I. Introduction

The most recent developments in corruption in Latin America are spectacularly scandalous (e. g., the Petrobras case has touched Brazilian politics at the highest level¹, the ex-President of Guatemala remains in custody for months on corruption charges²). Parallel to these “star cases”, day-to-day reality in Latin America is also seen as corrupt by many international actors, such as international investors.

Institutional weakness, which generates an unreal separation of powers in many countries, is one of the numerous factors that accounts for the weakness in the rule of law and means that corruption is entrenched in many sectors of Latin America. This article focuses specifically on Venezuela and briefly runs through some relevant Venezuelan statistical data on rule of law, investment, and corruption (section I), before analysing the 2014 Anti-Corruption Law. Although the Law’s wording includes references to the fight not only against internal corruption but also against international aspects of corruption, this article develops various arguments that may lead to the “quarantining” of this Law’s real objectives from an international investor’s perspective (section II). More specifically, the paper reflects on whether the current Venezuelan government might use this 2014 Anti-corruption law against foreign investors. The cataclysm that the country is currently experiencing does not bode well for international investments (section III).

II. The (lack of) rule of law in Venezuela, corruption, and international investment

“In Venezuela, there is no rule of law”. This harsh statement was uttered recently by Lilian Tintori, the wife of Leopoldo López, a Venezuelan opposition politician sentenced to almost 14 years imprisonment.³ Without meaning to be alarmist, the latest statistics on the (lack of) rule of law and corruption in Venezuela tend to corroborate Ms. Tintori’s contention.⁴

To name but a few: Venezuela scored only 17 in the 2015 Corruption Perception Index (CPI), ranking 158^th out of 168 countries -in comparison, Chile scored 70, and ranked 23^st on the CPI-.⁵In the same vein, the World Bank’s Governance Research Indicator Country Snapshot (GRICS) shows a clear worsening of the Venezuelan situation.⁶ The 2015 Country Report on Human Rights Practices on Venezuela issued by the U.S Department of State reveals “(high-level public) officials sometimes engaged in corrupt practices with impunity. The government frequently investigated and prosecuted its political opponents selectively on corruption charges to harass, intimidate, or imprison them”.⁷ Likewise, a 2014 United States Agency of International Development (USAID) report stated that trust in the Venezuelan government had decreased significantly in recent years.⁸ 80% of Venezuelans feel that their national officials are corrupt⁹ and the impunity level is higher than 95%.¹⁰ According to a study by a non-profit organization, The Fund for Peace, Venezuela is currently characterised by: “existing income inequality among the population, massive and endemic corruption in the judicial system or profiteering by ruling elites, lack of political opposition, high media scrutiny and harassment, and human rights violations”.¹¹ In a much more political language, the 2015 country report regarding Venezuela, issued during the 4th round of review of the Follow-Up Mechanism (MESICIC) of the Organization of American States (OEA) Convention against Corruption, also notes that there is much room for improvement in this area.¹²

The above presented political, legal and social landscape undoubtedly influences the Venezuelan economy,¹³ including the flow of international investments in Venezuela.¹⁴ Attending to the multigovernment-sponsored Business Anti-Corruption Portal, the Venezuelan panorama is demolishing:

Corruption represents a major obstacle for businesses operating or planning to invest in Venezuela. Most sectors of the Venezuelan economy suffer from endemic corruption, due to the highly politicized and ineffective judiciary that is inefficient in cracking down on corruption and impunity… Enforcement of anti-corruption legislation in the country is very weak, and government officials do engage in corrupt practices with impunity.¹⁵

Proof of this is the involution that Venezuela is experiencing in the Political Risk Index, where it has obtained the worst results of the whole Latin America.¹⁶

Likewise, recent academic work has established a connection between Venezuela’s high corruption levels, and high reliance on extractive industries -oil and gas-, which accounted for 85.46% of total exports between 2002 and 2007.¹⁷ As can be guessed from everything discussed so far, the richness of Venezuelan natural resources has not been sufficient to retain foreign direct investment (FDI) to the country. The resource curse is still active¹⁸ and nowadays the FDI setting in Venezuela is alarming. For instance, FDI to Venezuela in 2014 declined by USD 6 billion (-88% compared to 2013).¹⁹ A series of corrective measures proposed by regional organizations such as the Inter-American Development Bank,²⁰ as well as from the business and academic milieu²¹ -more transparency, establishement of independent regulatory agencies, more participation of private-owned firms in the economy, more foreign assistance, a much modern business profile, etc.-, do not seem practicable with the current Venezuelan government.²²

