MADURO’S LAST STAND
Venezuela’s Survival Through the Bolivarian Joint
Criminal Enterprise
Table of Contents
LIST OF TERMS 2
EXECUTIVE SUMMARY 3
INTRODUCTION 4
TYPOLOGIES 6
FALSIFIED OIL SALES 7
CYCLICAL FIXED ASSET
PURCHASES 9
ILLEGAL MINING 11
FALSIFIED
INFRASTRUCTURE PROJECTS 13
BANK TO BANK
TRANSFERS 15
HUMAN AND ECONOMIC
IMPACT 16
CONCLUSIONS 18
ENDNOTES 19
List of Terms
ALBA Bolivarian Alliance for the Peoples of
Our America
BJCE Bolivarian Joint Criminal Enterprise
ELN National Liberation Army (Colombia)
FARC Armed Revolutionary Forces of Colombia
FCPA Foreign Corrupt Practices Act
FMLN Farabundi Marti National Liberation Front
(El Salvador)
FOIA Freedom
of Information Act
FSLN Sandinista
National Liberation Front
IAHCR Inter-American
Commission on Human Rights
OAS Organization of American States
PDVSA Petroleos de Venezuela
TOC Transnational Organized Criminal groups
UNHCR United Nations High Commission for Refugees
USSOUTHCOM United States Southern Combatant
Command
Disclaimer
This report is in part funded in support of DAS-D
Counternarcotics and Global Threats (CNGT) through the Institute for National
Security Studies at the National Defense University. This is a research product
and does report not necessarily represent the views of the National Defense
University, the Department of Defense, or any part of the U.S. government.
Cover Photo
Cover photograph by EneasMx is licensed under CC by
Attribution-Share Alike 4.0 International. This report does not necessarily
reflect the views of the photographer.
https://creativecommons.org/licenses/by-sa/4.0/deed.en
Executive Summary
In 1998, the Venezuelan people elected Hugo Chavez,
initiating a regional movement known as the Bolivarian Revolution. In an effort
to isolate the United States and promote his “Socialism for the 21st Century”
political project, Chavez systematically consolidated power in the executive
branch. He in turn transformed PDVSA - the Venezuelan national oil company -
into a multi-billion dollar regional enterprise operating in concert with
sympathetic political leaders, economic elites and criminal organizations. While Chavez led the project, he was aided by the
political leadership in Cuba, Nicaragua, Bolivia, Ecuador, Suriname and El
Salvador. Over the past 20 years, this criminal network grew to encompass
several dozen individuals and hundreds of front companies. Nicolas Maduro then
warmly inherited this criminal regime in 2013 after Chavez’s death. Twenty
years after the political project’s inception, the network spans the globe,
from El Salvador to the United States, from Russia to Hong Kong, and across
several offshore financial havens in between.
Yet even after the
United States’ sanctioned hundreds of individuals and entities on charges like
drug trafficking and money laundering, Maduro continues to serve as Venezuela’s
de facto leader. The results of this criminal regime culminated in a Venezuelan
economy that shrunk by more than 50 percent while at least 10.5 percent of the
Venezuelan population now live as refugees. This increasingly visible crisis
imposes enormous costs on regional neighbors. Meanwhile, the illicitly
laundered funds undermine the rule of law and democracy, wreak havoc on the
legal economies, strengthen corrupt autocratic regimes, and create spaces where
transnational organized criminal networks thrive. While the dynamics of joint
criminal activities in Venezuela remain largely unchanged, the Maduro regime is
increasingly feeling the domestic and international pressure for regime change.
This report
highlights the scale of what we call the Bolivarian Joint Criminal Enterprise.
Here we highlight some of the criminal typologies used by the network and
explore the wider impact of this network’s actions. The brief compiles
fieldwork conducted over five years in 11 countries and augments this
qualitative analysis with open source research and data analysis. Ultimately,
we argue that the Bolivarian Joint Criminal Enterprise is not a single entity,
but rather a network of allied companies, regional structures, and historically
linked individuals operating across the globe. Unless the network is attacked
from multiple points simultaneously, the alliance will survive and morph into a
more dispersed and sophisticated operation.
Figure 1: map of the goods and assets flow for the
Bolivarian Joint Criminal Enterprise
Introduction
On July 26, 2018, 12 individuals tied to Venezuela’s
state oil company PDVSA were charged in the Southern District of Florida with
conspiracy to launder $1.2 billion from the oil company through U.S. banks,
brokerage firms, and real estate investment companies.1 The criminal complaint
detailed at least one tool in the Venezuelan government’s criminal toolbox to
move significant sums of money to safe harbor over the last decade. While the
complaint (and its subsequent convictions) are important, this case represents
only one facet of the manner in which funds have been illicitly moved by state
structures since the Bolivarian Revolution was launched with Hugo Chavez’s
election.2
With the guidance of Fidel Castro3, Hugo Chavez was
elected to be Venezuela’s president in 1998 as a folk hero following his failed
1992 coup d’etat.4 Chavez’s Bolivarian project was, from its inception, an
effort to create a new economic and political model for Latin America, while
simultaneously engaging in political and economic warfare against the influence
of the United States. This
vision for creating “21st Century Socialism” included creating, at least in
spirit, a political union comprised of Venezuela, Colombia, Panama, Ecuador,
Peru and Bolivia.5 He ran on a highly popular anti-corruption and populist
platform and viewed Venezuela’s vast oil wealth as a financial means to this
anticipated political end.
