3-31` State Department Report on Venezuela


The Wall Street Journal (March 31) published an editorial criticizing Venezuelan President Chavez for his alleged “gag” orders, the WSJ contending  that Chavez “has slowly but steadily tightened his political grip since coming to power in 1990.”  The WSJ singled out the detention of the president of Globovision, and before that the arrest of Oswaldo Alvarez Paz, a former governor, on charges of conspiracy and making false statements, eg, Paz’ claim that the Chavez government is allied with Basque separatists and Colombian rebels, and that Venezuela is “a major thoroughfare for drug trafficking in South America.”

Reports alleging such activity were published by the Department of State in 1996-97, and were written by the then-chief of financial intelligence, Rayburn Hesse.  Given that Chavez came to power in 1999, and not wanting to draw upon recollections of classified documents, Hesse waited until the 2010 International Narcotics Control Strategy Report was issued to Congress this month.  The report follows the same checklist of issues originally created by Hesse, adapting from the 40-point standard created by the Financial Action Task Force in Paris, of which Hesse was a founding member.

Bottom line: the various situations in Venezuela have not been remediated in the 11 years of the Chavez regime.  The report, unedited, is presented below. 

(Ed note: the USA deals with many repressive regimes, and athletic events have been held in countries with less than stellar records on human rights, civil liberties, etc., notably China, where Hesse et al attended the 2008 Olympics.  More, a number of countries impact the USA vis narcotics trafficking, notably Mexico, where softball events have been held without incident, and Colombia, which is a major supplier of narcotics and violence-prone.  And, corruption is a factor in many countries where athletic events have been held. Why then make a cardinal example of Venezuela?  First, there were better, more available options for the XII World Championship.  Second, in choosing Venezuela, ISF knowingly disrupted a wide range of summer softball programs.  Third, after losing the Olympic venue for softball, it was incumbent upon ISF to stage an event of major caliber with a worldwide audience.  The proposed tournament in Oklahoma City offered that international exposure.  Fourth, electing to hold an international softball tournament in Caracas on the eve of what may be tumultuous elections is poor timing, to say the least.  Fifth, there is reason to be concerned about athletes’ safety in Caracas (and Bogota too), the stability of the regime and its economy, and, frankly, the extent of physical preparations for the event.  Simply a bad decision, which ISF head Don Porter can partially ameliorate by announcing at the conclusion of the games in Caracas that he is stepping aside.  Softball needs new leadership – at many levels.  SPY will publicly thank Porter for his many contributions to the sport – as we say goodbye.

INCSR 2010 Volume II
Money Laundering and Financial Crimes



According to the UNODC 2009 World Drug Report, Venezuela is one of the principal drug-transit countries in the Western Hemisphere. Venezuela’s proximity to drug producing countries, weaknesses in its anti-money laundering regime, refusal to cooperate regularly with the United States in mutual legal assistance matters, including on counter-narcotics activities, and alleged substantial corruption in law enforcement and other relevant sectors continue to make Venezuela vulnerable to money laundering. The main sources of money laundering are proceeds generated by drug trafficking organizations, the embezzlement of funds from the petroleum industry, and illegal transactions that exploit Venezuela’s currency controls. Trade-based money laundering, such as the Black Market Peso Exchange, through which money launderers furnish narcotics-generated dollars in the United States to commercial smugglers, travel agents, investors, and others in exchange for Colombian pesos, remains a prominent method for laundering regional narcotics proceeds. Venezuela is not a regional financial center and does not have an offshore financial sector, although many local banks have offshore affiliates in the Caribbean.

