Leigh Crestohl and Stephanie Limaco highlight that Venezuela may rekindle investor interest despite the risks in Law360

September 17 2021

This article was originally published in Law360 and can be accessed here

Private investment in Venezuela – challenges and potential reasons for hope

In recent times, there has been some incipient interest in Venezuela by certain companies, prepared to participate in high-risk investments in view of the potential opportunities offered by a country rich in natural resources. Recently, two private equity funds were seeking to acquire shares in Venezuelan companies and invest in Venezuelan financial assets,[1] some foreign companies and investment groups acquired private companies in Venezuela,[2] and it is reported that China’s top oil producer CNPC might be considering returning to the country.[3]

There are – however - several challenges to private investments in Venezuela, which may differ depending on whether they are domestic or foreign investments (including indirect investments). The US has imposed very stringent sanctions on Venezuela, prohibiting a broad number of activities with the country. The state has withdrawn from the ICSID Convention and has limited foreign investment protection and reliable investor-state dispute settlement. At the same time, the state is subject to a constitutional crisis involving competing claims to the presidency of the country.

Despite this, recent interest may arise from optimism that the Biden administration may ease (at least partially) sanctions on Venezuela, the potential change of approach of the Venezuelan Government and the fact that the country has the largest proven oil reserves in the world. Recent developments may signal some hope to revive the country from its deep economic crisis.

Legal challenges to private investment in Venezuela

Sanctions regimes on Venezuela

Venezuela is subject to several sanctions’ regimes, imposed by the United States, the European Union, the UK, Canada, among others. The strictest sanctions regime is that imposed by the US, which includes a broader range of sanctions compared to either the EU or the UK.

US sanctions on Venezuela were increased during Trump administration, which implemented a “maximum pressure” campaign, through a number of executive orders.[4] These orders target not only specific government officials or individuals related to the government, but also, among other things:

  1. Restricts the Venezuelan government’s access to the US financial markets;[5]
  2. Prohibits transactions involving the issuance of digital currency by the Venezuelan government.[6]
  3. Prohibits transactions related to the purchase of any debt owed to the government of Venezuela, and any debt owed to the government of Venezuela that is pledged as collateral.[7]
  4. Prohibits the sale, transfer, assignment, or pledging as collateral by the government of Venezuela of any equity interest in any entity in which it has a 50 percent or greater ownership interest.[8]
  5. Authorise the imposition of sanctions on persons operating in the gold or the oil sector of the Venezuelan economy (or in any other sector as determined).[9]
  6. Blocks the property of the government of Venezuela and authorise the designation of persons that assist or support the Venezuelan government.[10]

Sanctions on the Venezuelan government include the state oil company Petróleos de Venezuela (“PDVSA”) and the country’s central bank; as well as any person, directly or indirectly, owned or controlled by, or acting for or on behalf of, the foregoing.[11]

Non-US persons could also be at risk of US sanctions on Venezuela. For instance, OFAC has sanctioned CEIEC for supporting the Venezuelan government,[12] Rosneft Trading S.A. for operating in the oil sector of the Venezuelan economy[13] and TNK Trading International S.A. for brokering the sale and transport of Venezuelan oil.[14]

Other countries have less rigorous sanctions regimes on Venezuela. The UK sanctions regime, for instance, is more targeted and much more limited in scope than the US sanctions list: it mainly includes government officials and authorities and, so far, it has not included commercial entities.[15]

The UK sanctions regime is enforceable against persons within the UK, and against UK persons abroad, which means that non-UK entities outside the UK are usually not at risk of facing penalties or criminal prosecution for breaching the UK sanctions regime. However, potential UK investors or persons within the UK interested in investing in Venezuela should be aware of, and comply with, UK sanctions on Venezuela. The UK sanctions regime relating to Venezuela is contained in the Venezuela (Sanctions) (EU Exit) Regulations 2019 (“Venezuelan Sanctions Regulations”), and its amendments contained in the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2020 and Sanctions (EU Exit) (Miscellaneous Amendments) (No. 4) Regulations 2020, although the UK has also sanctioned individuals related to the Venezuelan government under the Global Anti-Corruption Sanctions Regulations 2021 and the Global Human Rights Sanctions Regulations 2020.[16]

UK sanctions prohibit entities from dealing with funds or economic resources owned, held or controlled by a designated person,[17] and from making funds or economic resources available directly or indirectly to a designated person[18] or for the benefit of a designated person.[19] In general, an offence can be committed by persons that knowingly engage in these activities or have reasonable cause to suspect that they are doing so.[20]

Companies interested in investing in Venezuela will need to navigate multiple sanctions regimes at the same time, which may change depending on the political landscape at the national and international level. Potential investors should, therefore, take legal advice from experts on sanctions, compliance and export control issues in the potentially relevant jurisdictions.

