Int'l Tax Enforcement Cooperation Archives | Page 4 of 4

OECD and Argentina Establish Latin America Academy for Tax and Financial Crime Investigation

August 7, 2018 by Bruce Zagaris Leave a Comment

On July 22, 2018, OECD Secretary-General Angel Gurria and Argentina’s Minister of Treasury Nicolás Dujovne presided over a Memorandum of Understanding (MOU) to establish a center of the OECD Academy for Tax and Financial Crime Investigation in Buenos Aires, Argentina.

The signing occurred in the margins of the meeting of the G20 Finance Ministers and Central Bank Governments. The center will be housed in the facilities of Argentina’s Federal Administration of Public Revenues. Argentina’s Commissioner of Public Revenues Leandro Cuccioli and the OECD’s Director of the Centre for Tax Policy and Administration Pascal Saint-Amans signed the MOU.

The Academy will provide intensive capacity-building courses targeting tax crime investigators and other related law enforcement officials, including prosecutors, anti-money laundering and anti-corruption officials, especially from Latin America countries. The courses will aim to support tax crime investigators. It will feature broad-based courses on conducting and managing financial investigations as well as giving courses on specific types of tax and financial crimes, such as those associated with crypto-currencies, money laundering and VAT fraud.

The creation of the OECD Latin America Academy builds on the success of the original centre hosted by the Guardia de Finanza in Ostia, Italy, and a pilot Africa Academy for Tax and Financial Crime Investigation started by the OECD, Kenya, Italy and Germany at the G20 Africa Partnership conference in June 2017. Together, the centers have trained more than 550 financial investigators from over 80 countries.

The first program of the OECD Latin America Academy will occur in late 2018 and will focus on VAT/GST Fraud.

The 2019 Academy schedule for Latin America will include a program, concentrating on Conducting and Managing Financial Investigations. The program will include subject areas such as: bribery and corruption; beneficial ownership and offshore structures; money laundering; investigative techniques; international cooperation; and asset recovery.

With globalization the ways for individuals and entities to evade and avoid tax have expanded significantly. Just as importantly, the international mechanisms to prevent and combat tax evasion and avoidance, such as BEPS and its components, such as Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, Country-by-Country reporting, the different types of exchange of information, the interplay between anti-money laundering, transnational corruption, and tax issues all require initial and ongoing training. The OECD Academies will help train tax officials at different levels. The nature of the training illustrates the increasing convergence between international tax enforcement and other international white collar enforcement. For more discussion of this development, stay tuned for the August issue of the International Enforcement Law Reporter.

Five Countries Form Joint Chiefs of Global Tax Enforcement (J5) Alliance

July 2, 2018 by Bruce Zagaris 2 Comments

On July 2, 2018, Her Majesty’s Revenue and Customs announced an alliance on tax enforcement between the United Kingdom, Canada, the Netherlands, the United States and Australia to combat international tax crime and money laundering. Members include the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACAC) and the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

The group will build on existing international cooperation by sharing intelligence and expertise, and will cooperate on joint operations to investigate persons who are enablers of tax crime.

At their first meeting, the J5 brought leading experts in tax and other financial crimes from each of the five member countries to develop tactical plans and identify opportunities to pursue cyber criminals and enablers of international tax crime.

According to HMRC, the new alliance will help to build on work that has obtained more than £ 2.8 billion from offshore tax evaders since 2010.

The J5 was formed in response to a call to action from the OECD for countries to do more to tackle the enablers of tax crime. All five countries have similar threats: organized crime groups and wealthy offshore tax evaders who are well resourced and have access to professional enablers to hide income and assets using the global financial system.

According to IRS Criminal Investigation division chief Don Fort, the J5 will have three areas of focus: professional enablers, cybercrimes and cryptocurrencies, and increased use of data analytics and new investigation technology. (Nathan J. Richman, Enforcement Collaboration to Focus on Emerging Tax Issues, 2018 Worldwide Tax Daily 126-1, June 29, 2018).

The J5 has similarities to the Joint International Tax Shelter Information and Collaboration (JITSIC). On October 24, 2014, 38 countries, meeting in Dublin, Ireland for the 9th meeting of the Forum on Tax Administration (FTA), agreed to establish the JITSIC. The JITSIC Network focuses specifically on cross border tax avoidance. JITSIC has the goal to deter the promotion of, and investment in, abusive tax schemes by: increasing the community’s awareness of the potential risks of promoting and investing in tax schemes; sharing ideas on how to identify and address abusive tax schemes; enhancing compliance and enforcement efforts through coordinated ‘real-time’ exchanges of information; developing new internet searches and other techniques for the early identification of promoters and investors involved in abusive tax schemes; and identifying emerging trends and patterns to anticipate new abusive tax schemes, and improving knowledge of techniques used to promote cross-border abusive tax schemes.

The J5, unlike JITSIC, will actually engage in joint tax investigations and use increased data analytics and investigation technology in its work.

There will be a more comprehensive article in the July 2018 issue of the International Enforcement Law Reporter.

Transparency Int’l Critiques G20’s Unmet Promises on Ending Anonymous Companies

May 1, 2018 by Bruce Zagaris Leave a Comment

by Bruce Zagaris

On April 19, 2018, Transparency International issued a report G20 Leaders or Laggards? Review G20 promises on ending anonymous companies.

The TI report discusses how the major cross-border “grand corruption” scandals have tarnished the Group of 20 (G20) countries in recent years. It cites the fact that in 2017 Odebrecht the Brazilian engineering company, was assessed a US$2.6 billion fine for bribery after being charged with paying US$788 million in bribes. In the “Russian Laundromat” scandal, exposed in 2017, a group of individuals in G20 member Russia allegedly established 21 shell companies, which then moved and laundered illegal proceeds out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil. Increasingly, anonymous companies hide the identity of the person at the source of the funds either to launder and transfer stolen money, or to operationalize corrupt deals, using companies and offshore accounts to pay bribes or buy influence.

