anti-Corruption Law also applies to third parties. Public officials are banned from receiving valuable gifts in return for an undue advantage. Gifts are legal if there is no intent of abuse (World Services Group, May 2014). There are no provisions in the Venezuelan Penal Code criminalizing the bribery of foreign officials. The government does not implement the relevant anti-corruption laws effectively, and government officials engage in corruption with impunity (HRR 2014). Other laws governing anti-corruption in Venezuela include: The Law against Organized Crime, the Organic Law of the Republic’s Comptroller General, the National Fiscal Control System, the Public Function Statute, and the Code of Ethics of the Public Servant (World Services Group, May 2014). The Partial Tender Reform Act and the Law of Public Contracts govern public procurement in Venezuela. Public employees are subject to laws and the declaration of personal assets (HRR 2014).

Venezuela has ratified two important international anti-corruption conventions: the (UNCAC), and the UN Convention against Transnational Organized Crime.

Civil Society

Freedoms of speech and press are guaranteed under the Venezuelan constitution; however, these rights are restricted in practice (HRR 2014). The crackdown on journalists increased during 2014, and the authorities’ efforts to curb free speech contribute to strong incentives to self-censor (FotP 2015). Almost one-third of all Venezuelan journalists refrain from reporting on vital public interest issues out of fear of retaliation, while almost half reported being pressured to change the coverage of a story (FotP 2015). Defamation is a criminal offense, and when directed at the president, prison terms of up to 30 months can be imposed (FotP 2015). The Law on Social Responsibility in Radio, Television, and Electronic Media (Resorte Law) is applied to crack down on media critical of the government, both nationally and internationally. Freedom of the internet is also limited by the authorities (HRR 2014). Venezuelan law provides for freedom of access to information; however, these rights are heavily restricted in practice (FotP 2015). The media environment in Venezuela is considered ‘not free’ (FotP 2015).

Freedom of assembly is provided for under Venezuelan law; however, it is not protected in practice (HRR 2014). Civil society organizations in Venezuela are pressured by the authorities. The local chapter of Transparency International, ‘Transparencia Venezuela’, documented a series of government attempts to intimidate and attack the NGO, since 2010 (Transparency International, Jun. 2015).

Sources

• World Bank: Doing Business 2016.
• World Economic Forum: The Global Competitiveness Report 2014-2015.
• US Department of State: Investment Climate Statement – Venezuela 2015.
• Freedom House: Freedom in the World – Venezuela 2015.
• Freedom House: Freedom of the Press – Venezuela 2015.
• Transparency International: ‘Corruption and Human Rights Violations in Venezuela’, 2 June 2015.
• US Department of State: Human Rights Practices Report – Venezuela 2014.
• World Economic Forum: The Global Enabling Trade Report 2014.
• Bertelsmann Foundation: Transformation Index – Venezuela 2014.
• World Services group: Getting the Deal Through -Anti-Corruption Regulation 2014 – Venezuela, May 2016.
• Global Integrity: Venezuela Country Profile 2011.
• World Bank Group: Enterprise Surveys – Venezuela 2010.