Laundering Venezuela’s dirty money

Drug trafficking, government kickbacks, bribery and corruption in general are some of the illegal activities that have flourished during the last decade in the Venezuelan Bolivarian revolution.

The flow of dirty money coming from these origins is hard to calculate but can be estimated to amount to hundreds of billions of dollars. Much of these funds are now being enjoyed in the United States and Europe by corrupt Venezuelan government officials and their business partners, private sector opportunists commonly known as “Boligarchs” who have profited from the widespread corruption.

Some of these cases have been exposed and even charged in the United States. Last month the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York charged five Venezuelan individuals, including a vice president of the Venezuelan bank BANDES (Banco de Desarrollo Económico y Social de Venezuela) named Maria de los Angeles González de Hernandez who authorized fraudulent trades involved in the bribe scheme. A while back, the U.S. Treasury Department designated seven Venezuelan government officials as drug kingpins.

Still, one of the most important questions remains to be answered: How is all this illegal money coming from illicit businesses being laundered? Even though there are multiple possible answers, little attention has been paid to a financial scheme involving not only Venezuela, but also Ecuador; one that can be easily used for money laundering purposes.

In mid-2009, the group of countries belonging to the “ALBA” alliance created by Hugo Chávez when he was president of Venezuela and the Castro brothers in Cuba (namely Cuba, Venezuela, Ecuador and Bolivia) signed a framework agreement for the creation of a virtual currency known as SUCRE (for its Spanish acronym: Unified System for Regional Compensation). The SUCRE’s objective was to replace the dollar in regional financial transactions.

SUCRE is a virtual monetary system that can easily be used for fraudulent purposes given that it avoids any kind of official international supervision. For example, importers in Venezuela can pay for imports from Ecuador directly in Bolivares (the local currency), while exporters in Ecuador receive U.S. dollars (the local currency) from their Central Bank. The compensation and supervision is performed only by the central banks of the countries involved. Since Ecuador uses the U.S. dollar as its currency, every dollar that comes in from Venezuela is automatically “legalized” by the same Central Bank.

Internal documents from Ecuador’s tax collection agency and customs officials show that since SUCRE began operating in 2010, a vast number of fictitious trade transactions have been identified between Ecuador and Venezuela. Nevertheless, the government of Ecuadorian President Rafael Correa has taken no action to stop this scheme. The money laundered through such transactions could be coming from any of the aforementioned illegal activities.

As an example, last year the Ecuadorian press showed how an Ecuadorian company called Privatum Prinage Management, exported “black pepper” in excess of $10 million to a company named Multigran, CA, in Venezuela in several shipments of 100 tons each, according to the invoices. However, a report by the Customs Surveillance Unit of Ecuador showed that the actual total quantity exported did not exceed 340 kg. (or less than 750 lbs. of pepper). In other words, through the single aforementioned transaction importers in Venezuela seem to have laundered $10 million through fictitious shipments.

The question remains: What is the origin of that money?

Given the fact that Ecuador and Venezuela are both nations where the judiciary is controlled by the presidency and where financial transparency is non-existent, it cannot be expected that these and many other cases will be investigated in their territories. Conversely, it is well known that most of this dirty money ends up in millionaire bank accounts, real estate and property investments in the United States, particularly in Florida and New York.

The United States should put an eye on the SUCRE scheme. By doing so, officials will likely realize that in order to stop that system from being used for money laundering purposes, it will be necessary to stop providing dollars to Ecuador, thus ending its abuse of a dollarized monetary system.

Ezequiel Vázquez-Ger is an associate at Otto Reich Associates LLC, an international business consulting firm.

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