With oil prices high,
and a broad disillusionment with the region’s historic ruling elite, Chavez
seized the moment to launch his populist movement across the region. In
doing so, between 2005 and 2010 he successfully helped finance the presidential
campaigns of likeminded radical populist authoritarian strongmen. These leaders included Evo Morales (Bolivia), Rafael
Correa (Ecuador), Mel Zelaya (Honduras), Daniel Ortega (Nicaragua), Mauricio
Funes - financed by Jose Luis Merino6 (El Salvador), and Desi Bouterse
(Suriname). Chavez also maintained strong relationships with the leftist Luiz
Inacio Lula da Silva government in Brazil and the radical populist government
of Cristina Fernandez de Kirchner in Argentina.
It is no coincidence that most of the Bolivarian member
states leaders also shared histories fighting in support of far left armed
guerilla forces. While the Bolivarian Revolution institutionally began in 1998,
the roots of this movement began decades earlier, with Nicaragua’s Sandinista
National Liberation Front (FSLN), El Salvador’s Farabundo Marti National
Liberation Front (FMLN), the Cuban Revolution, and the Revolutionary Armed
Forces of Colombia (FARC).7 Decades later, the memories and relationships
developed during these civil conflicts brought a deep bond of trust among the
newly-empowered leaders. Chavez’s stature in the Bolivarian group was derived
in part from his military experience and guerilla ideology, but mostly from his
willingness to spend billions of PDVSA dollars across the hemisphere.8
This alliance of Bolivarian states together with the FARC
have coalesced into what we define as the Bolivarian Joint Criminal Enterprise
- or a consortium of criminalized states and non-state actors working in
concert with shared objectives. This joint criminal enterprise has not only
taken billions of dollars from Venezuelan state coffers, but also used PDVSA as
the central structure for money laundering and corruption throughout the
region. The criminal portfolio used by those in this movement has continued to
diversify as oil prices dropped and PDVSA’s production stalled. Such conditions
forced incoming president Nicolas Maduro to rely even more on activities like
cocaine trafficking and illicit gold production, but even with PDVSA’s decline
the regime continues to function as a criminal operation.9
This report offers an overview of a facet of the complex,
global, and frequently state-sponsored criminal enterprise. We base our
findings on five years of field research and document collection across 11
countries, as well an open source data mining and link analysis. We argue that
the Bolivarian Joint Criminal Enterprise should be understood as a network of
networks - not as isolated set of unrelated activities in different Latin
American countries. In total we identified 181 individuals and 176 companies
operating in at least 26 countries. The sum of this criminal actions is not
fully known, but a recent investigation by a Latin American journalist
consortium found that Venezuela siphoned $28 billion out of PDVSA.10 We have
traced at least $10 billion in Venezuela-related funds that moved through this
criminal network between 2007-2018.
Ultimately, we argue that the most difficult challenge to
dismantling the Bolivarian Joint Criminal Enterprise is in tackling the
network’s diversified criminal portfolio and global reach. We examine only five
of the many criminal typologies under which the group engages, including
fictitious oil sales and loans; physical asset purchases; fictitious state mega
infrastructure projects; illegal gold mining; and bank to bank transfers. We ultimately argue that despite U.S. economic
sanctions, growing international condemnation, and a lack of political
legitimacy, the Maduro regime has not collapsed and may not for a significant
period of time. Actions like designating PDVSA and senior leaders are critical.
However, the network’s ability to adapt and diversify their criminal portfolio
means that money continues to flow into the regime’s coffers.
Falsified Oil Sales
Falsified oil sale
schemes are the foundation upon which the Bolivarian Joint Criminal Enterprise
began. Venezuela’s PDVSA is the majority shareholder in several regional oil
subsidiaries through its PDV Caribe branch. PDV Caribe owns 60 percent of Alba Petroleos
in El Salvador and 51 percent of Albanisa in Nicaragua.11 The Venezuelan
company’s control of each company involved in the ALBA consortium allows for
funds to move through the Venezuelan company to its Central American
subsidiaries with ease. Moreover, the sums of money moving through PDV Caribe
are significant.
Author interviews
with individuals close to Alba Petroleos found that the subsidiary received
virtually no oil from PDVSA between 2010 and 2017, yet the Salvadoran
subsidiary recorded incomes of approximately $200 million a year - totaling
around $1.2 billion through that examined timeframe. In Nicaragua, Albanisa did
receive some oil from PDVSA, but the Nicaraguan subsidiary still received funds
far outvaluing the imports. In Albanisa’s case, the money provided totaled $400
million to $600 million a year, or $4 billion to $6 billion in illicit funds
over the past decade.12 These slush funds were handled by a small number of
political elites even though the funds accounted for between 16 and 20 percent
of the national budget in Nicaragua and 15 percent of El Salvador’s budget each
year.
