Decree No. 798 of the Presidency of the Republic, dictating the Decree with Rank, Value and Force of Law on Foreign Exchange Regime and Foreign Exchange-related Crimes (“LRCI”), was published in Special Official Gazette No. 6,126 dated February 19, 2014, and distributed on Monday, February 24, 2014.

Although the vast majority of the regulations are expressly delegated to exchange agreements that must be executed between the Central Bank of Venezuela and the Republic, as well as to sub-legal regulations of the competent authorities, following are our first comments on the important changes in the Venezuelan exchange control system and the regulations arising from the LRCI.

I.          New foreign exchange market.

From a concatenated interpretation of the definitions contained in article 2° of the LRCI, it must be concluded that the new foreign exchange market will be one in which any cash currency may be purchased with bolivars through deposits in national and international banks and financial institutions, wire transfers, bank checks; or bills of exchange, securities or credit instruments, as well as any other asset or obligation that is denominated or may be settled or realized in foreign currency.

Article 9 of the LRCI expressly provides that, in addition to the mechanisms managed by the State (those managed by the National Foreign Trade Center “CENCOEX”, which would be: authorizations that until now were granted by the Foreign Exchange Administration Commission and the Complementary System of Foreign Exchange Administration), individuals may purchase foreign currency through transactions in foreign currency offered by individuals from the private sector, Petróleos de Venezuela, S.A., and the Central Bank of Venezuela. It is expressly indicated that the limits and conditions for obtaining foreign currency through these mechanisms, as pointed out above, must be regulated by Exchange Agreements to be entered into and sub-legal regulations to be issued.

In public statements, the Minister and Vice President of the Economic Area Rafael Ramirez has pointed out that the procurement of foreign exchange in this new market shall not be subject to justification as to the purpose to which such currency is intended.

While this statement is not expressly developed in the Law, it is important to note the wording of article 17 of the LRCI, which contemplates the illicit use of foreign currency for different purposes:

“Article 17. Use of Foreign Currency for Different Purposes. Those who earmark the foreign currency obtained, through the mechanisms managed by the competent authorities of the foreign exchange administration system, referred to in article 6 hereof, for purposes other than those that motivated their application, shall be punished with imprisonment for a period of two to six years and a fine equivalent in bolivars to twice the amount of the transaction.” (Emphasis added).

Interpreting otherwise the contents of said article, it is concluded that foreign currency that is not acquired through the CENCOEX, for purposes related to “…goods and services declared as being of first necessity, comprising [among others] medicines, food, housing and education…”, that is to say, the acquisition of foreign exchange through the new market for purposes other than these, would not have to be based on a specific purpose, but always subject to the limits and controls that may be imposed by the State through the Exchange Agreements and regulations to which we have already made reference.

II.         New operators.

In accordance with article 2° of the LRCI, exchange operators are all persons who conduct “…currencybrokerage, exchange or intermediation transactions, authorized by the relevant regulations…” Then, more specifically, article 10 of the Law, provides that operators who will be authorized to operate in the new market referred to in the previous point, will be universal banks, securities operators, and other subjects engaged in activities related to the respective transactions, of course all of them duly authorized by their respective control entities (i.e. the Superintendency of the Banking Sector Institutions and the National Securities Superintendency), and that additionally are expressly authorized by the Exchange Agreement regulating the new market.

III.        Offer of Goods and Services in Foreign Currency - Hiring in foreign currency.

One of the exchange control characteristics until the entry into force of the LRCI was that in Venezuela the offer of goods and services in foreign currency was prohibited, according to the provisions of article 19 of the now repealed Law against Foreign Exchange-related Crimes, published in Official Gazette No. 6,117 dated December 4, 2013 (“LIC”). According to the more conservative interpretations, that prohibition led to the conclusion that also the hiring in foreign currency was prohibited in some cases, taking into account that any and all contracts represents an offer, unless, as i had interpreted the Constitutional Chamber of the Supreme Court of Justice, the foreign currency in the contract must be expressed only as currency of account or reference.

In the drafting of the LRCI was omitted the rule contained in the already commented upon article 19, for what seems to be clear that, when it is not expressly prohibited by special rules, could be bid and hire in foreign currency in Venezuela and, in accordance with the provisions of article 128 of the Law of the Central Bank of Venezuela, published in the Official Gazette No. 39,419 Dated may 7 2010, if it is expressly stated, the fulfilment of the obligations could be required also in foreign currency.

Some examples of special rules that prohibit the offering and recruitment in foreign currency are the rules concerning the purchase and sale of immovable property to housing, and the rental of buildings for housing, offices or trade.

IV.       Criminal Regime and punitive.

In the new LRCI laying down basically three crimes, of which one is new, and an administrative offense, which is also new, while disappeared one of the offenses and three administrative offenses of the referred to in the LIC.

