Countries/Jurisdictions of Primary Concern - Venezuela
Conditions in Venezuela make for ample opportunities for financial abuses. Venezuela’s proximity to drug source points and its status as a drug transit country, combined with weak AML enforcement and lack of political will, limited bilateral cooperation, and endemic corruption, make Venezuela vulnerable to money laundering and financial crimes. The porous border between Venezuela and Colombia has also created a burgeoning black market. Furthermore, Venezuela’s highly distorted multi-tiered foreign exchange system and strict price controls open numerous opportunities for currency and goods arbitrage, including to facilitate money laundering. Although the Venezuela-Colombia border was closed in August 2015 under the auspices of the Venezuelan government’s “state of exception,” nevertheless a robust black market continues to function in the border regions. Colombian law enforcement and customs officials reported that more than 90 percent of commerce in the border region was related to black market goods and services. Illicit trade and illegal financial activity are common in the border regions. Laundered funds primarily come from drug trafficking, but informal traders offering products ranging from shampoo to gasoline are also profiting through currency manipulation. A series of recent U.S. legal actions against Venezuelan citizens have exposed questionable financial activities related to money laundering and terrorism finance.
Money laundering is widespread in Venezuela, and can be seen in a number of areas, including government currency exchanges, commercial banks, gambling, real estate, agriculture, livestock, securities, metals, the petroleum industry, and minerals. Trade-based money laundering remains a common and profitable method. One such trade-based scheme is the black market peso exchange, through which money launderers provide narcotics-generated dollars from the United States to commercial smugglers, travel agents, investors, and others in Colombia in exchange for Colombian pesos. In turn, those Colombian pesos are exchanged for Venezuelan bolivars at the parallel exchange rate and then used to repurchase dollars through the Venezuelan currency control regime at a much stronger official exchange rate. Sources report some black market traders ship their goods through Margarita Island’s free trade zone (FTZ). Increased Venezuelan money laundering activity has also been reported in the FTZs of Panama and Ecuador. A more recent black market trade in bolivar currency notes has become increasingly profitable in the border states of Tachira and Zulia and neighboring states of Merida and Barinas.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks, leasing companies, money market and risk capital funds, savings and loans, foreign exchange operators, financial groups, credit card operators; hotels and tourist institutions that provide foreign exchange; general warehouses or storage companies; securities and insurance entities; casinos, bingo halls, and slot machine operators; notaries, public registration offices, and Venezuela’s tax revenue office, Servicio Nacional Integrado de Administración Aduanera y Tributaria (SENIAT)
Number of STRs received and time frame: 862: January 1 – June 30, 2015
Number of CTRs received and time frame: 1,704,647,526: January 1 – June 30, 2015
STR covered entities: Banks, leasing companies, money market funds, savings and loans, foreign exchange operators, financial groups, and credit card operators; hotels and tourist institutions that provide foreign exchange; general warehouses or storage companies; securities and insurance entities; casinos, bingo halls, and slot machine operators; notaries and public registration offices
money laundering criminal Prosecutions/convictions:
Prosecutions: 274 in 2014
Convictions: 8 in 2014
Records exchange mechanism:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
Venezuela is a member of the Caribbean Financial Action Task Force (CFATF), a FATF-style regional body. Its most recent mutual evaluation can be found at: https://www.cfatf-gafic.org/index.php/member-countries/s-v/venezuela
Enforcement and implementation issues and comments:
Since 2003 the Venezuelan government has maintained a strict regime of currency controls. Private sector firms and individuals must request authorization from a government-operated currency commission to purchase hard currency to pay for imports and for other approved uses (e.g., foreign travel). Government ministries that spend hard currency on public procurements also must request dollars from an intra-governmental committee coordinated by the central bank. Private sector banks and financial institutions cannot hold their own deposits of foreign currency, so virtually all dollars laundered through Venezuela’s formal financial system pass through the government’s currency commission, the central bank, or another government agency.
