IFLR 1000
The Guide to the World's Leading Financial Law Firms

Venezuela can be a difficult country to navigate, both from the perspective of the investor and in terms of assessing the legal market. The country's economy has been on a downward trend for several years now, especially in the private sector, but its relatively rich petroleum resources continue to prop up what many believe is an unsustainable national business model....

Venezuela can be a difficult country to navigate, both from the perspective of the investor and in terms of assessing the legal market. The country's economy has been on a downward trend for several years now, especially in the private sector, but its relatively rich petroleum resources continue to prop up what many believe is an unsustainable national business model.

The oil money and the country's history of international investment has created a legal market in which there are quite a few financial firms relative to the current size of the economy, most of which are located in the capital city of Caracas. As a result, competition for transactional work borders on fierce right now and most firms report having contracted their staff in recent years.

That being said, many of the financial firms in Venezuela are very skilled and accustomed to doing complex international work due to a decades-long involvement in oil and gas work and with international investors. For many of the same reasons, several international firms occupy a place in the market alongside the local firms – many of them quite a significant one.

The mixture of local and international firms, varying in size from a few lawyers to several dozen, almost all have capable, bilingual attorneys, many of whom have studied or spent time practicing abroad. Many of the firms practice law more closely aligned to a US or European style in terms of firm structure and billing by the hour, although not all of the firms do.

Government intervention into the private sector of the economy is a very big issue in Venezuela. Expropriations of business interests and government nationalisations are very real risks and remuneration in those cases is not always guaranteed. Personal security and rule-of-law concerns are also part of the picture.

For these reasons and more, in some situations finding a firm that can navigate a difficult regulatory environment and a relationship with the government that is often convoluted at best can be well worth the research. However, most firms in the country are perfectly capable of handling these and other issues and in many cases have a great deal of experience in doing exactly that.

CONTEXT AND TRENDS Beyond a shadow of a doubt, the most important news in Venezuela this year has been the country's upcoming presidential election to be held in October. Amid swirling rumours concerning current president Hugo Chávez's health, there is a sense that this election may be the country's opportunity to get out from what many lawyers feel is a desperate political and economic situation....

Beyond a shadow of a doubt, the most important news in Venezuela this year has been the country's upcoming presidential election to be held in October. Amid swirling rumours concerning current president Hugo Chávez's health, there is a sense that this election may be the country's opportunity to get out from what many lawyers feel is a desperate political and economic situation.

Challenger Henrique Capriles has more popular support than any previous contender to Chávez's presidency, but Chávez remains a very popular figure despite the country's dwindling economy: "This is our best chance since [Chávez] has been in power to see a change in the government," explains a market attorney. "There's hope in the community that Capriles has a chance of winning the election. I don't believe he has a clear path to victory, but it is possible and all we can do is hope".

Chávez's socialist policies have created a well-documented situation in which heavy government regulations, expropriations or nationalisations of businesses in a variety of industries and the creation of social programs have come, in many people's opinions, at the expense of any investment in the country and are all accepted facts of economic life. Capriles represents a more moderate position that combines some of the social values Chávez is known for with a more market-friendly, pro-business approach.

In an immediate sense, though, Venezuela's private sector continues to shrink, creating a similar trend among the country's financial firms. In addition to a general downsizing of many legal staffs again this year, firms report a fundamental shift in their business in recent months: "The type of work we've had to do has changed," remarks one lawyer. "There are a lot of corporate restructurings, many of which are related to investors seeking to protect themselves from expropriation or nationalisation and seeking access to international arbitration. There are so many expropriations taking place in Venezuela and there's a definite increase in litigation, especially arbitration."

Government regulations have also made the simplest parts of the legal profession more difficult. One partner observes, "Things are getting a lot tougher here legally. Something as simple as registering a document that used to take a couple of days has become an agony. There have been an increasing number of regulatory steps that companies have to follow which creates work for us, but makes doing business in Venezuela harder".

Creation of work in unpleasant ways is something of a trend in the country right now. The situation creates an environment whereby, for survival purposes, firms end up taking on work that is not necessarily the work they want to do or that is brought on by adverse economic conditions: "There is more M&A work here than you would think, for two reasons," a market practitioner explains. "First, there are people who want to get out [of Venezuela] and want to sell and second, there are a lot of multi-nationals who have a lot of cash trapped here. One way to beat inflationary risks and such is to buy Venezuelan competitors."

M&A is not the only sector affected by current market liquidity. Heavy regulations and exchange controls limit many companies from leaving the country, so large amounts of cash remain in an economy where there are increasingly fewer places to put it: "There is an appetite for corporate bond issuances, especially from quality companies," states a partner. "Because of the exchange control regulations, there is a lot of liquidity in the market, so high-quality bond issuances usually sell very well."

In general, though, the environment for Venezuela's transactional firms is difficult at best. Most firms report that, if conditions do not change soon, a point will come in the near future when there are no more corporate clients left to do business with. Those firms are also hopeful, however, that a change in the government with the upcoming election would be tantamount to ringing a dinner bell for potential investors given the country's resources and the opportunities available within its long-neglected economy. A partner at one of those firms summarises the feelings of many of Venezuela's financial attorneys, saying: "Keep an eye on the market, it can develop very quickly if everything goes the way we hope it will this year [in the presidential election]. Things will explode once there is a change here in Venezuela".