The punishable act referred to in the LIC that disappeared in the LRCI, any time that as we have already pointed out, the foreign exchange market is definitely opened to individuals, it was the content in the article 9 of the LIC that referred to the sale of foreign currency as an exclusive competence of the Central Bank of Venezuela. But again, we should note that for a correct interpretation of the consequences of the disappearance of that article, must be analyzed Exchange Conventions that can be entered into, as well as the rules of range sub-legal that would be provided soon be pronounced.

The offense related to the acquisition of foreign exchange through deception, referred to in article 16 of the LRCI, remained unchanged with regard to the provisions of article 10 of the LIC, even in regard to the penalty of three to seven years in prison.

In addition to the precision to which we have made reference in section I. of the present, with respect to the illicit use of foreign currency for different purposes referred to in article 17 of the LRCI, we must note that the penalty for the same step in criminal to be pecuniary, of between two and six years in prison.

The new offense is laid down in article 18 of the LRCI, foreign exchange earner in violation of the rules, in which it is incurred by anyone who had "… obtained foreign exchange through the violation of the rules governing the procedures prepared by the competent authorities of the regime for the administration of foreign exchange… ", for which was established a penalty of two to five years in prison.

With regard to the administrative offenses, in addition to the elimination of the prohibition to make offerings in foreign exchange to which we have already made reference, were eliminated the sanctions referred to for the lack of declaration of the exporters on exports. While that was included as a new administrative offense the "failing to announce provenance of the foreign exchange" in shops that would lead to a fine of between two hundred and five thousand tax units.

The obligation referred to the new offense, on the marking of products purchased with foreign exchange referred to in article 13 of the LRCI, must be interpreted in accordance with article 6 of the Organic Law of fair prices, published in the Official Gazette No. 40,340 Dated 23 January 2014, any time that the article itself notes as competent authority for the National Superintendent for the Defense of the socio-economic Rights.

V.        Disappearance of CADIVI and transitional regime.

Although already the Foreign Trade Act and the regulations that has developed had made reference to this fact, the second final disposition of the LRCI was stronger and more expressly ordered the suppression of Commission of Foreign Exchange Management (CADIVI). At the same time, the second transitional provision marks a period of one hundred and eighty days to carry out the procedures for adequacy by the final transformation of CADIVI in CENCOEX.

It is interesting that, according to the first transitional provision of the LRCI, "… the administrative procedures in course, started under the previous laws on the subject, shall be governed in the substance and form by the standards of this Decree Law… ". Therefore, it will be important to see the light of the LRCI decriminalization which brings with it, all the processes and procedures that had begun under the force of the now repealed LIC.

In the Special Official Gazette No. 6,171 dated February 10, 2015, the Central Bank of Venezuela published the Exchange Agreement No. 33 (“Agreement 33”) which sets forth the Rules regarding the transactions in foreign currency in the national financial system.

1.    Which are the transactions in foreign currency embraced in the Exchange Agreement No. 33?

The Agreement 33 embraces the following transactions:

  i.        Transactions in trading desks.

  ii.        Retail transactions in foreign currency.

  iii.        Purchase and sale of securities denominated in foreign currency.

2.    What information does Agreement 33 provide on the Marginal System of Foreign Currency (SIMADI)?

The Agreement 33 does not provide any express mention or information on SIMADI. Hitherto, there is no regulation providing a definition for SIMADI.  

Trading desks

3.    What are trading desks?

The trading desks are exchange transactions through which balances in foreign currency are negotiated between the clients of a local bank. The balances in foreign currency must be allocated in local accounts held with Venezuelan financial institutions.However, the supply of foreign currency though trading desks will be allowed to the clients of the bank from their accounts outside of Venezuela.

4.    What could be negotiated through trading desks?

In principle, foreign currency subject to wire transfers within banking accounts. The Exchange Agreement 33 does not specify the possibility to conduct transactions in the trading desks with any other financial instruments.

5.    Which exchange intermediaries operate in the trading desks?

Initially, only the universal banks. The micro financial banks may participate in trading desk transactions, provided the prior authorization of the Minister of Popular Power for the Economy, Finance and Public Bank and the Central Bank of Venezuela.

6.    Who may participate in the trading desk transactions?

The transactions in the trading desks may only be conducted between the clients of a same universal bank, before which is provided the offer and supply of foreign currency.The Exchange Agreement 33 does not differentiate in its provisions between individuals and legal entities regarding their participation in the trading desks.

7.    Which is the applicable exchange rate for the transactions conducted through the trading desks?

Initially, the exchange rate will be freely agreed between the parties that intervene on each transaction, and that will have as a preliminary reference the fixed rate published by the Central Bank of Venezuela. As of the date that this bulleting is being published, the exchange rate for the operations in trading desks published by the Central Bank of Venezuela is near to an amount of 170 Bolivars per 1 US$.   

8.    Is there a minimum or maximum amount to participate in the transactions conducted through trading desks?

The minimum amount for the conduction of transactions through the trading desks is the amount of three thousand dollars of the United States of America (US$ 3,000). There is no maximum amount established.

9.    Which requirements must be complied with in order to participate in the trading desks?

The Agreement 33 does not provide specific requirements for the participation in the trading desks. However, the clients of the local financial institutions must comply with the Know Your Client (KYC) policies, as well as the requirements and proceedings that the exchange authorities will publish in the rules that develop the provisions contained in the Agreement 33.

