Venezuela RISK & COMPLIANCE REPORT DATE: December 2017 KNOWYOURCOUNTRY.COM Executive Summary - Venezuela Sanctions: The US has imposed sanctions blocking property and suspending entry of certain persons contributing to the situation in Venezuela. FAFT list of AML No Deficient Countries US Dept of State Money Laundering assessment Higher Risk Areas: Not on EU White list equivalent jurisdictions Corruption Index (Transparency International & W.G.I.)) World Governance Indicators (Average Score) Failed States Index (Political Issues)(Average Score) International Narcotics Control Majors List - Cited Compliance with FATF 40 + 9 Recommendations Medium Risk Areas: Major Investment Areas: Agriculture - products: corn, sorghum, sugarcane, rice, bananas, vegetables, coffee; beef, pork, milk, eggs; fish Industries: petroleum, construction materials, food processing, textiles; iron ore mining, steel, aluminum; motor vehicle assembly, chemical products, paper products Exports - commodities: petroleum, bauxite and aluminum, minerals, chemicals, agricultural products, basic manufactures Exports - partners: US 39.1%, China 14.3%, India 12%, Netherlands Antilles 7.8%, Cuba 4.6% (2012) Imports - commodities: agricultural products, livestock, raw materials, machinery and equipment, transport equipment, construction materials, medical equipment, pharmaceuticals, chemicals, iron and steel products Imports - partners: US 31.7%, China 16.8%, Brazil 9.1%, Colombia 4.8% (2012) Investment Restrictions: The Venezuelan National Assembly passed legislation in 2010 designed to create a communal state and economy, privileging public-sector economic institutions and reducing the space for private-sector participation. Venezuela's legal framework for foreign investment requires equal treatment for both foreign and local companies, with the exception of a few sectors in which the state or Venezuelan nationals must be majority owners, including hydrocarbons and the media. In practice, however, foreign investors encounter hurdles. Foreign investors need to register with the Superintendent of Foreign Investment (SIEX) within 60 days of the date of their investment. Foreign companies may open offices in Venezuela without prior authorization from SIEX as long as they do not engage in certain sales or business activities that would require registration. No prior authorization is required for technical assistance, transfer of technology, or trademark-use agreements provided they are not contrary to existing legal provisions. Decree 2095 reserved three areas of economic activity to “national companies”: (1) broadcast media, (2) Spanish-language newspapers, and (3) professional services regulated by national laws. These professional services include law, architecture, engineering, medicine, veterinary medicine, dentistry, economics, public accounting, psychology, pharmacy, and management. A “national company” (as defined in Article 1 of Andean Community Decision 291) is a company in which Venezuelan nationals hold more than 80 percent of the equity. Foreign capital is therefore restricted to a maximum of 19.9 percent in the areas noted above. Contents Section 1 - Background........................................................................................................................ 5 Section 2 - Anti – Money Laundering / Terrorist Financing............................................................. 6 FATF status ................................................................................................................................................ 6 Compliance with FATF Recommendations ....................................................................................... 6 Key Findings from latest Mutual Evaluation Report (2009): ............................................................ 6 US Department of State Money Laundering assessment (INCSR) ................................................. 8 Report...................................................................................................................................................... 11 International Sanctions .......................................................................................................................... 3 Bribery & Corruption ............................................................................................................................... 4 Section 3 - Economy .......................................................................................................................... 9 Banking ................................................................................................................................................... 10 Stock Exchange .................................................................................................................................... 10 Section 4 - Investment Climate ....................................................................................................... 11 Section 5 - Government ................................................................................................................... 28 Section 6 - Tax ................................................................................................................................... 29 Methodology and Sources ................................................................................................................ 31 Section 1 - Background Venezuela was one of three countries that emerged from the collapse of Gran Colombia in 1830 (the others being Ecuador and New Granada, which became Colombia). For most of the first half of the 20th century, Venezuela was ruled by generally benevolent military strongmen, who promoted the oil industry and allowed for some social reforms. Democratically elected governments have held sway since 1959. Hugo CHAVEZ, president from 1999 to 2013, sought to implement his "21st Century Socialism," which purported to alleviate social ills while at the same time attacking capitalist globalization and existing democratic institutions. Current concerns include: a weakening of democratic institutions, political polarization, a politicized military, rampant violent crime, overdependence on the petroleum industry with its price fluctuations, and irresponsible mining operations that are endangering the rain forest and indigenous peoples. Section 2 - Anti – Money Laundering / Terrorist Financing FATF status Venezuela is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies FATF Statement - 22 February 2013 The FATF welcomes Venezuela’s significant progress in improving its AML/CFT regime and notes that Venezuela has established the legal and regulatory framework to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF had identified in October 2010. Venezuela is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. Venezuela will work with the CFATF as it continues to address the full range of AML/CFT issues identified in its Mutual Evaluation Report. Compliance with FATF Recommendations The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Venezuela was undertaken by the Financial Action Task Force (FATF) in 2009. According to that Evaluation, Venezuela was deemed Compliant for 6 and Largely Compliant for 12 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non- Compliant for 5 of the 6 Core Recommendations. Key Findings from latest Mutual Evaluation Report (2009): The “Bolivarian Republic of Venezuela”, situated in the northern part of South America, has an area of approximately 912,050 square kilometres, and 28,800,000 inhabitants. Petroleum and its derivatives are the mainstay of the economy, which boasts one of the highest per capita incomes in the region. Because of its geographical location, Venezuela is a transit country for illicit drugs, which account for the largest proportion of money laundering activities. Other sources of illicit funds are corruption, which accounts for the largest number of cases analysed by the FIU, after those related to drug trafficking. Up to the present time no cases of financing of terrorist activities have been discovered in the Republic of Venezuela. Legal systems and related institutional measures As regards criminalisation of money laundering, Article 4 of the Organic Law Against Organised Crime (LOCDO) criminalises and sanctions money laundering under the title of “Legitimisation of Capital”. It embodies all the characteristic elements and modalities set out in the 1988 UN Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) and the 2000 UN Convention against Transnational Organised Crime (Palermo Convention). All offences enumerated in the LOCDO constitute predicate offences, and in general terms almost all serious crimes are covered as predicate to money laundering. A person may be prosecuted for laundering assets derived from crimes committed abroad, and a person may be convicted for laundering the proceeds of offences committed by himself (self- laundering). As regards evidence, for purposes of conviction for money laundering, intent on the part of the accused may be inferred from the objective circumstances of the case. Evidence may also be introduced on the basis of the principle of libertad probatoria (full admissibility of evidence) embodied in Article