Venezuela’s official exchange rate remains 6.3 bolivars per U.S. dollar, but the parallel exchange rate has increased to 873 bolivars per U.S. dollar. The huge margin achievable by defrauding the currency commission has reduced the incentive to traffic goods through duty exempt zones such as Margarita Island because the money saved by avoiding import taxes is insignificant when compared to the profit margins gained by trade-based schemes. According to banking compliance experts, trade-based schemes make it extremely difficult for banks to differentiate between licit and illicit proceeds. More recently, a sharp rise in the demand for 50 and 100 bolivar notes along the Colombian border has created a currency black market where these notes can earn up to 150 percent of their face value and provide a profitable way to launder proceeds. Venezuelan authorities have not revised Venezuela’s CTR regulations to keep pace with Venezuela’s high inflation. A 10,000 bolivar (approximately $1,580 at the official exchange rate) withdrawal is now an ordinary transaction. The 10,000 bolivar threshold has been in effect since 2010.
Legal experts say 2014 revisions to the 2012 Organic Law Against Organized Crime and Financing of Terrorism are a step in the right direction, but they caution that the law lacks the same mechanisms to combat domestic criminal organizations. The revision also provides government an enormous range of options to prosecute under an “organized crime” umbrella. The revision includes roughly 900 types of offenses that can be prosecuted as “organized crime.” One legal expert noted such a broad mandate gives the government too much power.
In November 2014, the Venezuelan government revised the Anti-Corruption Law and created a new law enforcement organization to combat corruption. The reform also creates a criminal penalty for bribes between two private companies. However, the law differentiates between private and public companies and includes exemptions for public companies and government employees.
In March 2015, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) released a Notice of Finding (NOF) that identifies Banca Privada d’Andorra (BPA) in Andorra as a foreign financial institution of primary money laundering concern by Venezuelan officials. FinCEN reports BPA helped launder over $4 billion from Venezuela, of which $2 billion was “siphoned” from Petróleos de Venezuela S.A.
In April 2015, an investigation conducted by El Universo, a newspaper in Ecuador, and the Miami-based El Nuevo Herald, exposed dozens of companies that made transfers to Ecuador in exchange for fake exports to Venezuela. The payments were deposited in banks in the United States and Panama before the merchandise arrived, and the shipments were never delivered. Panamanian officials report exporters had invoiced $1.4 billion in shipments to Venezuela, of which $937 million was for goods that never materialized.
In September 2015, judges in the Southern District of Florida unsealed indictments against Pedro Luís Martín, a former head of financial intelligence for Venezuela’s secret police, also known as Servicio Bolivariano de Inteligencia Nacional (SEBIN), and Jesús Alfredo Itriago, a former antinarcotics official with Venezuela’s investigative police, also known as Cuerpo de Investigaciones Cientificas Penales y Criminalísticas (CICPC). U.S. officials believe Itriago is a key connection between drug traffickers and members of Venezuela’s military, security services, and government, as well as a primary financial manager responsible for laundering drug trafficking proceeds for top Venezuelan officials.
Venezuelan government entities responsible for combating money laundering, terrorist financing, and corruption are inefficient and lack political will. The National Office against Organized Crime and Terrorist Finance has limited operational capabilities. Venezuela’s financial intelligence unit, La Unidad Nacional de Inteligencia Financiera (UNIF), is supervised by the Superintendent of Banking Sector Institutions, which prevents UNIF from operating independently. An increasingly politicized judicial system further compromises the legal system’s effectiveness and impartiality and although the Venezuelan government has organizations to combat financial crimes, their technical capacity and willingness to address this type of crime remains inadequate. The Financial Crimes Enforcement Network (FinCEN), the U.S. financial intelligence unit, suspended information sharing with the UNIF in 2006 due to an unauthorized disclosure of information that FinCEN had shared with the UNIF. The suspension remains in effect until FinCEN can have assurances that its information will be protected. The UNIF should operate autonomously, independent of undue influence. The Government of Venezuela should increase institutional infrastructure and technical capacity to effectively implement its AML/CFT legislation and legal mechanisms.