Yet, the funds never
passed through a congressional budget allocation process or any accountability
mechanism.13 To create a corresponding paper trail, both Alba Petroleos and
Albanisa established dozens of front companies and enterprises investing
heavily - at least on paper - in food production, financial institutions,
airlines, think tanks, alternative energy projects, land acquisitions, gasoline
stations, and other activities. All of these companies reportedly operated
under the Alba banner and included interlocking corporate directorships, though
seldom meeting the legal requirements for financial reporting. In both cases,
interlocking networks of political party stalwarts, senior government officials
and PDVSA officials run the subsidiary agencies.14 Most notably though, most of
the projects that the oil companies claim to fund, do not physically exist or
produce any goods or services.
In the case of Alba
Petroleos, Jose Luis Merino (El Salvador’s Deputy Minister of Foreign Affairs
for Investment and Financial Development and former FMLN commander) and a few
other trusted front men and straw owners then set up a series of companies with
interlocking ownership structures in Panama. From there, Alba Petroleos and its
related companies loaned eight Panamanian companies under their control at
least $1.1 billion between 2007-2017.15 These companies in turn moved the money
to financial safe havens in the Caribbean and Europe including: the British
Virgin Islands, the Cayman Islands, Belize, Switzerland, and Russia. Finally,
they declared most of the debt unrecoverable.
In Nicaragua’s case,
Albanisa’s funds are not as well traced because the Ortega regime systematically
failed to file the required information and allowed only a few trusted people
access to the financial records. However, the investigative website
Confidencial16 and other investigators documented parts of the structure, which
used similar methods to create dozens of front companies, including a bank
(which will be discussed later in the report), for Albanisa to store funds
while moving the money offshore. 17
Cyclical Fixed Asset
Purchases
On August 16, 2018
Venezuelan news broadcasting owner Raul Gorrin was charged with conspiracy to
violate the Foreign Corrupt Practices Act (FCPA), conspiracy to commit money
laundering, and money laundering18 and his co-conspirators pleaded guilty to
all charges. This case serves as one example of how a fixed assets scheme can
launder Venezuelan state funds out of the country and into financial safe
havens or otherwise desirable third country locations. In
the Bolivarian Joint Criminal Enterprise, the final destination of fixed asset
practices is often the United States.
In total, 12 conspirators were named in the complaint for
a foreign-currency exchange system scheme where the Venezuelan bolivar currency
was traded for a fixed U.S. dollar price significantly higher than the official
exchange rate. The scheme allegedly laundered between $1.2 and $2.4 billion
through the U.S. financial system over the course of four years, 19 Gorrin’s
alleged participation in the scheme totaled about US$ 159 million. 20 While
this scheme began only in 2014, Gorrin’s reported involvement dates back to
2008 when he first began paying bribes to retain business contracts.21 As he
was a trusted partner for corrupt Venezuelan officials, Gorrin reportedly paid
bribes and laundered funds over at least the last decade through PDVSA bank
accounts that could operate in dollars without being subject to exchange
controls or banking restrictions.
The exchange rate manipulation criminal typology gave
regime insiders access to scarce dollars at highly preferential rates. Those
involved were then instructed to take the dollars out of Venezuela, often
disguised as funds for imports or earnings from exports. The exchange controls
for normal citizens was necessary because unprecedented inflation made the
local currency, the Bolivar, worth less every day and the regime was desperate
to collect as many dollars (or anything other than Bolivars).
Much of this money first moved through the United States,
into Switzerland, and then back to the United States. To conceal the origin of
the funds, Gorrin reportedly moved money through front companies, including
acquiring the Dominican bank Banco Peravia, to conceal the origin of the
funds.22 From there, Gorrin obscured the origin of the laundered funds through
real estate investments or the purchase of other fixed, tangible assets.23 The
indictment found that among the purchases that Gorrin made with laundered
funds, he purchased “approximately three jets, a yacht, multiple champion
horses and numerous high-end watches.”24 As the funds were no longer in cash or
an otherwise traceable form, the laundering scheme was more difficult to detect
than if the moneys continued moving through banks or observable financial
transactions.
As a result of U.S. sanctions, in November 2018, at least
24 of Gorrin’s properties (located in the states of New York and Florida) were
seized.25 The seven condominiums in New York alone, have an estimated value of
$40 million.26 Authorities also seized 17 prize horses and several luxury vehicles.27
In this case, as in most instances of this criminal typology, Gorrin was one of
multiple participants, each carrying out one part of a larger whole. This continues to serve as a common criminal typology
in several countries for the Bolivarian Joint Criminal Enterprise.
