Are Foreign Investors returning to Venezuela?
10 September 2021 – There seems to be renewed interest in Venezuela by high-risk appetite investors. Recently, a couple of private equity funds were seeking to acquire shares in Venezuelan companies. An economic adviser at London’s EM Funding has said that the opportunities for profit in the first phase of economic recovery are “immensely high”.
One driver of this emerging interest is likely to be the expectation that the US Government may revise its Venezuela sanctions programme, or at least introduce more exceptions to the very severe sanctions rules currently in place. Another reason may be a potential change of approach by the Venezuelan Government, reflected by the liberalisation of the economy in the last few years and the anti-blockade law ratified by the National Assembly a couple of months ago. The fact that the country has the largest oil reserves in the world, the largest gas reserves in Latin America, and its power generation infrastructure, also explain the interest.
Potential Sanctions Relief
Currently, the Biden administration is reviewing existing sanctions including an alternative approach that may allow for more targeted sanctions, asset forfeitures and indictments of Maduro officials. As talks between the Venezuelan Government and the opposition will soon resume in Mexico with Norwegian mediation, the EU, the US and Canada have indicated a willingness to review sanctions policies if there is meaningful progress in a comprehensive negotiation.
Sanctions relief for Venezuela, especially with regard to oil, would be essential for foreign investors because the country is subject to several concurrent sanctions regimes and companies are usually inclined to over-comply rather than face the legal, commercial or reputational risks involved. The US sanctions regime is very extensive and applies potentially not only to US persons but also poses a risk of secondary sanctions for non-US entities. It includes broader sectoral sanctions, covering the gold and oil sectors, and transactions with the Government of Venezuela. Nevertheless, the US government recently authorised certain transactions involving the export or reexport of LPG to Venezuela, a relaxation of one of the restrictions imposed by the Trump administration.
The UK sanctions regime, in contrast, is only applicable to persons within the UK, and UK persons abroad. The list of Venezuela sanctions targets is more limited in scope than the US sanctions list, and it mainly consists of certain government officials and authorities (not commercial entities). However, investors would likely feel more confident if sanctions are also lifted or eased by the UK, Europe and other countries.
Companies interested in investing in Venezuela will need to navigate multiple sanctions regimes, which can vary depending on changing political scenarios and circumstances. Potential investors should take prior advice from sanctions, compliance and export control experts. Further, these companies should obtain comprehensive legal advice to determine the best way to structure their investments to achieve maximum legal protection. Carefully drafted contracts, in particular choice of law and forum selection clauses, would be key in this assessment.