Corporate Liability in Venezuela

By Jesus Davila (Baker McKenzie Venezuela)

I.              Corporate liability deriving from criminal activity

1.             Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company).

There are no specific laws regulating corporate liability in Venezuela. However, the following laws provide for special corporate liability regimes:

  • Organic Law of Environment
  • Law Against Smuggling and Organized Crimes
  • Criminal Law of the Environment
  • Organic Law on Fair Prices
  • Law of Foreign Exchange Control
  • Organic Law against Organized Crime and Financing Terrorism
  • Organic Law on Drugs
  • Organic Tax Code
  • Law on the Institutions of the Financial Sector
  • Law Against Corruption
  • Organic Law on Prevention, Job Conditions and Environment
  • Law on Informatics Crimes

In Venezuela, corporate liability may be civil, criminal and/or administrative in nature depending on the specific liability regime applicable to the offense committed.

Certain rules in Venezuela contemplate criminal sanctions applicable to legal entities whenever certain crimes are perpetrated by means of decisions adopted by their corporate bodies, within the scope of their specific activities, corporate resources and in the sole and preferential interest of the legal entity.

For obvious reasons, criminal penalties that may be applied to legal persons differ from those generally applied to individuals, and basically consist of fines, closure of establishments, or other similar penalties.

Furthermore, certain provisions in Venezuelan legislation penalize directors and/or managers of corporations who have perpetrated a crime while acting in the name or on behalf of the legal entity. The purpose of these rules is to avoid the impunity that would result if corporate officers were allowed to commit crimes under the corporate veil.

Some provisions of the Criminal Code expressly provide for criminal liability for directors and/or managers of corporations. Furthermore, there are rules that, while not expressly relating to directors and managers of companies, imply a criminal risk for them as individuals directly related to entrepreneurial activities. These include offenses related to the disclosure of information and crimes against public faith, among others.

2.             Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise

No specific laws regulate the types of crimes/administrative offenses from which corporate liability may arise. However, specific liability regimes are set forth in special Laws and Regulations, which provide that corporations may be held liable in certain circumstances. In this respect, the following laws should be considered:

  • The Law Against Corruption, which typifies money laundering, drug trafficking, corruption, fraud, kidnapping, extortion and smuggling-related crimes
  • The Capital Market Law, which typifies crimes relating to public offering of securities
  • The Law on Drugs, which typifies crimes relating to unlawful activities involving narcotic or psychotropic substances
  • The Commercial Code, which imposes certain restraints on directors’ actions, largely to ensure the integrity of the corporate capital
  • The Criminal Environmental Law, which typifies crimes relating to the preservation, defense and improvement of the environment
  • The Fair Prices Law, which typifies crimes relating to the imposition of prices of products and the provision of services in Venezuela, including speculation, hoarding, boycott and economic destabilization
  • The Law of Foreign Exchange Control, which typifies crimes relating to the exchange control system

3.             Identification of companies and entities to which liability may apply

The general principle is that corporate liability applies to all companies, associations and entities, with the exception of the state and territorial public entities (including state-owned companies). This principle has been adopted by the Constitutional Chamber of the Supreme Court of Justice[1].

Furthermore, there are certain provisions in Venezuelan law that penalize directors and/or managers of corporations who have perpetrated a crime acting in the name or on behalf of the legal entity.

The purpose of these rules is to avoid the impunity that would result if corporate officers were allowed to commit crimes under the figure of the corporate veil.

From a damages perspective, the general rule is that any person who, intentionally, negligently, or through bad faith, causes harm to another person is liable to that person for the full amount of the injury (Civil Code, Articles 1185, 1196). This principle also applies to corporate entities.

4.             Corporate liability for crimes committed abroad by its representatives or subsidiaries

No specific laws regulate crimes committed abroad by a company’s representatives or subsidiaries. However, the Law Against Corruption specifically typifies the crime of transnational bribery, which implies that a person, acting in their own name, or in the name of third parties, promises or offers to a public officer of a foreign state, directly or indirectly, on behalf of Venezuelan individuals or companies, goods of pecuniary value or other benefits, such as gifts, favors, promises or advantages in the exercise of their duties, in connection with a transaction of an economic or commercial nature.