Illegal Mining
In recent years, the
Bolivarian Joint Criminal Enterprise has diversified their operations into the
illicit gold mining industry for profit and as a way to launder the proceeds of
multiple illicit revenue streams through an underregulated industry. This is to
say that the Enterprise’s decision to mine gold is at least in part due to the
high prices of gold on the international market, the ease with which gold can
be moved and converted to cash, and the low risk of detection for illegal gold
transactions.28 The clearest example of the illicitly mined gold scheme in
relation to this criminal enterprise is the Kaloti Suriname Mint House (KSMH)
operating near Paramaribo, Suriname. Inaugurated in 2015, the company maintains
a partnership between Suriname and Kaloti Precious Metals of the United Arab
Emirates.29 The KSMH operates under the protection of president Desi Bouterse,
a convicted cocaine trafficker, long-time weapons supplier to the FARC, and an
individual who was elected with financial support from Chavez.30
KSMH, an economically
irrational, largely fictitious project that on paper cost $20 million, is in
the most isolated country in the hemisphere. There is no competitive advantage
to gold dealers from gold producing countries, who all ship their gold to Miami
or Europe on daily direct commercial flights. Yet while Suriname produces
roughly 28 tons of gold a year, the refinery was to have the capacity to refine
60 tons of gold. Multiple site visits in June 2016 to the KSMH in the town of
Wit Santi near the country’s one international airport, found that no such
refinery existed. In fact, the building that reportedly housed the project gave
no indication of commercial activities. Interviews with gold dealers in
Suriname confirmed the lack of the refinery.
What makes the KSMH
so valuable, is the ease with which the Bolivarian Joint Criminal Enterprise
can export their gold as originating in Suriname, disguising the real origin of
the metal and avoiding scrutiny and sanctions. The gold moving through KSMH is
unlikely to be legally produced in other South American countries but is ideal
for accommodating illicit flows of resources and the accompanying laundering.
In addition, IBI Consultants fieldwork found that KSMH, now officially charged
with certifying Suriname’s gold exports, likely also exports non-existent gold,
certifying exports without any gold actually being moved. In practice then, one
can obtain a certificate of gold exports from Suriname without having to export
any gold, creating a mechanism for justifying cash deposits that would
otherwise be suspect.31
As the movement of
Bolivarian funds are under scrutiny, the Maduro regime is an ever more popular
choice of activity to acquire cash that would otherwise be blocked by financial
sanctions. In 2018 alone, the Venezuelan state sold 73.2 tons of gold in Turkey
and the United Arab Emirates, with some of the gold ending up as far away as
Uganda. Given that the Venezuelan Central Bank’s gold reserves grew by 11 tons
in 2018 despite the ongoing selloff, it is likely that a significant amount of
the commodity was mined illegally by dissident groups of the FARC and ELN.32
The sale of illegally mined gold, diamonds, coltan and other easy to distribute
commodities that are otherwise difficult to trace, are an increasingly
important criminal typology for the Bolivarian Joint Criminal Enterprise.
Falsified
Infrastructure Projects
The transfer of large
sums of state money through non-existent infrastructure projects, is an
important methodology used by criminalized states to launder funds. Because the
state allocates the funds towards these projects and controls the state’s
investigative bodies, oversight and accountability by state watchdogs are
non-existent. Neither PDVSA, nor its Central American subsidiaries, could be
investigated by tax auditors, law enforcement or financial control entities
because all were under the control of the state whose leaders allowed the
operations to go forward and who benefitted themselves from the activities. As
this criminal typology has been perfected over time, this is now one of the
most effective and least risky methodologies for the Bolivarian Joint Criminal
Enterprise to use.
One of the largest of these cases, was the signature
program announced between Albanisa and PDVSA in Nicaragua. In 2007, Presidents Chavez and Ortega jointly laid the
ceremonial stone where Nicaragua was to build a large oil refinery to refine
PDVSA’s heavy crude petroleum. The presidents announced the project would cost
an estimated $6.6 billion,33 an absurd and economically irrational amount of
money for such a venture. Grandly named “The Supreme Dream of
Bolivar” (Supremo Sueno de Bolivar), the refinery on paper received an initial
$32 million in start-up funding in 2008 and an additional $60 million over the
following three years. In 2012 and 2013, the program received an additional
$341.2 million.34 Since 2013, the exact sum of money dedicated this project is
not known but the Venezuelan and Nicaraguan governments apportioned several
tens of millions of dollars through 2015. At the point, the financial paper
trail ended.35
Yet the nearly half a billion dollars in paper
investments that have already moved through this project, have left few visible
results. Multiple site visits between 2014 and 2016 found only an empty field
with a few storage tanks and a sagging wooden fence, with no signs of a
refinery other than a few rusting storage tanks. In reality, the criminalized
financial chain moved the funds from PDVSA through its Albanisa subsidiary and
then redistributed the funds as payments for non-existent work and materials to
a series of contracting companies linked to Ortega and Chavez governments. These front companies then moved the now untraceable
“clean” money back into the control of the Nicaraguan and Venezuelan criminal
structures.36
While the refinery
was one of the largest, fictitious state-to-state infrastructure projects
uncovered in our field research, it was just one of dozens of similar
enterprises that ultimately laundered hundreds of millions of dollars with the
support of the Bolivarian Joint Criminal Enterprise. Other large projects
included contracts for oil drilling that never took place, the construction of
a vaccination plant that never produced a vaccine, a solar panel factory that
produced no panels, a water bottling company that produced no bottled water,
and dozens of other enterprises throughout the region. This continues to be one
of the most frequently used criminal typologies by the Enterprise today.