III. The Venezuelan 2014 Anti-Corruption law and its likely effects on international investment

In this context of highly troubled waters, the Venezuelan government enacted in November 2014 the “Decreto con rango, valor y fuerza de Ley de reforma de la Ley contra la corrupción” -hereafter, the 2014 Anti-Corruption Law.²³ This law²⁴partially amends the 2003 “Ley contra la corrupción”- Anti-Corruption Law.²⁵ It is noteworthy that this 2014 Law is part of a broad package of legislative measures aimed at “enabling the Socialist productive offensive for 2015”, ²⁶which have been issued only a day before the expiration of the decree powers granted to President Maduro twelve months before by Venezuela’s national assembly.²⁷

If the government’s official approach regarding the 2014 Anti-Corruption Law is heeded, the law is a genuine milestone in the fight against not only domestic but also international corruption.²⁸ Indeed, the new law includes a provision (Article 85) penalising the corruption of foreign officials,²⁹ which reproduces article VIII of the 1996 Inter-American Convention against Corruption (IACAC), and is also inspired by article 16 of the 2005 United Nations Convention against Corruption. Since Venezuela is a party to both international texts -ironically, IACAC was adopted in Caracas in 1996, two years before Chavez’s rise to power-, it may be interpreted that the 2014 Anti-Corruption Law reflects governmental efforts to comply with its international commitments, and to level the playing field in an area with clear effects on the trade and economic sphere.

Without detracting from the possible importance of the referred article regarding corruption of foreign officials, the reality is that Venezuela is extremely rich in natural resources and over time has attracted many foreign companies. Proof of this interest, and also of the problems that investments of this type have experienced in recent decades, are the numerous awards generated under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) in which the defendant was the Bolivarian Republic of Venezuela.³⁰ In fact, Venezuela has the dubious honour of being the second defendant State of the world -36 cases- (after Argentina -59 cases) with more claims at the ICSID level.³¹ The implication of this is that the main problem facing the Venezuelan government in the area of international corruption -also called transnational corruption- is quite different to the one presented in the referred Article 85 of the Anti-corruption Law: the normal fact pattern is the corrupting of domestic public officials by individuals or legal entities representing foreign interests.³²

If the focus is on the typology referred to above -corruption stemming from international investment aiming to locate itself in Venezuela or already located there-, a first reading leads one to believe that the new Anti-Corruption Law is adequate in a formal sense. It could even be described as ambitious, since it states that some lawsuits do not lapse, for example, and also outlaws facilitation payments -also called expediting payments or “grease payments”-. As a point of comparison, the US Foreign Corrupt Practices Act (FCPA), which is often used as an example, includes an exception for facilitation payments.³³

Nevertheless, the Venezuelan Anti-Corruption Law is a textbook example of a number of important issues that are presented below and are connected to the question of the rule of law. They all cast a critical eye on non-transparent governmental decision-making and reflect on what the current legal position of foreign investors in Venezuela really is:

a) A crucial issue that often arises when analysing a law is the setting of its personal and material scope, which leads to indirect reflections on the drafting legislator’s degree of skill, or lack of it. In this specific case, the question that arises is the extent to which the 2014 Venezuelan Anti-Corruption Law is applicable to foreign investors. As far as its personal scope is concerned, Article 2 states that the law applies to “individuals, public and private legal entities, public officials, communes; communal councils, socio-productive associations, grassroots organisations and any other form of popular organizations when managing public funds”.³⁴ Since the law does not explicitly exclude foreign individuals or foreign legal entities from this list, it is understood that they are also subject to it when managing public funds. This is an approach that is also reinforced by the explicit reference to foreign persons in Article 98.

Article 4 provides a very broad definition of public funds, which, for example, cover “assets belonging to companies of any nature in which persons referred to in the preceding paragraphs have a stake in the capital”³⁵ and “the resources provided to individuals by public sector entities with the aim of complying with purposes of public interest”.³⁶ Considering that the Venezuelan state is very often legally present in companies held by foreign capital -mixed companies-, especially when it comes to the managing of national natural resources,³⁷ it is conceivable to imagine cases where foreign investors maybe considered to be managing Venezuelan public funds. It must also be borne in mind that the type of unlawful conduct the Venezuelan law condemns is very broad, encompassing extortion, improper passive corruption, proper passive corruption, inducement to corruption, and agreements with contractors. As well as this, in some provisions the perpetrator of the offence may be “whoever” and not only a Venezuelan “public official”, as defined in Article 3.³⁸ For all these reasons, it does not seem far-fetched to argue that the 2014 Venezuelan Anti-Corruption Law may also apply to foreign investors, especially if there is the necessary political will to interpret the law in such a way.³⁹

b) A more thorough reading of the 2014 Anti-Corruption Law also leads to reflections on how the presumed neutrality of a Law’s wording can in fact be shaped by the political circumstances of the country in which it applies. In this sense, Article 98.1 of the law in question states that Venezuelan judges can confiscate property owned by national or foreign individuals and legal entities that have been found guilty of corruption.⁴⁰ Article 50 -the text of which is somewhat cryptic-, states that simply because of a final judgment the property constituting illicit enrichment will belong to the institution concerned if it has suffered financial loss, and that otherwise it will become part of the Venezuelan national treasury. These measures were included in the 2003 Law, drafted during the early months of the first Hugo Chavez mandate, and initially appear to be consistent with the objective of fighting corruption.