Offshore Center: No

Free Trade Zones: Yes

The Free-Trade Zone Law of Venezuela (1991) provides for free trade zones/free ports. The three existing free trade zones (FTZs) are located in the Paraguana Peninsula on Venezuela’s northwest coast, Atuja in the State of Zulia, and Merida. These zones provide exemptions from most import and export duties and offer foreign-owned firms the same investment opportunities as host country firms. The Paraguana and Atuja zones provide additional exemption of local services such as water and electricity. Venezuela also has two free ports that also enjoy exemptions from most tariff duties: Margarita Island (Nueva Esparta) and Santa Elena de Uairen in the state of Bolivar. The FTZ law designates the customs authority of each jurisdiction as responsible for its respective FTZ. The Ministry of Economy and Finance is responsible for the oversight of the customs authority with regard to FTZs. It is reported that many black market traders ship their wares through Margarita Island’s free port.

Criminalizes narcotics money laundering: Yes

The 2005 Organic Law against Organized Crime (OLOC) criminalizes money laundering as an autonomous offense.

Criminalizes other money laundering, including terrorism-related: Yes

Those who cannot establish the legitimacy of possessed or transferred funds, or are aware of the illegitimate origins of those funds, can be charged with money laundering. Predicate offenses for money laundering under the OLOC include: trafficking, trade, retailing, manufacture and other illicit activities connected with, inter alia, narcotics and psychotropic substances, child pornography, corruption, extortion, trafficking in persons and migrants, smuggling and other customs offenses. The most common predicate offenses for money laundering are illicit drug trafficking and trading.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/s/ct/rls/crt/) (see below)

Under the OLOC, terrorist financing is a crime against public order in Venezuela and is criminalized to the extent that an individual finances, belongs to, acts or collaborates with armed bands or criminal groups with the purpose to commit violent acts or to subvert the constitutional order or gravely alter the public peace. Terrorist financing, however, is not adequately criminalized in accordance with international standards. The law does not establish terrorist financing as a separate crime, nor does it provide adequate mechanisms for freezing or confiscating assets.

Know-your-customer rules: Yes

                        Under the OLOC and Resolution 185.01 of the Superintendencia de Bancos y Otras Instituciones Financieras (SUDEBAN), anti-money laundering controls have been implemented that include strict customer identification requirements. These know-your-customer (KYC) controls apply to all banks (commercial, investment, mortgage, and private), insurance and reinsurance companies, savings and loan institutions, financial rental agencies, currency exchange houses, money remitters, money market funds, capitalization companies, frontier foreign currency dealers, casinos, real estate agents, construction companies, car dealerships, hotels and the tourism industry, travel agents, and dealers in precious metals and stones. In practice the institutions often have difficulty obtaining all the data or information for every customer.

                        Bank records retention: Yes

                        Banks and other financial institutions supervised by SUDEBAN are required to retain documents or records of customer transactions and business relationships for five years, including customer identification documentation.

                        Suspicious transaction reporting: Yes

The entities that must comply with KYC rules also are required to file suspicious and cash transaction reports with Venezuela’s financial intelligence unit (FIU), the Unidad Nacional de Inteligencia Financiera (UNIF). However, insurance and reinsurance companies, tax collection entities and public service payroll agencies are not required to file suspicious transaction reports (STRs). The Venezuelan Association of Currency Exchange Houses (AVCC), which counts all but one of the country’s money exchange companies among its membership, voluntarily complies with the same reporting standards as those required of banks. SUDEBAN Circular 3759 of 2003 requires its supervised financial institutions to report suspicious activities related to terrorist financing. The UNIF analyzes STRs and other reports, and refers those deemed appropriate for further investigation to the Public Ministry (the Office of the Attorney General). In 2009¸ 1,234 STRs were received by UNIF and 529 were forwarded to the Public Ministry.

Large cash transaction reports: Yes

The UNIF receives reports on currency transactions exceeding approximately $10,000. UNIF also receives reports on the sale and purchase, and the domestic transfer of foreign currency exceeding $10,000. An exemption process is available for customers who frequently conduct otherwise reportable currency transactions in the course of their businesses.

