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The COVID-19 pandemic has exposed the best and worst of what governments can do for their citizens. Some nations’ leaders and governmental systems have worked to ensure that the least among their populace can generally survive and (hopefully) thrive with some assistance; others have proven inadequate as long ignored systemic deficiencies have been exposed. Even worse, some leaders have taken advantage of the crisis to extend their power and exploit national resources, with catastrophic results. Moreover, prior to the COVID-19 outbreak, a number of countries around the world were experiencing civil unrest and social upheaval was already evident, resulting in similarly grave outcomes. One such country is Venezuela.
According to Transparency International’s 2019 Corruption Perception Index, Venezuela now ranks among the most corrupt countries in the world, joining Sudan, Libya, Somalia, North Korea and Afghanistan, among others.1 To say that Venezuela has undergone a precipitous decline over the last 20 years would be an understatement. Venezuela was once a generally stable and developing country with a solid middle class, vast natural resources, a robust tourism industry and potential for economic growth. Now, over the course of two successive presidential administrations—first Hugo Chavez and later his successor, Nicolas Maduro—the country has been turned upside down, with Maduro now metaphorically shaking the money out of its very pockets.2 The Venezuelan leader’s rule resembles that seen in countries such as Zimbabwe. To the casual observer, the collapse of Venezuela and other nations under harsh governmental regimes could be viewed as the predicable consequence tied to the actions of dictators. However, anti-money laundering (AML) professionals are not casual observers; they know the patterns and practices that permit such systemic looting and warrant further analysis.
The Kleptocrat’s Financial Playbook
Merriam-Webster’s dictionary defines a kleptocracy as a “government by those who seek chiefly status and personal gain at the expense of the governed.”3 There have been numerous governments worldwide and throughout history that have fit this definition. However, despite the global recognition of the destruction created by modern kleptocracies, such regimes seem particularly adept at stealing their nation’s wealth in the 21st century. Venezuela’s recent decline is highly notable, not only for the dramatic extent of citizens’ suffering, but also for the speed and means by which its corrupt leaders managed to expropriate the state’s treasury unabated. The country’s collapse has seemingly been enabled through the application of a kleptocratic “financial playbook,” with international money laundering serving as a principal tool used to capture and exploit a nation’s wealth. Certainly, many rulers and authoritarians have looted their countries’ wealth; however, kleptocrats seemingly take governing by force to another level. Brutal domination of the masses and warmongering is fine to them, but their primary goal of gaining and maintaining power is to get, and remain, rich. As with any criminal enterprise, once obtained, this newfound wealth must be “sanitized” in order to maintain an air of legitimacy. Consider the following stages of kleptocratic actions and their correlation with the three stages of money laundering.
Step One: Capture the State (Placement Stage)
Some “traditional” dictators claimed power over the state, nationalized resources, and maintained a veneer of governing while skimming a bit of the state’s wealth (e.g., Iran, Cuba, Indonesia, or Venezuela under Chavez); kleptocrats, however, seem more distinct in their approach to managing state resources. Kleptocrats seem to prefer privatization, as they go about selling off state assets. In doing so, they may claim direct ownership, ownership interest, or payments through their sale to other parties (e.g., family and cronies). First, kleptocrats aggressively seek to bring the courts, legislature, judiciary, institutions of society and media under their control. It helps to keep the military on their side (and under payroll) to avoid being overthrown. Once completed, kleptocrats will ensure the open sale of state resources, which eventually leads to contracts over which they can exert “anonymous” control. Privatization also facilitates the “legal” veneer of business activity, while creating opportunities for expropriation of state wealth. With kleptocrats having consolidated the power of the state and resources of the legislature through the government itself, the foundation is set for looting to begin.
Step Two: Employ Professional Intermediaries (Placement Stage)
As extensively covered by the “Panama Papers,”4 a long-time tool of the wealthy has been the use of offshore agent services offered by firms such as Mossack Fonseca to establish accounts in tax-lenient nations with casual banking regulations. Whether for legitimate or criminal profits, the end goal is to evade the prying eyes of tax authorities and law enforcement. Lawyers, accountants and offshore financial services providers serve several key purposes here:
- First, they facilitate the establishment of an additional buffer for the corrupt head of state through anonymous corporate vehicles—a must-have for large-scale money laundering. These shell companies also create a plausible deniability buffer toward any outward association with corrupt activities that may occur.