However, because the situation has changed, the same text takes a different meaning today than it did thirteen years ago and it creates an uneasy feeling. To give a few examples, Hugo Chavez’s television programme “Álo Presidente” became depressingly famous during his last term of office. With cries of “Expropriate it!” the president decided the fate of many businesses located in Venezuela on the programme, some of which had been set up with foreign capital.⁴¹ This televised and staged manner of governing Venezuela triggered a wave of panic among foreign investors. The same happened in 2012 when Venezuela withdrew from ICSID,⁴² an action that still generates a great deal of legal uncertainty and distress for foreign investors.⁴³ In this context, reading the current Article 98 leads one to consider whether Venezuelan judges might improperly expropriate foreign investors in the future, alleging that they have behaved corruptly and therefore violated Venezuelan Anti-Corruption legislation. In theory, it may be said that Venezuela is governed by the principle of separation of powers and that court rulings are not influenced by the Executive.⁴⁴ Nevertheless, recent reports from international organizations seem to conclude just the opposite.⁴⁵ In this sense, the American Director of Human Rights Watch lately declared: “The government of Venezuela uses the justice system as a façade, but the reality is that Venezuelan judges and prosecutors have become obedient soldiers”.⁴⁶

In the context of investor-state dispute settlement (ISDS), it should also be remembered that states have frequently used the argument of a foreign investor’s non-compliance with national legislation to deny arbitral jurisdiction and avoid ICSID condemnation awards. There are also cases in which the respondent state’s allegations of corruption during investment arbitration have neutralized the investor’s claim against the State.⁴⁷ Similar rationales are also expected to generate an exculpatory award -or at least an State’s appeal- in the future UNASUR arbitration system that Venezuela so strongly supports.⁴⁸

For all the reasons outlined above, the current Venezuelan legislative framework -including its 2014 Anti-Corruption Law- might pave the way for a devastating outcome for foreign investors. Unfounded accusations of corruption and the resulting judicial condemnation of foreign investors might culminate not only in financial penalties, the expropriation of property and long prison sentences, but also in the subsequent impossibility of obtaining adequate reparation in both the Venezuelan courts and the international arbitral sphere. The Venezuelan press reported that 1191 persons were investigated for corruption in 2014, and 777 were ultimately convicted. On this basis, the hypothetical future scenario involving foreign investors sketched above does not seem impossible.⁴⁹

c) The analysis of the 2014 Anti-Corruption Law also leads to reflections on the many practical problems of implementation that the wording of a law may pose, especially if the country concerned -i. e., Venezuela- is itself in a controversial international position. If we focus on aspects of international cooperation addressed by the Venezuelan Anti-Corruption Law, doubts arise as to whether some of its provisions will actually be able to achieve a high level of implementation. At various points, the law specifies that its proper implementation will require assistance from foreign institutions. For example, a Venezuelan judge may request the -foreign- competent authorities to repatriate funds (Articles 98.1 and 98.2). The Venezuelan authorities may also present, either directly or through diplomatic channels, requests for legal assistance in criminal matters relating to the investigation or prosecution of acts of corruption, in accordance with the provisions of its laws and the international agreements ratified by the Bolivarian Republic of Venezuela (Article 98.3, added to the 2014 Anti-Corruption Law).⁵⁰

This type of precept is commonly used in international procedural law texts, and this kind of international assistance is quite usual and effective at interstate level. However, a more practical and cautious reflection on this specific case suggests that some of the requests made by the Venezuelan authorities may move very slowly or even fail to reach a successful culmination. Along with the problems that the Venezuelan authorities may face -lack of material resources, lack of knowledge about how to handle these specialized petitions, etc.-, the requests may encounter additional difficulties in the foreign country in question. Primarily, in cases where the generated relationship would not be strictly inter-judicial -that is, in cases where diplomatic channels are also involved-, Venezuela’s current bad press in much of the international community as well as its serious problems with some countries might act against its solicitation. It is therefore questionable whether developed countries with investments in Venezuela would be in favour of providing procedural assistance for the prosecution of their own investors by a state not considered to meet the essential requirements of the rule of law.

