Originally published 03.02.06 | One of the most perplexing phenomena for money laundering reporting officers and compliance officers is the government-controlled corporation for profit, a prominent feature of the Venezuelan Government’s recent attempts to launder money. Such corporations are dangerous to Western financial institutions when their officers try to conceal government ownership or control.
When a bank realises that it is dealing with such a company, it knows immediately that its officers, directors and agents rank as “politically exposed persons”. They probably have access to “arranged” financing, public treasury receipts, illicit funds and sundry other corrupt or criminal profits that they can divert to the company’s accounts. The sources of these funds can range from money stolen by the officers of the corporation to money laundered on the orders of government agencies or leaders. At the same time that this happens, the affiliated and subsidiary firms owned by a governmental, though private, entity become high-risk companies in their turn. They require an extremely “enhanced” form of “due diligence” before any bank can accept them as customers.
Towards a command economy
The government of Venezuela currently enjoys high-risk status. Its six-year history is littered with instances of missing oil revenues, the diversion of funds to support and encourage political chaos in the Western Hemisphere, cooperation with Colombian terrorist groups such as FARC and the ELN, and more. Any company or group that the government controls or owns beneficially must also pose a high risk. Compliance departments must therefore insist on treating the leaders of such companies as PEPs automatically. They must subject them to the deepest of enquiries into the sources of their funds, whether in their personal accounts or in company accounts located overseas. Venezuela-watchers believe that the Chavez government is moving the country towards a command economy on the Cuban model and is trying to acquire monopolies in crucial industries that are presently in private hands. In one such area, the production and distribution of food, it is believed that groups fronting for the government are now acquiring some of the major companies.
Not just the usual suspects
The country’s major “agribusiness” organisation is Grupo PROAREPA, which is the main food supplier for the government’s food assistance and distribution programs, CASA and MERCAL. Grupo Proarepa owns a number of companies, including at least one, ALMACENES Y TRANSPORTES CEREALES or ATC. Venezuelan web bloggers and other commentators believe that Adan Chavez, the brother of Venezuelan President Hugo Chavez, owns this subsidiary beneficially. Adan is the Venezuelan Ambassador to Cuba and an avowed Marxist. The group is also closely aligned with Argenis, another of the Chavez brothers. That these individuals are high-risk PEPs is self-evident.
There are several “giveaways” that suggest that the government is controlling Grupo Proarepa. People at the top in Venezuela have used it to cover up a criminal investigation and have prevailed upon it to turn a blind eye to tax evasion. In 2003 they also prevailed upon the National Assembly to vote for a very suspicious credit, in the amount of $ 41,833.702, to subsidiary PROFINCA. At the time, the subsidiary appeared to have no assets. On the same day, the two speakers whose job it was to pilot the relevant bill gave the chamber conflicting reasons for wanting the subsidy. Now, on to the listed pro-Chavez group leadership. The “officers of record” ? i.e., the listed officers, of PROAREPA and its many subsidiaries ? are a curious cast of characters. /Cedula/ numbers are national identity numbers.
* Sarkis Beloune Arslanian, cedula 9280364, born on January 1 1953, is a Venezuelan of Syrian extraction who was deported from the United States and had his visa cancelled on December 6 2004. Such an extreme action generally only occurs when US law enforcement authorities have strong evidence of continuing criminal activity. There are reports that he is under investigation for trading in narcotics and laundering mon
* Ricardo Fernandez Barrueco, cedula 9095496, born on April 9 1965, a Venezuelan who possesses passports under both his Venezuelan citizenship and that of a Colombian with a similar name, whose identity he is known to use. He has accumulated a substantial fortune in an amazingly short time and associates with such members of Chavez’s inner circle as Diosdado Cabello, the governor of Miranda State, and President Hugo Chavez’ father and brothers. A Venezuelan government criminal investigation by the national intelligence agency, DISIP, of FERNANDEZ’S activities was terminated mysteriously in February 2001. FERNANDEZ was being investigated for customs offences and other crimes related to “agribusiness”. He authorised multi-million-dollar deals with PROAL, the government food entity.
* General (retired) Gustavo Adolfo Sanchez Gonzalez, cedula 4115600, born March 5 1956, who was the director of PROAL at the time of the DISIP investigation. SANCHEZ is an officer of American Air Conditioning, a Floridian corporation, as are Fernandez and Arslanian.
Other persons associated with the Proarepa Group, and thus holding PEP status, are Bernard Gerald, Angel Fuentes Fragile, and the brothers, Adan, Edwin and Abraham Easer. The companies that are part of PROAREPA are listed below. There are many of them and they are of recent vintage; only three of them date to before 2000. Because most of them were set up after the advent of the Chavez government, they must all be considered as government entities for compliance purposes.
Venezuelan Government-controlled corporations
1 CORPORACIÓN TUREN.
2 COMMERCIALIZADORA DE GRANOS VENEZUELA R.S., C.A.
3 INVERSIONES MAJAGUAS R.S., C.A.
4 DISTRIBUIDORA LE MUST
5 VENARROZ R.S.A.C.A.
6 FB VALORES Y COMISIONES 1177 C.A.
7 INDUSTRIA VENEZOLANA MAIZERAPROAPEPA
8 VENEZOLANA DE GRANOS RSCA, C.A
9 ALMACENES Y TRANSPORTES CEREALEROS – (A.T.C.) C.A.
10 ROTCH ENERGY HOLDINGS INC. (See note *)
11 AMERICAN AIR CONDITIONING DE VENEZUELA C.A
12 MANTENIMIENTOS CONCRETA S.R.L.
13 AMERICAN AIR CONDITIONING INTERNATIONAL INC.
15 GANADERIA LOS BUFALOS DEL DELTA C.A.
16 CORN MILLS ANDINA, C.A.
17 INVERSIONES PORTENAS, C.A.
18 GANADERIA EL GRAN CEBU, C.A.
19 GRANOS DE VENEZUELA, LTD., C.A.
20 PRODUCTOS Y FINANCIAMIENTO AGRICOLA ( PROFINCA)
21 AMERICAN FOOD GRAIN INC.
22 SERVICIOS PROARFE C,A,
23 CONSORCIO AGROPECUARIO VENEZOLANO C.A ( COAVE).
24 MANTENIMIENTOS POLIPLAST S.R.L.
25 CORPORACIÓN AGROPECUARIA INTEGRADA COMPANIA ANONIMA (CAICA).
26 MANTENIMIENTOS 2050 S.R.L.
27 DERIVADOS DE MAIZ SELECCIONADO, C.A. (Demaseca)
* This is a Curaçao-registered company that is an authorised PDVSA broker. It is also the vehicle through which Fernandez purchased a 50 per cent stake in Demaseca, a subsidiary of Mexican food giant Gruma.
The Proarepa Group is reputed to have as many as 40 overseas bank accounts, many in tax haven jurisdictions such as Switzerland, the Channel Islands and the Cayman Islands. Complinet’s sources say that it focuses its efforts almost entirely on domestic food production and distribution. Why, then, does it maintain such an extensive network of offshore accounts? This should raise a major “red flag” for compliance officers. MLROs and compliance officers should be mindful of powerful private companies from countries where governmental influence intrudes into the private sector, for they may very well be dealing with a wolf in sheep’s clothing. Financial institutions that bed down with corrupt PEPs always seem to have to suffer a barrage of bad publicity. They should therefore demand proof positive of beneficial ownership whenever they encounter suspect companies. This evidence should include sworn affidavits signed by partners of major law firms and accounting organizations. Even then, they should verify the information.