- Second, professional intermediaries activate the offshore network that will allow for efficient movement and distribution of looted state funds.
- Third, they enable ready access to the keystone of the international money laundering machine: offshore financial institutions (FIs) with weak AML and sanctions controls and/or management willing to service illicit funds presented to them by wealthy clientele.
Step Three: Employ Personal Intermediaries (Layering Stage)
Once settled into power, kleptocrats facilitate the sale of state resources and extraction rights to family, friends, cronies and enablers (e.g., cabinet members, legislature and the military) using the pre-established network of shell companies. This can ensure entrenchment of authority over the government and help diminish the risk of overthrow. The recent exposé of Isabel dos Santos, daughter of former Angolan president José Eduardo dos Santos, and the case of Teodorin Obiang of Equitorial Guinea evidence the shadowy application of this step.5
Step Four: Keep (Potential) Local Enemies Close and Leverage Them (Layering and Integration Stages)
Kleptocrats will conscript additional intermediary resources hostile to the government and its citizens whose own illicit activities can facilitate state-run criminal exploitation. Under threat of unleashing the state’s military and law enforcement resources, kleptocrats can co-opt the services of criminal networks to serve their needs. Such was the case in Panama under the regime of Manuel Noriega, a head-of-state turned narcotics trafficker.6 Venezuela shares a large border with Colombia, and black-market smuggling and narcotics trafficking networks have provided the Maduro regime ready access to the criminal underground. First, exploitation of these channels provides Maduro an illicit revenue stream and ability to leverage professional money laundering expertise to facilitate moving funds offshore.7 Second, Maduro has efficiently applied both “traditional” (e.g., illicit foreign currency exchange) and, more recently, nontraditional (e.g., virtual assets)8 criminal techniques to launder stolen state funds. Getting familiar with cutting-edge money laundering services used by traffickers can help kleptocrats refine the methods used to layer and integrate their illicit funds.
Step Five: Maintain (Now Fewer) International Allies and Leverage Them As Well (Layering and Integration Stages)
With deeper ties to Russia in recent years, Maduro would seem to have developed access to both the power structure and advisory resources of what could arguably be the largest, most effective kleptocratic regime in modern history. By maintaining diplomatic and economic ties to the Kremlin as well autocratic regimes such as Iran and Cuba, Maduro can facilitate financial and trade agreements to ensure sanctions avoidance and continued access to capital.
Maduro has continued to employ resources to hoard personal wealth through offshore vehicles while extending his rule
International investigative journalists with the Organized Crime and Corruption Project (OCCRP) have exposed several large-scale money “laundromats” in Europe in recent years where paths cross between organized crime, government officials and the financial sector to facilitate high volume money laundering.9 Such organized schemes, whether independent operations or sanctioned by the state itself, generally do not occur without the knowledge of state leadership. Furthermore, when applied successfully, the preceding steps can also enable the evasion of economic sanctions restrictions and embargoes applied by hostile foreign governments. A recent ABC News article points to the means by which Maduro has continued to export Venezuelan oil to skirt U.S. sanctions.10 As demonstrated by a “rogue’s gallery” of predecessors including Augusto Pinochet, Idi Amin, François “Papa Doc” Duvalier, Kemusu “Suharto” Argamulja and many others during the mid-to-late 20th century, the aforementioned principles can be highly effective to achieve “state-sponsored” personal wealth.
Where Is the People’s Money?
A number of international penalties have been leveraged against the Maduro regime in recent years in the form of pressure through economic sanctions against its leaders and assets, led primarily by the U.S. government. In addition to various U.S. sanctions against Maduro and his associates, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an updated advisory for FIs on corruption in Venezuela (FIN 2019-A002).11 The advisory provides a highly detailed account of major laundering schemes, indicted individuals and red flags to alert of possible suspicious transactions and activities associated with Maduro and his cohorts. Despite such actions, Maduro has continued to employ resources to hoard personal wealth through offshore vehicles while extending his rule. Several recent key cases and arrests may have revealed some of the secrets behind how his regime has maintained its grip on draining the country’s treasury. Some incidents have ties to the Miami, Florida region, noteworthy not only for its Venezuelan expatriate population, but also as a long-time U.S. destination of choice for illicit fund flows from Latin America.