Narcotics asset seizure and forfeiture: Yes

The OLOC also expands Venezuela’s mechanisms for freezing assets tied to illicit activities. A prosecutor may now solicit judicial permission to freeze or block accounts in the investigation of any crime included under the law. However, to date, there have been no significant seizures of assets and few if any successful money laundering prosecutions as a result of the law’s passage.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

Article 4 of the Law against Exchange Offenses stipulates that natural or legal persons who import or export foreign currency in an amount in excess of $10,000, or the equivalent in other currencies, are required to declare to the competent authority the amount and type of funds. However, the law also states that all foreign currency acquired by non-resident natural persons in transit or tourists whose stay in the country less than 180 continuous days are exempt from this obligation, thereby negating the overall effectiveness of the requirement.

Cooperation with foreign governments:

Venezuela has regularly refused to cooperate with the United States in mutual legal assistance matters, including on counter-narcotics activities.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Corruption is a very serious problem in Venezuela and appears to be worsening. Transparency International’s Corruption Perception Index for 2009 ranks Venezuela at 162 of 180 countries on the index. Venezuela has laws to prevent and prosecute corruption, and accepting a bribe is a criminal act. However, the judicial system has been ineffective historically and is accused of being overtly politicized. The current regime of price and foreign exchange controls also has provided opportunity for corruption.

There is little evidence the Government of Venezuela (GOV) has made enforcement of anti-money laundering laws and regulations a priority. Reportedly, many, if not most, judicial and law enforcement officials remain ignorant of the OLOC and its specific provisions, and the UNIF does not have the necessary autonomy to operate effectively. According to reported statistics, from 2006-2008 there were 335 money laundering investigations resulting in one conviction.

The SUDEBAN has distributed to its supervised financial entities the list of individuals and entities included on the UNSCR 1267 sanctions committee’s consolidated list. No statistics are available on the amount of assets frozen, if any.

U.S.-related currency transactions:

U.S.-Venezuelan commercial ties are deep. The United States is Venezuela’s most important trading partner, with U.S. goods accounting for about 26% of imports, and approximately 60% of Venezuelan exports going to the United States. In turn, Venezuela is the United States’ third-largest export market in Latin America. Venezuela is one of the top four suppliers of foreign oil to the United States. There is also a large movement of currency between both countries (in the billions). However, Venezuela has strict currency exchange controls and limits the access of its citizens to the US dollar. Despite these controls, dollars are illegally offered for sale on the black market at almost twice the official rate. The US dollar is the currency of choice in Venezuela and the surrounding region for narcotics-trafficking organizations.

Records exchange mechanism with U.S.:

Venezuela and the United States signed a Mutual Legal Assistance Treaty (MLAT) in 1997. In 2009, there was no money laundering information exchange between Venezuela and the United States. The Financial Crimes Enforcement Network (FinCEN) suspended the exchange of information with the UNIF in January 2007 due to the unauthorized disclosure of information provided by FinCEN, and the relationship has not resumed to date.

International agreements:

UNIF has signed bilateral information exchange agreements with counterparts worldwide.

226Venezuela is a party to:

• the UN Convention for the Suppression of the Financing of Terrorism -Yes

• the UN Convention against Transnational Organized Crime – Yes

• the 1988 UN Drug Convention – Yes

• the UN Convention against Corruption – No

Venezuela participates in the Organization of American States Inter-American Commission on Drug Abuse Control (OAS/CICAD) Money Laundering Experts Working Group. Venezuela also is a member of the Caribbean Financial Action Task Force, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.cfatf-gafic.org/downloadables/mer/Venezuela_3rd_Round_MER_%28Final%29_English.pdf