Bank to Bank T ransfers
The final criminal typology explored in this report are
bank to bank transfers. By early 2014, the flow of illicit funds flowing
through the PDVSA network was at its peak. This flood of cash began to
overwhelm the PDVSA Central American structure and the physical amount of
dollar bills in circulation made layering the money in traditional banking
structures almost impossible, at least without setting off alarms. This abundance of resources forced the enterprise to
opt for a bold solution available to states engaging in criminal activities.
Nicaragua created their own bank under Nicaraguan state protection. This bank
was controlled by President Ortega and overseen by his most trusted financial
associates, who already controlled the Albanisa consortium.
In October 2014,
Nicaraguan authorities officially registered Banco Corporativo (Bancorp) as a
financial entity, co-locating the bank in the same office as Albanisa. The
bank’s inaugural statement said the institution would specialize in trusts and
money management services, and local news outlets reported the bank was owned
by Albanisa.37 Yet the bank carried out few normal banking activities, opting
not to offer checking accounts, loans or mortgages among their repertoire of
financial tools.
However, Bancorp did host a $1.5 billion trust from
Albanisa and related companies and $1 billion in other trusts38. This newly
minted financial institution’s activities appeared so unusual that the leaders
of Nicaragua’s established banking sector met with U.S Embassy officials to
emphasize their professional distance from the Bancorp entity.39 Concerns grew
when Bancorp received $16 million in cash deposits in the month of December of
2016 alone.40 Alarms were set off though when the bank declared that its
deposits grew to $340 million in 2017 - a 237 percent increase from the year
before, despite a lack of clients or clear business activity.41
One of Bancorp’s most significant anomalies though is the
lack of correspondent banking relationships with any bank with access to the
U.S. financial system. In essence, this cuts the bank off from the ability to
carry out business in most of the world. IBI Consultants field research found
that Bancorp, as a workaround to move the money out of Nicaragua, opened an
account in a Panama branch of an Asian bank with branches in Hong Kong, South
Korea, and Panama. Funds from the Bolivarian Joint Criminal Enterprise were
then transferred from Nicaragua into Bancorp’s account with the Asian bank in
Panama, before ultimately landing in the Hong Kong branch. In Hong Kong, funds
were sanitized and layered into different accounts controlled by Ortega and his
allies. Money could then easily be moved from Hong Kong and wired anywhere in
the world, including the United States.
This bank to bank transfer mechanism then changed in
January 2019, when the United States sanctioned Bancorp.42 In response,
President Ortega then opted for his most bold option yet (at least regarding
banking). He fast-tracked a legislative proposal through Nicaragua’s national assembly,
controlled by Ortega’s FSLN party, for the Nicaraguan state to buy Bancorp for
about $23 million and convert it into Nicaragua’s Central Bank. The move
passed, thus amalgamating Bancorp’s existing funds and making it more difficult
to identify and cut off the flow of illicit monies in Nicaragua’s banking
system.
Human and Economic Impact
The human costs of the Bolivarian Joint Criminal
Enterprise’s actions are brutal, but at least to some extent measurable. In
2018, Venezuela’s inflation rate surpassed 1 million percent and the
International Monetary Fund (IMF) estimates this rate to soar past 10 million
percent by the end of 2019.43 Moreover, a 2017 Venezuelan study estimated that
the average Venezuelan citizen lost 24.1 pounds that year given the country’s
food shortages.44 Finally, the Inter-American Commission on Human Rights
(IAHCR) estimated that only 20 percent of needed medicines needed were still
readily accessible to Venezuelans in 2018.45 The systemic lack of food and
medicine are just two types of human rights abuses committed by the Maduro
regime.46
Widespread and increasing U.S. sanctions against
Venezuelan state companies and associated individuals have been blamed by some
for the humanitarian catastrophe. However, the effects of these actions on the
average Venezuelan have likely been marginal. Estimates on sanctions’ damage
towards the Venezuelan people are scarce but one estimate, found that between
September 2017 and September 2018, U.S. sanctions resulted in approximately $6
billion in Venezuelan losses.47 The effects accelerated since January 2019,
when the U.S. announced sanctions against PDVSA. However, S&P Global
estimates that this sanction cut Venezuelan crude production by more than 50
percent in February - a loss of about $6 million in revenue per day.48 While
significant, these losses are marginal to the costs explored in this section. Moreover, such revenues would likely be distributed
among the political elites whose support is vital to the Maduro regime, not to
the Venezuelan people. In short, the regime’s systematic looting and
mismanagement brought the formal economy to its knees, not targeted sanctions.