- In late 2019, University of Miami professor Bruce Bagley, a renowned expert on Latin American organized crime and money laundering, was arrested by the FBI for helping launder $3 million in dirty money from Venezuela. It was alleged that “Bagley began using his expertise to funnel money ‘believed to be derived from graft and corruption in connection with public works projects in Venezuela’ into the United States.”12
- In April 2020, South Florida federal authorities seized $450 million in “bank accounts— luxury properties, show horses, high-end watches and a super-yacht” owned by more than a dozen government officials and business people in Venezuela. This seizure included assets owned by Alejandro Andrade, Venezuela’s former national treasurer, who is currently serving a 10-year sentence in a U.S. prison on corruption and money laundering charges.13
- On June 2, 2020, per the aforementioned currency fraud, Joselit Ramirez Camacho, head of Venezuela’s cryptocurrency
initiative, became wanted by the U.S. government on charges of corruption and links to the narcotics trade. He has also been indicted in the Southern District of New York on charges related to sanctions violations. A $5 million bounty has been offered for information leading to his arrest.14
- In June 2020, U.S. authorities indicted Alex Saab, a Colombian businessman, as the chief money launderer for Maduro’s regime. Saab was captured under an Interpol “Red Notice” and detained while en route from Caracas, Venezuela to Iran on the island of Cape Verde off the West African coast. Saab is accused of being the front man for a vast network of money laundering and corruption in Venezuela through shell companies in the United Arab Emirates, Turkey, Hong Kong, Panama, Colombia and Mexico. In addition, in July 2019, the U.S. Department of Justice (DOJ) indicted Saab and another businessman for bribing Venezuelan officials and diverting some $350 million to overseas accounts. Additional wealth transfer schemes involving Maduro family members and associates have been tied to Saab.15
- On July 8, 2020, Venezuelan businessman and former Maduro official Raúl Gorrín―previously indicted by the DOJ in November 2018 for a money laundering conspiracy involving over $1 billion in bribes16―was alleged to be behind a scheme to smuggle 81 luxury vehicles through the Port Everglades to Venezuela. U.S. Homeland Security Investigations stated that the vehicles had been bought through a “...network of straw buyers and shell companies in South Florida… for use by the wealthy, the politically connected and the police.”17 Gorrín is a billionaire listed on the Immigration and Customs Enforcement’s Most Wanted list18 on charges of money laundering and has been labeled in
some circles as the ”biggest money launderer in the world.” He remains at large.
It is understood that all empires and nations have experienced upheaval of some sort at some point, whether through willful or uncontrollable changes in government and social order. Some may fall slowly, others swiftly and seemingly without notice at the hands of kleptocratic regimes. Chavez created a cult of personality during his time in office in Venezuela and Maduro is noted for growing in stature under his tutelage. Elections held after Chavez’s death in 2013 unfortunately presented citizens the option to vote to retain the “familiar.” The result was Maduro, notwithstanding the
fact that suspicious efforts surround those initial and subsequent elections. Maduro was once named “2016 Man of the Year in Organized Crime and Corruption” by the OCCRP.19 Time will tell if he becomes a two-time winner like his Russian counterpart Russian President Vladimir Putin.
Brian Arrington, MBA, CAMS, communications director of the ACAMS Chicago Chapter; managing director, US AML Compliance, CIBC Bank USA, Chicago, IL, USA, firstname.lastname@example.org
The views and opinions expressed are those of the author and do not necessarily represent the views and directives of CIBC Bank USA.
Recommended additional reading: “The Oil Curse: How Petroleum Wealth Shapes the Development of Nations,” by Michael L. Ross.
