How international banks pushed Venezuela to the brink of bankruptcy

How international banks pushed Venezuela to the brink of bankruptcy

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Venezuela sits on top of the world’s largest proven oil reserve. The country is home to what is estimated to be a whopping 296.5 billion barrels, which accounts for a jaw-dropping 20 percent of global oil reserves. How can it be that a country so rich in resources has become one of the poorest nations in the world? Until relatively recently, Venezuela was the richest country in South America.

By Oil PriceHaley Zaremba

Sep 23, 2020

Those days, however, are definitely over. “Venezuela is suffering one of the world’s gravest humanitarian crises,” writes the International Consortium of Investigative Journalists (ICIJ). “Inflation is out of control and the country’s oil industry, which once fueled the economy, is in shambles. One in three Venezuelans is not getting enough to eat, and about 5 million Venezuelans, more than one in six, have fled the country.”

As for Venezuela’s oil empire: “Venezuela’s fall from oil superpower to failing producer can be illustrated in one image: a single drilling rig working the world’s largest oil reserves,” World Oil reported earlier this summer. This is, in large part, thanks to a ruthless campaign by the Trump administration to cut the country off from the global oil trade. As of May, the nation with the most oil in the world had just one operational oil rig and one gas rig.

That marks a 96% decline since January, when drilling fell to levels not seen since 1963,” writes World Oil. “Having a single active crude rig takes the country back to the beginning of its oil industry, well before it became a founding member of the Organization of Petroleum Exporting Countries. The development underscores the toll that U.S. sanctions have taken on the nation as President Donald Trump escalates efforts to remove Venezuelan President Nicolas Maduro from power.”

Venezuela’s economy was falling into ruin, however, long before Trump was elected. How did this once powerful nation become so economically unstable? The short answer is corruption. The complete answer involves a long and complex story about how the world’s banks helped the “boligarchs” of Venezuela to loot a nation and move the wealth of an entire country abroad, leaving the domestic economy in shambles. (“Boligarch” is a tongue-in-cheek reference to the rich elite of Venezuela, a portmanteau of the “oligarch” and the iconic South American independence figure Simon Bolívar, who late Venezuelan president Hugo Chávez idolized and who the Venezuelan currency – Bolívares – is named after.)

A new cache of secret bank reports obtained by BuzzFeed News and shared with ICIJ documents these financial transgressions in excruciating detail. Known as the FinCEN Files, this leak “shows how boligarchs moved vast sums of dollars in public money out of Venezuela, including money intended for housing and other basic services, even as the country’s economy was collapsing” and “includes more than 2,100 suspicious activity reports filed by banks to a U.S. Treasury Department agency known as the Financial Crimes Enforcement Network.”

In addition to highlighting the exorbitant sums of money that Venezuelan elites like Alejandro Ceballos Jiménez and his family managed to ferry out of the country and into offshore bank accounts, these documents also “reveal the pivotal role played by banks in Europe and the United States in facilitating the flow of money from Venezuela, despite blatant red flags signaling financial improprieties” and reveal London and New York’s Wall Street to be instrumental loci of these corrupt financial transfers. “Major global banks also played a part,” reports ICIJ. “JPMorgan Chase, based in New York, and Standard Chartered, headquartered in London, processed questionable transactions while serving as correspondent banks, an intermediary role in which multinational banks plug smaller lenders into the global financial system.”

While banks did report over $4.8 billion worth of suspicious transactions with links to Venezuela between the years of 2009 and 2017 (nearly 70 percent of which involved public money and intimately involved the Venezuelan government, often from the state oil company, as a direct actor) we will never know about most of the money spirited out of Venezuela. What we do know is that it’s grossly underreported.

If a bank “knows, suspects, or has reason to suspect” that a U.S.-involved financial transaction involves ill-gotten gains or has no apparent business purpose, it is mandated to report that transaction to FinCEN. Lenders have the responsibility to vet those that they lend money to for illegal activity. “Instead, the FinCEN Files documents show banks often filed reports only in response to bad press about clients — and sometimes, as they faced inquiries into their own actions.”

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