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

No specific laws regulate corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.). However, the following general rules apply:

  • Transformations. Upon transformation of a company into a different type, eg, from a limited liability company (S.R.L) into a stock company (S.A), the company will continue to be liable for crimes committed before the date on which the transformation occurred.
  • Mergers. The surviving company will be liable for any crimes committed by the merged companies.
  • Demergers. The demerged company shall remain liable for crimes committed before the effective date of the demerger.
  • Transfers of business as a going concern. Buyer and seller are jointly liable for all liabilities of the seller related to the business that is being transferred. This joint liability may be overcome (such that the buyer will not be jointly liable for the seller’s liabilities) if notice of the sale is published in a newspaper prior to the sale of the business, in compliance with Article 151 of the Venezuelan Commercial Code. The purpose of this notice is to allow all creditors of the seller’s business to obtain payment or security of payment of their receivables.

Furthermore, the following general Criminal Law principles are relevant for purposes of analyzing corporate liability in case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.):

  1. The principle of typification. Only those conducts described and characterized as crimes by virtue of a legal provision can be deemed as such.
  2. The principle of liability for willful misconduct. Pursuant to this principle, nobody may be subject to a criminal sanction if they had no intention to carry out the action that constitutes the crime, except when the law imputes it as a consequence of their action or omission (Criminal Code, Article 61). Thus, according to the general rule, a person can only be punished for a crime if they perpetrated it willingly.
  3. In strict liability crimes, the criminal rule punishes a conduct regardless of the intent or degree of care or awareness of its perpetrator.
  4. Concurrence of persons in the crime (co-authoring and participation). A crime is often not the deed of a single person, but of several. From a corporate liability standpoint, the general rule is that the shareholder of a company may be held liable for its culpable participation in a criminal offense committed by the local company.

II.            Applicable sanctions

1.             Types of sanctions applicable to the company

There are no specific regulations on the types of sanctions applicable to a company. The sanctions will depend on the specific liability regime provided by the applicable special law. In general, the following sanctions may be applicable:

  • Temporary suspension from conducting the company’s business
  • Suspension or revocation of any authorizations, licenses or permits held by the company with respect to the business unit involved in the crime
  • Prohibition on advertising the company’s goods and/or services
  • Pecuniary fees (fines)
  • Confiscation of any profit or revenue deriving from the crime
  • Temporary occupation by the government
  • Arrest or imprisonment (in case of fraud or misconduct resulting in corporation bankruptcy)

2.             Interim measures, cease and desist orders, bans and confiscatory measures

The general rule is that the administrative authorities or competent courts may declare interim measures and/or precautionary measures to safeguard third parties’ rights, or ensure the effectiveness of the process. In this respect, please note the following:

  • According to the Criminal Law of Environment, criminal judges may impose sanctions and precautionary measures. For example, the convicted party may be: (i) required to publish the decision at its own expense; (ii) forced to close, temporarily or permanently, the installations or facility; (iii) sanctioned with the temporary suspension of permits and/or authorizations; (iv) temporarily prohibited from entering into contracts with the public sector; and (v) ordered to destroy, neutralize or treat the substances, materials, manufactured instruments or objects, imported or sold, which have caused health and environmental damages.
  • The Organic Law on Fair Prices provides that if, during an audit, the competent authorities detect indicia of noncompliance with the obligations provided by the Organic Law on Fair Prices, the competent authorities may impose preventive measures such as (i) confiscation of goods; (ii) fines; (iii) administrative occupation; (iv) revocation of the companies’ licenses and administrative authorizations; and (v) temporary closure of the establishment.

