The Financial Crimes Enforcement Network (FinCEN) released an advisory on September 20, 2017 in order to warn financial institutions about suspicious activity with links to widespread political corruption in Venezuela in an effort to safeguard the U.S. financial system from potentially illicit activities. As a result of endemic corruption in both the political and economic spheres, any and all Venezuelan government bodies, including state-owned enterprises (SOEs), are at risk for public corruption and money laundering. However, FinCEN noted that transactions involving Venezuelan businesses and nationals not affiliated with the government are not necessarily at risk.
FinCEN stressed that any awareness or knowledge of money laundering schemes employed by corrupt Venezuelan officials should be brought to their attention, since any information regarding this matter can assist other financial institutions in reviewing whether or not they or their clients are at risk. These risks specifically pertain to transactions with or involving Venezuelan government agencies or SOEs, any of which could be used as a vehicle for money laundering, embezzlement, and other corruption proceeds.
FinCEN included a list of financial red flags that institutions should watch for, including “transactions with the Venezuelan government that are directed to personal accounts” or “companies that operate in an unrelated line of business”, as well as “payments involving government contracts that originate from non-official Venezuelan accounts” or “from third parties that are not official government entities.”
The reason FinCEN is volunteering this information is to help U.S. financial institutions meet their due diligence obligations with regards to the situation in Venezuela. Section 312 of the USA PATRIOT Act already requires that these institutions “have regulatory obligations to apply enhanced scrutiny to private banking accounts held by, or on behalf of, senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets… or other public corruption proceeds.” Therefore, FinCEN asks that these institutions take “reasonable, risk-based steps” consistent with the regulatory obligations already in place.
This advisory comes on the heels of Executive Order (E.O.) 13808, issued by President Trump on August 25, 2017, which imposes sanctions that prohibit “certain debt, equity, and profit and dividend disbursement activities” with the Venezuelan government as well as with Petroleos de Venezuela, S.A. (PDVSA), its state-owned oil company. Furthermore, in February 2017 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) exposed Venezuela Vice President Tareck El Aissami, along with his front man Samark Lopez Bello, for contributing to international narcotic trafficking in violation of the Foreign Narcotic Kingpin Designation Act.
As a result, FinCEN believes that other Venezuelan senior officials not yet designated by OFAC may try to cover their tracks and protect their assets. However, as long as U.S. financial institutions continue to comply with their due diligence obligations and report any suspicious activity related to illegal transactions connected to the Venezuelan government, the U.S. financial system will remain protected.