A possible metric of
the crisis is through the refugee exodus and the costs associated with forced
migration. Beginning in 2014 - and shortly after Maduro’s election - an exodus
of refugees left Venezuela, primarily to regional neighbors. The United Nations
High Commissioner on Refugees (UNHCR) estimates that by January 2019, at least
3.4 million Venezuelan refugees or 10.5 percent of Venezuela’s population (as
measured in 2014) lived outside of their country.49 This makes Venezuela’s
refugee crisis the largest mass forced migration in the history of Latin
America and on par to match or exceed Syrian refugee flows in coming years.50
Colombia is the most affected by the crisis in sheer numbers. The UNHCR
estimates that prior to the border between Colombia and Venezuela closing in
late February 2019, some 5,000 Venezuelans entered Colombia every day.51 The
other countries that are most affected by sheer refugee flow numbers are Peru
and Ecuador.
While Venezuela’s
western neighbors are hosting more refugees in raw numbers, some of the
smallest countries in the Western Hemisphere host a proportionally more
refugees compared to their populations. Curacao hosts 16,147 (per 100,000)
Venezuelan refugees which is approximately eight times higher than Colombia.
Aruba follows closely at 15,200 and the third country most proportionally
affected country is Venezuela’s eastern neighbor, Guyana, with 4,500. The
Venezuelan refugee crisis affects the entire hemisphere and should therefore be
considered when analyzing the broader costs of this crisis. The UNHCR is
requesting $201 million for refugee resettlement costs,52 and the United Nations
is requesting an additional $738 million in humanitarian aid for 2019.53 It is
reasonable to assume, that humanitarian aid and resettlement costs associated
with the Venezuelan crisis will be at least $1.5 billion.
Figure 12: Venezuelan
refugee rates per 100,000 residents in Latin American host countries through
February 2019 (Source: United Nations High Commissioner on Refugees)
Another set of costs
associated with this crisis is the external debt owed by Venezuela to foreign
countries and international organizations, which will have to be repaid with
interest. As of early 2019, Venezuela owed China roughly $20 billion.54 They
owed Russia’s state owned oil company, Rosneft, approximately $2.3 billion.
Other estimates suggest that Venezuela’s total outstanding external debt is
about $100 billion.55 As a result, we contend that Venezuela debt equals
between $22.3 billion and $100 billion. A third set of cost estimates, as we
previously mentioned, are the funds laundered by the Bolivarian Joint Criminal
Enterprise which we estimate to be $10 billion between 2007-2018. This is a low
range estimate compared to recent report estimating $28 billion.56 One person
interviewed for this report, who was directly involved in the movement of PDVSA
funds, estimated that the figure is closer to $43 billion.57 We therefore
estimate between $10 and $43 billion in state funds were siphoned out of
Venezuela’s.
Finally, according to
Venezuela’s National Assembly (which is run by the opposition), Venezuela’s
economy shrank by 53 percent between 2013 and 2019.58 While recognizing that
these losses are likely reported with bias and are imprecise, it is possible to
approximate economic losses based on Venezuela’s previous GDP output. In 2013,
Venezuela’s economy generated approximately $381 billion in GDP.59 Assuming an
average 8 to 8.5 percent decline in GDP per year since 2013, Venezuela lost
between $411 and $434 billion in GDP from 2013 through 2018. This estimate more
strongly favors the position of Venezuela’s opposition, but it serves as an
approximation on economic losses given the lack of official government
reporting.
A sum of the costs
incurred by the Bolivarian Joint Criminal Enterprise and Venezuela’s subsequent
economic decline resulted in costs between $473 billion and $633 billion since
Maduro took office in 2013. As a result, the Venezuelan political elite’s
actions created a spiraling effect with severe secondary and tertiary financial
effects on the Venezuelan population. The estimates of Venezuela’s crisis are
both incomplete and imprecise, but they do demonstrate the magnitude of the
Venezuelan situation. Moreover, much of the actions, and subsequent results
would not have been possible without the assistance of a much broader network
of illicit actors operating in positions of power from around the world.
Conclusions
This report
highlights the interconnectedness of different actors and economic mechanisms
that facilitate the enterprise’s endurance, albeit currently in a weakened
state. The Bolivarian Joint Criminal Enterprise is a unique structure built on
direct state participation in criminal behavior operating across multiple
economic spheres and enforcement jurisdictions. This criminal portfolio draws
on support from state entities, licit businesses and organized criminal groups.
The result is a
complex criminal operation that undermines the rule of law, democratic
governance and U.S. alliances throughout the Western Hemisphere.
The Bolivarian
structure has proven to be resilient and adaptable, with multiple redundant
capabilities. Operationally, when one facet of the criminal network is
pressured, the Bolivarian Joint Criminal Enterprise is adept at shifting
operations to new areas or finding new allies, often feeding off the different
strengths and connections of the Enterprise’s shared history and common goals.
The U.S. government has recently undertaken a more holistic and united effort
to confront these criminal actors, yielding significant results. Efforts to
channel some of the funds flowing from PDVSA and the Bolivarian banking
structure to the legitimately-recognized Guaido government - and out of the
hands of the Maduro regime - are innovative and necessary. But,
as former USSOUTHCOM commander Admiral James Stavridis said: “it takes a
network to fight a network”.