Investor-state dispute settlement in Venezuela

On 24 January 2012, Venezuela sent a written notice of denunciation of the ICSID Convention.[21] This meant that, in accordance with article 71 of said Convention, foreign investors would not be able to initiate new cases covered by the treaty since 25 July 2012 (6 months after the denunciation).[22]

Despite this, Venezuela did not denounce its Bilateral Investment Treaties (BITs), and 25 BITs entered into by the country are still in force.[23] Some of them permit investors to bring claims under ICSID’s Additional Facility Rules,[24] or provide for an ad-hoc arbitration in accordance with UNCITRAL’s Arbitration Rules.[25] Recently, insurer Liberty filed an ICSID additional facility claim against Venezuela under the Spain - Venezuela BIT and the United Kingdom – Venezuela BIT.[26]

Investors interested in Venezuela should obtain legal advice in order to assess whether it would be possible for them to file an investment arbitration in case a dispute with the state arises, including by reviewing the applicable BITs and Treaties with Investment Provisions (TIPs)

Further, carefully drafted contracts, in particular choice of law and forum selection clauses, would be key considerations for ensuring better investor protection.

Competing claims as to the Venezuelan Presidency

In January 2019, the then President of the National Assembly and leader of the opposition Juan Guaidó proclaimed himself the interim President of Venezuela, in the place of Nicolás Maduro, elected in contested Presidential elections in 2018. After some countries issued statements indicating that they recognise Juan Guaidó as interim President, a number of disputes arose in countries such as the US and the UK, especially related to the authority of certain people to represent Venezuelan state or certain legal entities.

Investors should be aware of the potential risks arising from these competing claims, which could lead to practical complexities when trying to enforce an agreement with the Venezuelan state or certain legal entities outside the country. Dealings that could face some challenges, for instance, are:

  1. Contracts with Venezuelan state-owned companies, which could have officers or directors appointed by the Venezuelan government or by the executive branch.
  2. Dealings with representatives of Venezuelan public entities abroad.
  3. Arbitration or court proceedings against Venezuelan state-owned companies, especially with regards to the representation and participation in the proceedings by competing authorities.
  4. Enforcement of arbitral awards or judgments involving the Venezuelan government, public entities or state-owned companies.

Therefore, investors would be wise to get comprehensive legal advice at the outset as to the best way to structure their investments in order to achieve maximum legal protection.

Potential reasons for interest

As mentioned, there is hope that the Biden administration could relieve sanctions on Venezuela. Recently, the Venezuelan government released a group of American executives of Citgo, which were on prison, to house arrest. It reached an agreement with opposition representatives for a new formation of the Venezuela’s National Electoral Council and also concluded an agreement with the World Food Programme. These acts were seen by the Chairman of the US House Foreign Affairs Committee as “important gestures of goodwill that the US government should recognize”.[27]

There are reasons for hope. It is reported that US officials are currently reviewing sanctions on Venezuela[28] and an alternative approach that the Biden administration might opt may be for more targeted sanctions, asset forfeitures and indictments of Maduro officials.[29] As talks between the Venezuelan Government and the opposition have resumed in Mexico, the EU, the US and Canada have indicated willingness to review sanctions policies if there is meaningful progress in a comprehensive negotiation.[30]

Sanctions relief for Venezuela, especially for the oil sector, would be very important for foreign investors. This is relevant considering that the country is subject to several parallel sanctions regimes, and companies are usually inclined to over-comply with sanctions provisions rather than face the legal, commercial or reputational risks involved.

Further, a possible change of approach of the government, including the liberalization of the economy and a relaxation of the rigid controls in place, could have given positive signals to private investors.[31]  The Venezuelan economy has also seen a “dollarization”, caused by the elimination of currency and price controls, which has led to more than half of transactions in Venezuela to be made in US dollars.[32]

The country has likewise recently ratified an anti-blockade law, which might also open a path to increased foreign investment in the country and in its oil industry. In an interview with Bloomberg in June 2021, President Maduro invited foreign investors indicating that Venezuela is going to become the land of opportunities.[33]

These latest developments may explain why some investors with a higher risk tolerance could be tempted to invest in the country’s companies in the expectation of bigger commercial wins should the political and economic situation improve. Interested investors will certainly keep an eye on the political and legal developments in the country.


[1] Reuters, “Private equity funds eye Venezuela acquisition on hopes Biden could ease sanctions”, available at: https://www.reuters.com/article/us-venezuela-investors-idCAKBN2CO0WF; Knossos Asset Management, Products & Services, at: http://www.knossosfunds.com/en/services.html.