The escalation of conflict between the USA and Venezuela is paradigmatic in this sense, as it makes it unrealistic to think that the US authorities will willingly cooperate with Venezuelan authorities that seek to impose tough sanctions on US investors in Venezuela. Reality shows that in this specific case, the United States seems to be focusing its main efforts on the flip side of corruption: pursuing corrupt Venezuelan officials and intermediaries.⁵¹ This is an extraterritorial -expansive- application of the FCPA, which has been doctrinally questioned as it might affect due process safeguards.⁵² Actions such as those detailed below can also be seen as measures on the part of the US to put political pressure on Maduro’s regime. So far, two Venezuelan businessmen were arrested at the end of 2015 in the States and the U.S. DOJ has brought FCPA charges against them, alleging that they conspired to get energy contracts with the Venezuelan’s state-owned oil company PDVSA and two of its Venezuelan subsidiaries by paying high bribes to various Venezuelan officials.⁵³ Additionally, a high-level public official of the Venezuelan state-owned Banco de Desarrollo Económico y Social, who had allegedly received at least $5 million in bribes, had already been arrested in 2013 while travelling in the States and criminally charged under the FCPA.⁵⁴ Another recent example of the US fight against corrupt Venezuelan public officials is the Venezuelan Executive Order 13692 issued by President Obama on March 9, 2015.⁵⁵ This order, complementary to the Venezuela Sanctions Regulations issued on July 9, 2015,⁵⁶ states that it is aimed at “persons involved in or responsible for the erosion of human rights guarantees, persecution of political opponents, curtailment of press freedoms, use of violence and human rights violations and abuses in response to antigovernment protests, and arbitrary arrest and detention of antigovernment protestors”, adding that it also applies to “the significant public corruption by senior government officials in Venezuela”. US awareness of Venezuelan corruption has brought about a series of tough measures against corrupt Venezuelan officials, who “will have their property and interests in property in the United States blocked or frozen, and U.S. persons are prohibited from doing business with them. The Order also suspends the entry into the United States of individuals meeting the criteria for economic sanctions”.⁵⁷

In recent years, the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have increasingly scrutinized business transactions connected with Venezuela that were suspected of constituting violations of the US FCPA.⁵⁸ Scholars explain this trend, by pointing out that these two U.S. authorities are focusing their enforcement efforts “on firms that do business in poor countries with weak legal institutions”, such as Venezuela.⁵⁹

d) Finally, the 2014 Anti-Corruption Law is a good example of the great importance that developing texts -the 2014 Decreto, in this case- can have when specifying the scope and real impact of the main legal text -the referred 2014 Law-. In this vein, the Venezuelan Anti-Corruption Law briefly announces that the government will create a National Anti-Corruption body that will be directly accountable to the President of the Republic.⁶⁰ This announcement was specified in the “Decreto con rango, valor y fuerza de Ley del Cuerpo Nacional contra la Corrupción” issued in December 2014.⁶¹ The new National Anti-Corruption Body’s mission is to plan, organize and carry out the necessary preventative, investigative and operative actions against corruption.⁶² Its creation involved the reallocation of competences in respect of the Comptroller General’s Office and the Public Prosecutor’s Office, the organs that had traditionally prosecuted corruption in Venezuela. The measure has been described in Venezuela as a “Maduroism” (“madurada”) and has been severely criticized by Transparency International,⁶³ which rightly claims that the body is both opaque and completely dependent on the Executive. Its creation and broad powers were not previously agreed with Venezuelan civil society, and the criteria used to select the public officials who will work for it are far from transparent -an elite handpicked by Maduro who enjoy confidential identity-. Along the same lines, the Committee on Economic, Social and Cultural Rights (CESCR)’ response to the report submitted by Venezuela in 2015 clearly reflects the CESCR and United Nations’ concerns regarding the deterioration of the rule of law’s standards in Venezuela.⁶⁴

IV. Final remarks: Quo vadis, Venezuela?

This article points to the likelihood that a politically remote-controlled application of the 2014 Venezuelan Anti-Corruption Law may cause foreign investors who still have economic interests in Venezuela even more headaches. To reach this conclusion, the article relies on parameters pertaining to the rule of law -such as legality, legal certainty or transparency-, which provide a very useful bird’s eye view for contextualizing- and in this case, criticizing- the wording and the possible spirit of a legislative instrument such as the 2014 Anti-corruption Law. The plausibility of a political use of the Anti-Corruption Law against international invesment has to be assessed in a current context, in which it is multitudinously allegued that the Bolivarian Republic of Venezuela is falling apart. An essential task of future Venezuelan governments will be the recomposition of the country’s lost credibility in the context of international investment. The beginning of a country’s new political era is a time when the reception of FDI is particularly necessary.

Assuming that institutional weakness leds to corruption and that corruption affects international investment, the ideas pointed out in this article may also be useful -with all the necessary caveats- in other national contexts. For example, if the political thaw continues, a possibly still socialist Cuba could unexpectedly become the new “el Dorado” for foreign investors in the near future. Detailed examination of the Cuban political and legal status quo would be necessary before taking the risk of making an international investment there. This encompasses considering whether national legislation, including anticorruption legislation, may be used to inconvenience foreign investors at any of the various stages of their normally long-term investment.