Retail transactions

10.  What are the retail transactions?

The retail transactions are purchase and sale transactions in (i) foreign cash; (ii) traveler checks; (iii) foreign currency through wire transfers; (iv) exchange transactions related with encrypted checks; and (v) exchange transactions related with electronic remittances.

11.  Which exchange intermediaries operate the retail transactions?

Initially, the exchange houses and the universal banks. The micro financial banks may participate in retail transactions, provided the prior authorization of the competent authorities.

12.  Who may participate in the retail transactions?

Initially, the individuals residing in Venezuela.  Non-resident individuals in Venezuelan territory may sell their foreign currency to the agencies and offices of the specialized intermediaries in retail transactions. At the moment of their departure from Venezuela, the non-resident individuals may acquire up to 25% of the total amount of foreign currency that they had sold at the moment of their arrival to the country.  

13.  Which requirements must be complied with in order to participate in the retail transactions?

The individuals must (i) indicate the legal origin and destination of the foreign currency that they will acquire; and (ii) comply with the regulations that will be enacted by the exchange control authorities.The retail transactions will be executed, exclusively, against the account in Bolivars that the individuals hold with the correspondent Venezuelan local bank, directly to the accounts in foreign currency kept by Venezuelan financial institutions.

14.  Which is the applicable exchange rate for the retail transactions?

The exchange rate published by the Central Bank of Venezuela on its website. Said exchange rate will be a referential rate, derived from the weighted average exchange rate executed each day in the markets of the trading desks and the purchase and sale of securities denominated in foreign currency, reduced in 0.25%.  

15.  Is there a minimum or maximum amount to participate in the retail transactions?

In exchange houses:

  i.        Maximum daily amount: US$ 300 or its equivalent in other currency. In case of participating with cash, the limit will be US$ 200.

  ii.        Maximum monthly amount: US$ 2000 or its equivalent in other currency.

  iii.        Maximum yearly amount: US$ 10.000 or its equivalent in other currency.

In universal banks:

 iv.        Minimum amount: US$ 300

Purchase and sell of securities denominated in foreign currency

16.  What are the purchase and sell of securities denominated in foreign currency?

Purchase and sale transactions of securities denominated in foreign currency consist in the negotiation, in Bolivars, of securities issued or to be issued by (i) the government; (ii) their decentralized entities; (iii) or by any other public or private entity that has its quotation in the international regulated markets.  

17.  Which exchange intermediaries operate the purchase and sell of securities?

Initially, (i) the authorized securities operators; (ii) universal banks; and (iii) the Bicentenary Public Exchange House (Bolsa Pública de Valores Bicentenaria).   

18.  Where are conducted the purchase and sell of securities?

The purchase and sell of securities are conducted through the Bicentenary Public Exchange House.

19.  Who is in charge of the custody of the securities?

Initially, the custody of the securities is in charge of the Central Bank of Venezuela. Optionally, the authorized securities operators may acquire and maintain temporarily and in order to conduct the purchase and sell operation of securities, in their own portfolio, securities, including National Public Debt.    

20.  Where is the liquidation of the balances derived from the purchase and sell of securities conducted?

The balances derived from the liquidation of the purchase and sell of securities denominated in foreign currency shall be conducted in the foreign currency accounts that are maintained in the Venezuelan financial institutions.

21.   Which is the exchange rate applicable to the purchase and sell of securities transactions?

In principle, the exchange rate applicable shall be freely agreed by the parties involved in the respective purchase and sell transaction.

22.  Are there other regulations that should be taken into consideration for the purchase and sale of securities denominated in foreign currency?

Yes. The system will function under the regulations established by the Office of the Superintendence of the National Securities (SUNAVAL) and the Office of Superintendence of the Banking Sector Institution (SUDEBAN). Said rules will set for the transactions that will be authorized, their terms, conditions and proceedings for the liquidation of foreign currency. As of the date of the publication of this bulletin, such rules have not been published.

Special Provisions

23.  Exchange Rate applicable to credit or debit cards’ expenses

The exchange rate applicable to expenses made by individuals in commercial establishments with credit or debit cards, just as advanced cash payments related to such cards, will be determined by the daily weighted exchange rate derived from the transactions conducted through the trading desks and the purchase and sale of securities denominated in foreign currency, reduced in 0,25%.

24.  Which are the tax implications derived from Exchange Agreement 33?

a.    The taxable base of the obligations derived from customs operations will be determined by the provisions established in the Agreement 33, unless expressed otherwise in especial regulations.

b.    The payment of tax obligations established in special laws, just as rates, fees, charges and public prices calculated in US$ or in any other foreign currency will be subject to the provision of Agreement 33.

25.  Are there additional regulations that should be taken into consideration regarding the Exchange Agreement 33?

Yes. The rules and mechanisms established in the Agreement 33 are subject to further regulations that will be enacted by the competent authorities. Said regulations have not been published yet.