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

There are no specific regulations on the liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime. However, the following general rules apply:

  • Any person who, intentionally, negligently, or through bad faith, causes harm to another person is liable to that person for the full amount of the injury (Civil Code, Articles 1185, 1196).
  • Directors are liable to individual shareholders for any intentional or negligent wrongdoing that directly harms such shareholders (Civil Code, Article 1185).

While directors are liable for their own misconduct, negligence, breach of duty or violation of law, the general rule under Venezuelan law is that directors are not made liable for the obligations of the corporation in which they serve as directors (Commercial Code, Article 243). This general rule is subject to the following exceptions:

  • When a director, exceeding the scope of their authority, undertakes an obligation on behalf of the corporation – The corporation is not bound thereby, but the director is personally liable for such obligation. This is because Venezuelan law only recognizes express authority.
  • When a director of an “irregular corporation” undertakes obligations on behalf of such corporation – In essence, an “irregular corporation” is one in which legal formalities or requirements for incorporation or ongoing management have not been properly complied with.

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

There are no specific laws regulating the consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives. In general, Venezuelan laws do not specifically provide for a defense or mitigating factor for having an effective compliance program in place. However, having these programs in place would allow the company to argue that it has made its best efforts to avoid misconduct or wrongdoings.

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

No specific laws regulate the modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.).

Notwithstanding the foregoing, the following regulations provide for certain guidelines as to compliance programs in Venezuela on sensitive topics such as money laundering and financing of terrorism:

      1. Administrative Ruling No. 99-2-5-2820, which provides for the Regulations that allow the Superintendence of Insurance to prevent, control and supervise the operations performed through the Venezuelan Insurance System, issued by the Superintendence of Insurance (Special Official Gazette No. 5.431 dated 7 January 2000). This administrative ruling (i) is applicable to individuals and corporate entities subject to the Law of Insurance and Reinsurance (Official Gazette No. 4.865, dated 8 March 1995); and (ii) provides, among others, for guidelines as to the preparation of the “Handbook of Procedures against Money Laundering.” Although this administrative ruling was issued under the now abrogated Law of Insurance and Reinsurance and Organic Law of Narcotic and Psychotropic Substances (which have been superseded by subsequent laws), the Ruling has not been expressly abrogated by any other subsequent Ruling; therefore, it is possible to sustain that its provisions remain in force.
      2. Administrative Resolution No. 110, which provides for the Regulations related to the Management and Fiscalization of Money Laundering and Financing of Terrorism related crimes applicable to institutions governed by the National Superintendence of Securities, issued by the National Superintendence of Securities (Official Gazette No. 39.691, dated 8 June 2011). This administrative resolution (i) is applicable to individuals or corporate entities the activities of which are related to the securities market pursuant to the Administrative Resolution; and (ii) provides, among others, for certain guidelines as to the preparation of the following documents by the compelled subjects: “Annual Operative Plan of Prevention and Control of Money Laundering and Financing of Terrorism”; “Ethics or Conduct Code”; “Handbook of Politics and Risk Management Procedures of Money Laundering and Financing of Terrorism”; and “Annual Training Program”. Although this administrative resolution was issued under the now abrogated Law Against Organized Crime (which has been superseded by a subsequent law), the Ruling has not been expressly abrogated by any other subsequent administrative resolution; therefore, it is possible to sustain that its provisions remain in force.
      3. Administrative Resolution No. 119-10, which provides for the Regulations related to the Management and Fiscalization of Money Laundering and Financing of Terrorism related crimes applicable to institutions governed by the Superintendence of Banks and other Financial Institutions (SUDEBAN), issued by SUDEBAN (Official Gazette No. 39.494, dated 24 August 2010). This administrative resolution (i) is applicable to banks and other financial institutions which are under the control of SUDEBAN; and (ii) provides, among others, for certain guidelines as to the preparation of the following documents by the compelled subjects: “Annual Operative Plan of Prevention and Control of Money Laundering and Financing of Terrorism”; “Ethics Code”; “Handbook of Politics and Risk Management Procedures of Money Laundering and Financing of Terrorism”; and “Annual Training Program”. Although this administrative resolution was issued under the now abrogated Law Against Organized Crime and the General Law of Banks and other Financial Institutions (which have been superseded by subsequent laws), the Ruling has not been expressly abrogated by any other subsequent administrative resolution; therefore, it is possible to sustain that its provisions remain in force.
      4. Administrative Ruling No. DE-11-011, which provides for the Regulations for the Prevention, Control and Fiscalization of Crimes of Money Laundering and Financing of Terrorism in Casinos, Bingos and Slot Machines, issued by the National Commission of Casinos, Bingos and Slot Machines (Official Gazette No. 39.654, dated 12 April 2011). This administrative ruling (i) is applicable to companies authorized to operate casinos, bingos and slot Machines; and (ii) provides, among others, for certain guidelines as to the preparation of the following documents by the compelled subjects: “Annual Operative Plan”; “Annual Training Program”; “Ethics Code”; “Institutional Commitment” and “Handbook of Politics, Regulations and Procedures regarding Prevention and Control of Money Laundering”. Although this administrative ruling was issued under the now abrogated Law Against Organized Crime (which has been superseded by a subsequent law), the Ruling has not been expressly abrogated by any other subsequent administrative ruling; therefore, it is possible to sustain that its provisions remain in force.
      5. Administrative Ruling No. FSS-000514, which provides for the Regulations on Prevention, Control and Fiscalization of the Crimes of Money Laundering and Financing of Terrorism in the Insurance Activity, issued by the Superintendence of the Insurance Activity (Official Gazette No. 39.694 dated 13 June 2011). This administrative ruling (i) is applicable to individuals and corporate entities subject to the Law Against Organized Crime (Special Official Gazette No. 5.789, dated 26 October 2005) which are governed by the Law of the Insurance Activity; and (ii) provides, among others, for certain guidelines as to the preparation of the following documents by the compelled subjects: “Annual Operative Plan”; “Annual Training Program”; “Ethics Code”; “Institutional Commitment”; “Handbook of Politics, Regulations and Procedures regarding Prevention and Control of Money Laundering and Financing of Terrorism”; and “Annual Follow-up, Evaluation and Control Program”. Although this administrative ruling was issued under the now abrogated Law Against Organized Crime (which has been superseded by a subsequent law), the Ruling has not been expressly abrogated by any other subsequent administrative ruling; therefore, it is possible to sustain that its provisions remain in force.