[2] Bloomberg, “Scion of Billionaire Family Hunts for Cheap Assets in Venezuela”, at: https://www.bloomberg.com/news/articles/2021-03-22/scion-of-billionaire-family-hunts-for-cheap-assets-in-venezuela

[3] Bloomberg, “China’s Top Oil Producer Prepares to Revive Venezuela Operations”, at: https://www.bloomberg.com/news/articles/2021-09-01/china-s-top-oil-producer-prepares-to-revive-venezuela-operations

[4] Please note that this is a general overview, and that the authors are not US qualified lawyers.

[5] Congressional Research Service (“CRS”), “Venezuela: Overview of U.S. Sanctions”, updated 22 January 2021, available at:  https://sgp.fas.org/crs/row/IF10715.pdf; Executive Order 13808 of 24 August 2017.

[6] CRS, “Venezuela: Overview of U.S. Sanctions”, updated 22 January 2021, available at:  https://sgp.fas.org/crs/row/IF10715.pdf; Executive Order 13827 of 19 March 2018.

[7] CRS, op.cit; Executive Order 13835 of 24 May 2018.

[8] CRS, op.cit; Executive Order 13835 of 24 May 2018.

[9] CRS, op.cit; Executive Order 13850 of 1 November 2018; US Department of the Treasury, “Venezuela-Related Sanctions”.

[10] CRS, op.cit; Executive Order 13884 of 5 August 2019.

[11] Executive Order 13857 of 25 January 2019.

[12] US Department of the Treasury, Press Release, available at: https://home.treasury.gov/news/press-releases/sm1194

[13] US Department of the Treasury, Press Release, available at: https://home.treasury.gov/news/press-releases/sm909

[14] US Department of the Treasury, Press Release, available at: https://home.treasury.gov/news/press-releases/sm937

[15] OFSI, Consolidated List of Financial Sanctions Targets in the UK, Regime: Venezuela, at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/973232/Venezuela.pdf

[16] OFSI, Consolidated List of Financial Sanctions Targets in the UK, at: https://ofsistorage.blob.core.windows.net/publishlive/ConList.pdf

[17] Venezuelan Sanctions Regulations, s. 11.

[18] Venezuelan Sanctions Regulations, s. 12 and 14.

[19] Venezuelan Sanctions Regulations, s. 13 and 15.

[20] Venezuelan Sanctions Regulations, part 3.

[21] ICSID, “Venezuela Submits a Notice under Article 71 of the ICSID Convention”, 26 January 2012, available at: https://icsid.worldbank.org/news-and-events/news-releases/venezuela-submits-notice-under-article-71-icsid-convention

[22] Ibid; ICSID Convention, article 71.

[23] Investment Policy Hub, BIT

[24] Such as the Spain – Venezuela, Bolivarian Republic of BIT (1995).

[25] E.g., the Russian Federation - Venezuela, Bolivarian Republic of BIT (2008).

[26] Liberty Seguros, Compañia de Seguros Y Reaseguros and Liberty UK and Europe Holdings Limited (UK) v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/20/3), see: https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/1099/liberty-v-venezuela

[27] U.S. House of Representatives Committee on Foreign Affairs, Press Releases, “Chairman Meeks’ Statement on Venezuela’s National Electoral Council”, 5 May 2021, at: https://foreignaffairs.house.gov/2021/5/chairman-meeks-statement-on-venezuela-s-national-electoral-council

[28] CRS, “Venezuela: International Efforts to Resolve the Political Crisis”, updated 26 May 2021, at: https://crsreports.congress.gov/product/pdf/IF/IF11216.

[29] Congressional Research Service (“CRS”), “Venezuela: International Efforts to Resolve the Political Crisis”, updated 26 May 2021, at: https://crsreports.congress.gov/product/pdf/IF/IF11216; CRS, “Venezuela: Background and U.S. Relations”, updated 28 April 2021, at: https://crsreports.congress.gov/product/pdf/R/R44841.

[30] US Department of State, “US–EU–Canada: Joint Statement on Venezuela”, 25 June 2021, at: https://www.state.gov/u-s-eu-canada-joint-statement-on-venezuela.

[31] Portafolio, “Venezuela, ¿hacia una apertura en su economía?”, at: https://www.portafolio.co/internacional/venezuela-hacia-una-apertura-en-su-economia-538614

[32] Global Comment, “The Venezuelan economy between the dollar and the bolivar”, at: https://globalcomment.com/the-venezuelan-economy-between-the-dollar-and-the-bolivar/

[33] Bloomberg, “Venezuela’s Maduro Pleads for Foreign Capital, Biden Deal in Caracas Interview”, at: https://www.bloomberg.com/news/articles/2021-08-13/maduro-and-opponents-start-new-talks-to-end-venezuela-impasse

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