The Government of Venezuela (GOV) took no significant steps to expand its anti-money laundering regime in 2009. The 2005 passage of the Organic Law against Organized Crime was a step toward strengthening the GOV’s abilities to fight money laundering; however, Venezuela needs to enforce the law by implementing the draft procedures to expedite asset freezing, establishing an autonomous financial investigative unit, and ensuring that law enforcement and prosecutors have the necessary expertise and resources to successfully investigate and prosecute money laundering cases. The GOV should also adequately criminalize the financing of terrorism and establish procedures for freezing terrorist assets in order to conform to international standards. SUDEBAN should supervise currency exchange operators, particularly those situated close to the frontiers. Cross-border currency declarations should be established that adhere to international standards. Venezuelan customs and law enforcement officials should investigate trade-based money laundering and value exchange. The UNIF should take the necessary steps to ensure that information exchanged with other FIUs is subject to the appropriate sato ensure that information exchanged with other FIUs is subject to the appropriate safeguards mandated by the Egmont Group.



President Chávez’s ideological sympathy for the FARC and the National Liberation Army (ELN) limited Venezuelan cooperation with Colombia in combating terrorism. In January, he called for, and the Venezuelan National Assembly approved, a resolution calling for international recognition of the FARC and ELN as belligerent forces, not terrorist groups. In March, he called FARC second-in-command Raúl Reyes, “a good revolutionary” and held a national moment of silence following the Colombian cross-border raid into Ecuador that killed Reyes. In March, Venezuelan authorities apprehended two FARC fighters seeking medical treatment in Venezuela. They took the injured man to a military hospital for treatment and his companion to a regional penitentiary. By May however, Venezuelan authorities declined to provide information on the whereabouts of either man. In June, President, Chávez publicly changed course, calling upon the FARC to unconditionally release all hostages, declaring that armed struggle is “out of place” in modern Latin America. In July, the Venezuelan National Guard detained FARC chief of borders and finance Gabriel Culma Ortiz and the Venezuelan government handed him over to Colombian authorities.

Venezuelan President Hugo Chávez brokered the unilateral release of six hostages from the Revolutionary Armed Forces of Colombia (FARC) in January and February 2008.

In December, a Venezuelan court sentenced two self-proclaimed Islamic extremists to 10 years each for placing a pair of pipe bombs outside the U.S. Embassy in 2006. The court convicted José Miguel Rojas Espinoza of constructing and placing the devices and found Teodoro Rafael Darnott guilty of planning the attack and instigating Rojas to conduct it.

In June, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Venezuelan diplomat Ghazi Nasr al Din and travel impresario Fawzi Kan’an as Venezuelan Hizballah supporters. In September, OFAC designated two senior Venezuelan government officials, Hugo Armando Carvajal Barrios and Henry de Jesús Rangel Silva, and the former Justice and Interior Minister, Ramón Rodríguez Chacín, for materially assisting the narcotics trafficking activities of the FARC. Limited amounts of weapons and ammunition, some from official Venezuelan stocks and facilities, have turned up in the hands of Colombian terrorist organizations. The Venezuelan government did not systematically police the 1,400-mile Venezuelan-Colombian border to prevent the movement of groups of armed terrorists or to interdict arms or the flow of narcotics. The FARC, ELN, and remnants of the United Self-Defense Forces of Colombia (AUC) regularly crossed into Venezuelan territory to rest and regroup as well as to extort protection money and kidnap Venezuelans to finance their operations.

Iran and Venezuela continued weekly flights connecting Tehran and Damascus with Caracas. Passengers on these flights were reportedly subject to only cursory immigration and customs controls at Simon Bolivar International Airport in Caracas. Venezuelan citizenship, identity, and travel documents remained easy to obtain, making Venezuela a potentially attractive way station for terrorists. International authorities remained suspicious of the integrity of Venezuelan documents and their issuance process.

In May 2008, Venezuela was re-certified as “not cooperating fully” with U.S. antiterrorism efforts under Section 40A of the Arms Export and Control Act, as amended (the “Act”). Pursuant to this certification, defense articles and services may not be sold or licensed for export to Venezuela from October 1, 2008, to September 30, 2009.3


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