The Financial Crimes Enforcement Network (FinCEN) released an advisory on September 20, 2017, to alert financial institutions of widespread public corruption in Venezuela and the methods Venezuelan senior political figures may use to move and hide corruption proceeds.1

The advisory also identified red flags that may assist financial institutions in identifying suspicious activity that may be indicative of Venezuelan corruption, including the abuse of Venezuelan government contracts, wire transfers from shell corporations, and real estate purchases in the South Florida and Houston, Texas regions. The FinCEN advisory also reminds financial institutions of their obligations to monitor, detect, and report such conduct.

Background

Venezuela has been in political and economic turmoil due to the deterioration of its democratic and constitutional order. FinCEN warns that widespread corruption may further destabilize its economic growth and stability. In recent years, financial institutions have reported to FinCEN suspicions that transactions may be linked to Venezuelan public corruption, including government contracts. As a result of these reports and other relevant information, FinCEN considers all Venezuelan government agencies and bodies, including state owned enterprises (SOEs), vulnerable to public corruption and money laundering. According to FinCEN, the Venezuelan government appears to use its control over large parts of the economy to enrich government officials and SOE executives, their families, and associates. FinCEN, therefore, believes that there exists a high risk of corruption involving Venezuelan government officials and employees at all levels, including those managing or working at Venezuelan SOEs.2

FinCEN warns that transactions involving Venezuelan government agencies and SOEs, particularly those involving government contracts, can potentially be used as vehicles to move, launder, and conceal embezzled corruption proceeds. SOEs and their officials may also try to use the U.S. financial system to move or hide proceeds of public corruption. In an effort to thwart the movement of these proceeds, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has recently designated as persons engaged in, or materially assisting, sponsoring, or supporting, public corruption various Venezuelan SOEs, including: National Center for Foreign Commerce (CENCOEX), Suministros Venezolanos Industriales, CA (SUVINCA), the Foreign Trade Bank (BANCOEX), the National Telephone Company (CANTV), the National Electric Corporation (CORPELEC), and the Venezuelan Economic and Social Bank (BANDES). As scrutiny of these enterprises increases, FinCEN warns financial institutions that corrupt officials may try to channel illicit proceeds through lesser-known or newly-created SOEs.

FinCEN also identified red flags that may help financial institutions identify corrupt schemes:

  • Transactions involving Venezuelan government contracts that are directed to personal accounts;

  • Transactions involving Venezuelan government contracts that are directed to companies that operate in an unrelated line of business (e.g., payments for construction projects directed to textile merchants);

  • Transactions involving Venezuelan government contracts that originate with, or are directed to, entities that are shell corporations, general “trading companies,” or companies that lack a general business purpose;

  • Documentation corroborating transactions involving Venezuelan government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation or lack traditional details (e.g., valuations for goods and services). Venezuelan officials who receive preferential access to U.S. dollars at the more favorable, official exchange rate may exploit this multi-tier exchange rate system for profit;

  • Payments involving Venezuelan government contracts that originate from non-official Venezuelan accounts, particularly accounts located in jurisdictions outside of Venezuela (e.g., Panama or the Caribbean);

  • Payments involving Venezuelan government contracts that originate from third parties that are not official Venezuelan government entities;

  • Cash deposits instead of wire transfers into the accounts of companies with Venezuelan government contracts;

  • Transactions for the purchase of real estate—primarily in the South Florida and Houston, Texas regions—involving current or former Venezuelan government officials, family members or associates that are not commensurate with their official salaries; and

  • Corrupt Venezuelan government officials seeking to abuse a U.S. or foreign bank’s wealth management units by using complex financial transactions to move and hide corruption proceeds.

Impact and Regulatory Obligations

The recent FinCEN advisory also reminds U.S. financial institutions that in order to meet their due diligence obligations that would apply to activity involving certain Venezuelan persons, they should generally be aware of public reports of high-level corruption associated with senior Venezuelan foreign political figures and those associated with them; they should assess the risk of laundering the proceeds of public corruption associated with specific particular customers and transactions; and they should be aware of OFAC designations related to Venezuela.

FinCEN also recommends that financial institutions take reasonable, risk-based steps to identify and limit any exposure they may have to funds and other assets associated with Venezuelan public corruption, taking care not to put into question a financial institution’s ability to maintain or continue otherwise appropriate relationships with customers or other financial institutions. FinCEN warns, however, that such steps should not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customers or financial institutions.

The FinCEN advisory also reminds financial institutions of the applicable regulatory obligations that are intended to facilitate the discovery and disclosure of attempts to move and hide corruption proceeds from Venezuela:

  • Enhanced Due Diligence Obligations for Private Bank Accounts: Covered financial institutions maintaining private banking accounts for senior foreign political figures are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption, consistent with obligations under Section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)) and FinCEN’s regulations implementing that Section.

  • General Obligations for Correspondent Account Due Diligence Money Laundering (AML) Programs: U.S. financial institutions must comply with their general due diligence and AML obligations,3 ensuring that their due diligence programs, which address correspondent accounts maintained for foreign financial institutions, include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity involving accounts in the United States.

  • Suspicious Activity Reporting: A financial institution is required to file a suspicious activity report (SAR) if it knows, suspects, or has reason to suspect a transaction involves funds derived from illegal activity, or attempts to disguise funds derived from illegal activity; is designed to evade regulations promulgated under the Bank Secrecy Act (BSA); lacks a business or apparent lawful purpose; or involves the use of the financial institution to facilitate criminal activity, including foreign corruption.

Conclusion

FinCEN emphasizes that reports and information from financial institutions are critical to stopping, deterring, and preventing the proceeds tied to suspected Venezuelan public corruption from moving through the U.S. financial system. Accordingly, companies should remain vigilant of these risks and ensure their due diligence and monitoring programs are up-to-date and comply with all relevant regulatory obligations.