Venezuela Announces Crackdown on Currency Exchange Fraud

Puebla, Mexico, September 29, 2017 (venezuelanalysis.com) – Venezuela authorities announced Wednesday they were investigating at least 18 companies for suspected financial crimes, amid calls for a broader crackdown on currency exchange fraud.

The 18 companies allegedly mishandled currency sold to them at preferential rates by the Venezuelan government, according to prosecutor Tarek William Saab.

Under Venezuela’s controlled currency exchange system, companies are usually required to purchase foreign cash from the government through a tiered exchange system. The government’s most favourable exchange rate is reserved for importers of priority goods like medicine, food and critical industrial products, though the system has long been dogged by allegations of corruption and fraud.

According to Saab, one importer, funeral firm Bates Hill CA, is suspected of purchasing excessive amounts of foreign currency at preferential rates by overestimating prices for industrial chemicals.

“They quoted [one chemical import] at [between] [US]$650 and 724 dollars per kilo … when their price in the international market oscillated between $0.5 and $5 per kilo,” Saab said.

Saab said this overcharging may have led to the embezzlement or misappropriation of the equivalent of US$15.56 million in preferential currency exchanges.

In response, Venezuelan authorities have already raided four of the company’s sites, and arrested two senior business figures. The pair, Juan Miguel and Andres Daniel Lozano Espinoza, have been identified as co-managers of Bates Hill, and were allegedly detained while planning on fleeing Venezuela.

The company is yet to publicly respond.

According to Saab, the Bates Hill case may just be the tip of the iceberg of an epidemic of currency fraud. In another example cited by Saab, the Magma Mineral Group has been accused of misappropriating the equivalent of US$9 million between 2008 and 2011. Another company, Cooperativa Forteza, allegedly raked in over US$28 million in suspicious currency exchanges between 2005 and 2013.

Both Magma and Forteza were part of the group of 18 companies identified by investigators. This group was among a larger collection of around 1000 firms contacted by authorities during a multi-year investigation into currency irregularities. Since 2014, Venezuela’s public prosecutor’s office has been contacting companies which have received currency at preferential rates, to ensure money hasn’t been misappropriated. Saab alleged over 200 companies failed to respond adequately to government inquiries, and accused his predecessor Luisa Ortega of failing to follow up.

“In three years the former [public prosecution] did absolutely nothing. It covered up these criminal entrepreneurs and the terrible crimes that happened here,” he claimed.

Ortega fled Venezuela earlier this year, accusing authorities of persecuting her for criticising the Maduro administration. She has denied previous allegations of corruption against her, and accused the Maduro administration itself of misconduct.

Other government critics have also accused the administration of corruption, with National Assembly member Jose Guerra calling for a broader investigation into officials within Venezuela’s currency exchange agencies, such as Cadivi and Cenoex.

The underlying problem is that the exchange control [system] is corrupt, per se, Cadivi and Cencoex,” he said.

During a press conference, Saab said investigators will be turning their attention to these agencies.

“We must investigate not only the businessmen but the officials who did not notice these charges,” he said.