- “Corruption Perceptions Index,” Transparency International, https://www.transparency.org/en/cpi
- “Nicolás Maduro: Corruption and Chaos in Venezuela,” U.S. Department of State, August 6, 2019, https://www.state.gov/nicolas-maduro-corruption-and-chaos-in-venezuela-2/
- “kleptocracy,” Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/kleptocracy
- “The Panama Papers: Exposing the Rogue Offshore Finance Industry,” International Consortium of Investigative Journalists, https://www.icij.org/investigations/panama-papers/
- “Isabel dos Santos: President’s Daughter Who Became Africa’s Richest Woman,” The Guardian, January 19, 2020, https://www.theguardian.com/world/2020/jan/19/isabel-dos-santos-president-daughter-africa-richest-woman-angola; “Global Witness Welcomes Historic Ruling Against Teodorin Obiang,” Global Witness, October 27, 2017, https://www.globalwitness.org/en/press-releases/global-witness-welcomes-historic-ruling-against-obiang-fight-against-corruption/
- Elida Moreno, “Panama’s Noriega: CIA spy turned drug-running dictator,” Reuters, May 30, 2017, https://www.reuters.com/article/us-panama-noriega-obituary-idUSKBN18Q0NW
- Nick Paton Walsh, Natalie Gallón and Diana Castrillon, “Corruption in Venezuela has created a cocaine superhighway to the US,” CNN, April 17, 2019, https://www.cnn.com/2019/04/17/americas/venezuela-drug-cocaine-trafficking-intl/index.html
- “Treasury Targets Venezuela Currency Exchange Network Scheme Generating Billions of Dollars for Corrupt Regime Insiders,” U.S. Department of the Treasury, January 8, 2019, https://home.treasury.gov/news/pressreleases/sm583; Paddy Baker, “US Offers $5M Bounty for Arrest of Venezuela’s Crypto Chief,” Yahoo Finance, June 2, 2020, https://finance.yahoo.com/news/us-offers-5m-bounty-arrest-145639026.html
- “The Real-Life Laundromats,” Organized Crime and Corruption Reporting Protocol, https://www.occrp.org/en/laundromats/
- Joshua Goodman, “Venezuela sanctions set off fight for ‘plundered’ oil cargo,” ABC News, June 30, 2020, https://abcnews.go.com/US/wireStory/venezuela-sanctions-set-off-fight-plundered-oil-cargo-71529069
- “Updated Advisory on Widespread Public Corruption in Venezuela,” Financial Crimes Enforcement Network, May 9, 2019, https://www.fincen.gov/sites/default/files/advisory/2019-05-03/Venezuela%20Advisory%20FINAL%20508.pdf
- “He was the go-to expert on money laundering. Now he’s been charged with laundering money,” The Washington Post, November 19, 2019, https://www.washingtonpost.com/nation/2019/11/19/bruce-bagley-money-laundering-university-miami-expert/
- “Miami Feds Seize $450 Million — Cash, Condos, Horses — in Venezuelan Corruption Cases,” Yahoo News, April 28, 2020, https://www.yahoonewsz.com/coronavirus/miami-feds-seize-450-million/
- “De La Trinidad Ramirez Camacho, Joselit,” U.S. Immigration and Customs Enforcement, https://www.ice.gov/most-wanted/de-la-trinidad-ramirez-camacho-joselit
- “U.S.-Indicted Dealmaker for Venezuela’s Maduro Detained on Way To Iran,” Radio Free Europe, June 14, 2020, https://www.rferl.org/a/maduro-venezuela-money-laundering-iran-/30669592.html; “U.S.-Indicted Dealmaker for Venezuela’s Maduro Detained on Way To Iran,” Anti-Corruption Digest, June 15, 2020, https://anticorruptiondigest.com/2020/06/15/u-s-indicted-dealmaker-for-venezuelas-maduro-detained-on-way-to-iran/#axzz6U4W3iwBV
- Venezuelan Billionaire News Network Owner, Former Venezuelan National Treasurer and Former Owner of Dominican Republic Bank Charged in Money Laundering Conspiracy Involving Over $1 Billion in Bribes,” U.S. Department of Justice, November 20, 2018, https://www.justice.gov/opa/pr/venezuelan-billionaire-news-network-owner-former-venezuelan-national-treasurer-and-former
- Chris Dalby, “Venezuelan Money Laundering Schemes Continue To Thrive in US,” InSight Crime, July 13, 2020, https://www.insightcrime.org/news/analysis/venezuelan-money-laundering-schemes-continue-to-thrive-in-us/
- “Venezuelan attorney and businessman added to ICE Most Wanted List for conspiracy to violate the Foreign Corrupt Practices Act and money laundering,” U.S. Immigration and Customs Enforcement, January 15, 2020, https://www.ice.gov/news/releases/venezuelan-attorney-and-businessman-added-ice-most-wanted-list-conspiracy-violate
- “Person of the Year 2016: Nicolás Maduro,” Organized Crime and Corruption Reporting Project, https://www.occrp.org/en/poy/2016/
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