The key to combatting this network, we argue, is in
integrating the authorities and capabilities across the U.S. government, and in
collaboration with trusted partners like Colombia, to tackle the Bolivarian
network’s reach. This approach includes combining the resources and authorities
of the departments of Treasury, State, Justice, Homeland Security, and Defense
along with the intelligence community to confront multiple nodes of the
Enterprise. However, tackling the Bolivarian Joint Criminal Enterprise also
requires responses to actors in countries beyond Venezuela and to embracing a
more robust and long-term engagement with politically aligned partner nations
in the Western Hemisphere. As the Bolivarian Revolution ideological drivers
have been largely discredited, this is an opportunity for the United States to
boldly engage the region and tackle the reach and complexity that this criminal
enterprise encompasses.
Endnotes
1 “Two
Members of Billion-Dollar Venezuelan Money Laundering Scheme Arrested.” U.S. Department
of Justice. 25 July 2018.
2 Based
on research and field interviews with individuals with direct knowledge of
PDVSA’s financial structure, IBI consultants estimates that approximately $10
to $43 billion have been laundered out of Venezuela in the last decade.
3 Peter
Millard, Cindy Hoffman, Marisa Gertz, and Jeremy CF Lin. “The Rise and Fall of
Chavismo in Venezuela.” Bloomberg. 16 February 2019.
4 Diana Jean Schemo. “Venezuelan
Pulls off Revolution at the Polls.” The New York Times. 9 December 2013.
5 American Expansion - U.S.A. and
Gran Colombia. Public Broadcasting Service.
6 Jose Luis Merino, an ex-combatant
in the FMLN’s Communist Party faction during the war, never ran for president
but continues to control and finance the FMLN. Merino currently serves as El
Salvador’s Deputy Minister of Investment and Financial Development. See:
Cristian Melendez. “Jose L. Merino para diputado con fuero de viceministro.” La
Prensa Grafica. December 23, 2017.
7 All of the leaders of these
political parties also fought in the civil and revolutionary wars of their
countries with the exception of former Salvadoran president Mauricio Funes, who
was a figurehead. The activities and operations of the FMLN party is primarily
controlled by Merino, who was a combat veteran.
8 Julia E. Sweig, “What Hugo Chavez
Built: The Legacy of Latin American ‘Chavismo,’” The Atlantic, January 14,
2013.
9 William Neuman. “Venezuela Give
Chavez Protege Narrow Victory.” The New York Times. 13 April 2013.
10 “Petrofraude: El descalabro continental
chavista con dinero de los venezolanos.” Conectas.
11 “PDVSA in the World.”
12 Carlos F. Chamorro and Carlos Salinas
Maldonado, “Las cuentas secretas de Albanisa,” Confidential, March 5, 2011; and
Carlos F. Chamorro, “Los Petrodolares de Venezuela: Desvio de mas de tres mil
millones de dolares de la cooperation venezolana a las arcas de Daniel Ortega,
Confidential, June 11, 2105. Accessed at:
https://confidencial.atavist.com/los-petrodlares-de-venezuela918v4.
13 Farah,
“Convergence in Criminalized States: The New Paradigm,” Ibid.
14 Both
conglomerates announced many of their company formations and their
directorships publicly. The author is in possession of the original
registration documents for most of the companies that are no longer publicly
available..
15 IBI
Consultants conducted interviews with members of Panama’s Financial
Intelligence Unit, U.S. officials, sources with direct knowledge of Alba
Petroleos operations. Antonio
Soriano. “Funcionarios, sociedades de ALBA y empresarios, en listado de los
deudores,” El Mundo, November 27, 2017.
16 Carlos F. Chamorro, “The Right to
Know About Albanisa: Where are the $3.5 billion and who is behind the new
capital?” Confidential, April 14, 2016.
17 Antonio Soriano, “Alba Petroleos
envio $165.9 millones a Panama,” El Mundo, April 12, 2016.
18 “Venezuelan Billionaire News Network
Owner, Former Venezuelan National Treasurer and Former Owner of Dominican
Republic Bank Charted in Money Laundering Conspiracy Involving Over $1 Billion
in Bribes.” U.S. Department of Justice. November 20, 2018.
19 United States of America v. Francisco
Convit Guruceaga, et. al. Ibid.
20 “Quien es Raul Gorrin, el magnate de
Venezuela acusado en EE.UU. de lavar millones de dolares junto a un
exguardaespaldas de Hugo Chavez.” BBC Mundo. November 21, 2018.
21 United States v. Raul Gorrin
Belesario (2018).
22 “Venezuelan Billionaire News Network
Owner, Former Venezuelan National Treasurer and Former Owner of Dominican
Republic Bank Charted in Money Laundering Conspiracy Involving Over $1 Billion
in Bribes.” Ibid.
23 Jay Weaver and Antonio Maria Delgado.
“Venezuelan TV mogul with U.S. real estate fortune charged in South Florida.”
Miami Herald. November 21, 2018.
24 United States v. Raul Gorrin
Belesario (2018). Ibid, page 5.