In addition to the foregoing, there are certain guidelines contained in the Organic Law of Prevention, Conditions and Work Environment (LOPCYMAT) that relate to labor “Health and Safety Programs” at the workplace. Such programs must be implemented by local companies in order to ensure compliance with the LOPCYMAT and its regulations.

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

No specific laws require companies to have a person or body to control/supervise the correct application of a “model”.

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

There are no specific regulations on the courts competent to decide on the liability of and penalties applicable to a company. The general rule is that the cases will fall upon a competent court depending on the nature of the claim. In Venezuela, criminal, administrative and civil courts have their own procedural regulations. The court competent to decide on the liability of a company will depend on the type of liability under review (for example, the breach of a provision causing criminal liability will be judged by a criminal court).

2.             Possibility of the application of interim measures

The general rule is that competent courts may declare interim measures and/or precautionary measures to safeguard third parties’ rights, or ensure the effectiveness of the process. In the specific case of criminal corporate liability in Venezuela, interim and/or precautionary measures may be imposed to corporate entities (including their directors and/or officers).

3.             Plea bargains and related effects on the corporate liability

Plea bargain agreements do not exist under Venezuelan law. Under Venezuelan criminal law, the parties may, however, reach an amicable agreement to terminate a criminal trial, provided that (i) the subject matter of the trial relates to goods or properties, ie, it does not relate to personal injuries or death; and (ii) the parties comply with certain conditions set forth in the Venezuelan Criminal Code.

4.             Imposition of sanctions against the company

Under Venezuelan law, sanctions may only be imposed upon completion of the corresponding judicial or administrative procedure. In Venezuela, sanctions must be established by law and must be in force as of the time in which the crime/offense is committed.

5.             Permanence of corporate liability if the crime is extinguished

There are no specific regulations on the permanence of corporate liability if a crime is extinguished. The general rule is that the corporate liability of the company remains until the statute of limitation has passed. In Venezuela, however, crimes against the public heritage, crimes related to the traffic of illicit drugs, crimes against humanity, crimes against human rights and crimes of war do not have a statute of limitation.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

Under Venezuelan law, the general rule is that the shareholder of a company may be held liable for its culpable participation in a criminal offense committed by the local company. In this case, the competent authorities may require the shareholder to pay a fine and to comply with the ancillary and/or “security” measures imposed by the competent authority.

More specifically, the Criminal Law of the Environment expressly establishes direct responsibility for the shareholders that have culpable participation and responsibility in the crimes committed by their subsidiaries. Likewise, the Organic Law on Fair Prices establishes a joint and several liability regime for shareholders and subsidiaries in the commission of the crimes listed in such law.

In the case of administrative liability, the general rule is that competent authorities may impose fines and administrative measures on local companies. In practice, however, the risk of competent authorities requiring the shareholder to comply with these measures may not be set aside.

Furthermore, in case there is a condemnatory sentence for criminal offenses against a Venezuelan company and the shareholder for culpable participation in the commission of such criminal offense, there is a possibility that the victim (either a private person or the state) will require the Venezuelan company to pay civil indemnification for the damages caused. The civil claim may also include the shareholder.

2.             Basis of liability and applicable sanctions

In the case of the Criminal Law of the Environment, the owners, presidents and administrators will be held criminally liable for their culpable participation in criminal offenses committed by their enterprise. Furthermore, the Criminal Law of the Environment is not clear as to whether the term “owner” refers to the shareholders or quota holders of an enterprise. However, this interpretation should not be dismissed and will probably end up being enforced in the future. The Criminal Law of the Environment also sets forth the imposition of both imprisonment and fines as the main sanctions. Sanctions of imprisonment are applicable to individuals and fines are applicable to corporate entities.

As for the Organic Law on Fair Prices, partners, as well as any member or persons involved in the direction, administration, management and surveillance bodies or functions of legal entities, are personally liable if the crimes established in the law are committed with their knowledge or approval. This law penalizes and sanctions in a very strong and broad manner the hoarding, boycott, and the destabilization of the economy. The sanctions include fines of up to 50,000 Tax Units, imprisonment for up to 12 years, confiscation, administrative occupation and/or expropriation of the companies’ assets, and revocation of the companies’ licenses and administrative authorizations.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any.

On 18 June 2009, the Constitutional Chamber of the Supreme Court of Justice issued Decision No. 834, whereby the Court expressly admitted the criminal liability of legal entities and turned apart from the original societas delinquere non protest principle.

During the past years, there have been numerous cases where the Fair Prices Superintendence (SUNDDE), the Office of the Vice-President of the Republic, the Bolivarian Intelligence Service (SEBIN) and the Bolivarian National Guard (GNB), and other Ministries, have initiated judicial and administrative procedures against local companies based on the corporate liability regime set forth in the Fair Prices Law. These procedures have resulted in the arrest of directors of companies, managers, attorneys-in-fact and even persons without standing as representatives of companies, based on the alleged perpetration of the crimes of hoarding, boycott and economic destabilization, among others.

2.             Proposed or contemplated new legislation

At this time, there are no proposed or contemplated new laws specifically addressing corporate liability. However, please note that in the past few years, a significant amount of laws providing special corporate liability regimens have been enacted, including the Organic Law on Fair Prices and the Law Against Corruption.

[1] Constitutional Chamber of Supreme Court of Justice’s decision (Available at: http://www.tsj.gov.ve/decisiones/scon/junio/834-18609-2009-03-0296.html)