25 United States v. Raul Gorrin
Belesario (2018). Ibid, page 15-16.
26 Jennifer
Gould Keil, Adam Schrader, and Bruce Golding. “Luxury NYC apartments tied to $2.4B Venezuelan
‘boligarchs’ currency scam.” NY Post. February 11, 2019.
27 Jay Weaver and Antonio Maria Delgado.
Ibid.
28 Douglas Farah and Kathryn Babineau,
“A Strategic Overview of Latin America: Identifying New Convergence Centers,
Forgotten Territories, and Vital Hubs for Transnational Organized Crime,”
Strategic Perspectives, 28,
INSS, National
Defense University, January 2019.
29 Kaloti Opens Suriname’s First Gold
Refinery.” Kaloti Precious Metals. March 3, 2015.
30 Kaloti UAE was delisted from the
Dubai gold exchange for not meeting the exchange’s standards and was accused of
accepting gold that was misrepresented by the supplier with false
documentation. See: Simon Bowers. “Billion dollar gold
market in Dubai where not all was as it seemed.” The Guardian. February 25, 2016.
31 Douglas Farah and Kathryn Babineau,
“Suriname: The Paradigm of a Criminalized State,” Center for a Secure Free
Society, March 2017.
32 Lorena
Melendez and Lisseth Boon, “How Venezuela’s Stolen Gold Ended Up in Turkey,
Uganda and Beyond,” InSight Crime, March 21, 2019.
33 Gisella Canales Ewest, “Sueno Supremo
de Bolivar costar $6.620 millones,” La Prensa, September 9, 2012.
34 Jose Denis Cruz, “El Supremo Sueno de
Bolivar no avanza,” La Prensa, March 25, 2013.
35 IBI Consultants field interviews.
36 The funding for the refinery comes
from IBI Consultant field research, document collection and multiple interviews
with sources directly involved in the operations.
37 “^Nuevo banco en Nicaragua, nerviosos
los actuales?” La Jornada, September 17, 2014; and Raul Arevalo Aleman, “Nacio
el Banco Corporativo Bancorp: Es propiedad de la empresa Alba de Nicaragua
(Albanisa),” La Jornada, June 10, 2015.
38 The
existence of the trusts was first revealed in a white paper by Freedom House in
2018, A private bank audit in possession of the author in 2018 found the total
sum in trusts held by Bancorp was of $2.6 billion. “Albanisa: Cooperation Venezolana en Nicaragua
2008-2017.” Freedom House. 2018.
39 IBI Consultants interviews with U.S.
Embassy officials in Managua, Nicaragua, 2016.
40 Ivan Olivares, “Depositos de BanCorp
crecieron 236% en diciembre,” Confidential, January 29, 2018.
41 Ibid.
42 “Bancorp of Nicaragua reached by U.S.
sanctions to PDVSA and Albanisa,” Havana Times, February 19, 2019.
43 Patricia Laya and Andrew Rosati. “Venezuela’s
2018 Inflation to Hit 1.37 million percent, IMF Says.” Bloomberg. October 8,
2018.
44 Patricia
Laya. “Venezuela’s Maduro Feasts on Steak, Smokes Cigars at Salt Bae
Restaurant.” Bloomberg. September 17, 2018.
45 “Venezuela:
Human Rights Exports Say Health System in Crisis.” Inter-American Commission on
Human Rights. October 1, 2018.
46 “Venezuela:
Events of 2018.” Human Rights Watch. 2019.
47 Joe
Emersberger. “Trump’s Economic
Sanctions Have Cost Venezuela About $6BN Since August 2017.” Venezuela
Analysis. September 27, 2018.
48 Brian
Schedi and Jeff Mower. “Factbox: PDVSA sanctions affect flows, accelerating
output declines.” S&P Global.
February 13, 2019.
49 “Refugiados y migrantes de Venezuela”
ACNUR. February 1, 2019.
50 Ishaan Tharoor. “Venezuela’s refugee
exodus is the biggest crisis in the hemisphere.” The Washington Post. August
23, 2018.
51 “Venezuela Situation: Responding to
the Needs of People Displaced from Venezuela.” United Nations High Commissioner
on Refugees. 2019.
52 “Venezuela Situation: Responding to
the Needs of People Displaced from Venezuela.” Ibid.
53 Stephanie Nebehay. “U.N.
seeks $738 million to help Venezuela’s neighbors handle migrant flood.”
Reuters. December 4, 2018.
54 Stephen
Kaplan and Michael Penfold. “China and Russia have deep financial ties to
Venezuela. Here’s what’s at stake.” The Washington Post. February 22, 2019.
55 “The World Factbook: Country
Comparison Debt - External.” Central Intelligence Agency. 2017.
56 “Petrofraude: El descalabro
continental chavista con dinero de los venezolanos.” Ibid.
57 Farah
interview with source in Panama City, Panama, December 2018.
58 Peter
Millard, Cindy Hoffman, Marisa Gertz, and Jeremy CF Lin. Ibid.
59 “World
Bank: GDP (current US$).” World Bank.