The report makes 5 major findings and then recommendations as follows:

G20 Countries are starting to tackle anonymous company ownership – but progress is slow. Some 3 years after the G20 adopted their High-Level Beneficial Ownership Principles at the Brisbane G20 Summit, the number of countries with weak or average frameworks has dropped from 15 to 11, but still major weaknesses exist across the principles.
The majority of countries still do not know who owns and controls companies in their territories and do not keep current information on them. The 20 Principles encouraged legal entities to require beneficial ownership information when recording information about their shareholders. Legal entities are now expected to understand their ownership and control structure and monitor individuals who have an interest in a company but are presented through nominee shareholders or other legal entities. However, the great majority of countries evaluated still do not require legal entities to maintain beneficial ownership information themselves. Central beneficial ownership registers improve collection of beneficial ownership information and access to law enforcement, supports domestic and international cooperation between authorities and permits them to do their job more quickly. Six assessed countries now have central beneficial ownership registers.
Verification of information is weak across the board. This undermines the ability of competent authorities to investigate suspicious cases, and the ability of banks and businesses to carry out proper due diligence. All 23 countries analyzed now require financial institutions to identify the beneficial ownership of customers. Unfortunately, in high-risk cases, only 8 G20 countries required financial institutions to use independent and reliable sources to verify the beneficial owner of their customers. Finally, no register authority in any G20 or guest country verifies information collection in company registers.
Rhetoric does not always translate into action. Government are frequently aware of the weaknesses in their system. However, in many cases they fail to implement key measures they know will help mitigate those problems.
Gatekeepers such as lawyers, accountants, real estate agents, and trusts and company service providers remain money laundering weak spots.

TI makes the following recommendations:

— Governments should establish a central register of beneficial ownership information and make it publicly available in open data format.

— Governments should resource and establish mechanisms to ensure that at least some verification of beneficial ownership information occurs, such as cross-checking the data against other government and tax databases, or conducting random inspections.

— Financial institutions or DNFBPs should not be permitted to proceed with transactions if the beneficial owner of their customer cannot be identified.

— Governments should undertake national money laundering risk assessments on a regular basis. These should include an analysis of the risks posed by domestic and foreign legal entities and arrangements. Key stakeholders, including obliged entities and civil society organizations should be consulted. The results of the assessment should be published online.

— Governments should consider prohibiting nominee shareholders. If they are permitted, they should be required to disclose their status upon the registration of the company and registered as nominees. Nominees should be licensed and subject to strict anti-money laundering obligations.

— Governments should require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries), and the real individuals behind them should be recorded.

The report illustrates how civil society plays an important role in shaping and implementing commitments by governments and international organizations to transparency and anti-corruption. They invest significant resources before the G20 meetings to develop precise commitments and then lobby the governments to support them. Thereafter, civil society continues to monitor the performance of the governments against the commitments and produce reports, exposing gaps. They also work with other organizations, such as the International Consortium for Investigative Journalists (ICIJ). The current issue of the IELR will have a more comprehensive discussion of the TI report.

U.S. Senate Holds Hearing on Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency

February 6, 2018 by Bruce Zagaris Leave a Comment

On February 6, 2018, the Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The hearing and testimony are available on the Committee’s website. The hearing was the latest in a series of Congressional hearings on the issue of anonymous corporations.

Sen Chuck Grassley (R-Iowa and Chair of the Committee), opened the hearing by expressing his disappointment that no Treasury witness has appeared despite the Committee’s invitation. He underscored that beneficial ownership is a huge problem, as confirmed by the Panama Papers and the Treasury’s 2015 Money Laundering Assessment report. On November 2017, Congress held a hearing on S.1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, concerning cross border money laundering.. Bad actors from all over the world have come to the U.S. as their financial safe haven Victor Bout, convicted of arms trafficking, used six shell companies in the U.S. to launder his money.

Kleptocracy is a threat to U.S. national security and that U.S. secrecy contributes to this. The asset forfeiture case, such as the one against Mr. Teodoro Obiang, the son of the President of Equatorial Guinea, illustrates the problem. Obiang agreed to relinquish $30 million in assets in settlement of the suit brought by DOJ.

The problem plays out in the purchase of U.S. real estate, where shell companies are used. Lawyers for kleptocrats are complicit as the Global Witness undercover sting, which was shown on Sixty Minutes, illustrates. Even the former President of the ABA participated.

Sheldon Whitehouse (D-Rhode Island and ranking minority member on the Committee, said the Panama and Paradise Papers show the wide use by criminals of money laundering. The U.S. is a facilitator and target. Fraudsters, kleptocrats, and tax cheats all use shell companies, which are used to own real estate and other assets secretly. It affects and warps the U.S. housing markets. The answer to shell companies is to require private U.S. companies to report and update beneficial ownership information of U.S. entities.

Testifying in support of S. 1454, the True Incorporation Transparency for Law Enforcement (TITLE) Act, the proposed legislation was Panel I – Mr. Kendall Day, Acting Assistant Attorney General and head of the Anti-Money Laundering and Asset Forfeiture Unit, Criminal Division, U.S. Department of Justice, Washington , D.C.

Testifying in support of S. 1454 on Panel 2 were Mr. Gary Kalman, FACT Coalition, Washington , DC; and Mr. Chip Poncy, Financial Integrity Network, Washington, D.C. Poncy provided a ten-point plan to responding to the problem of anonymous companies. He called for a centralized data base with access to U.S. and other law enforcement agencies.

Mr. Brian O’Shea, Senior Director, Center For Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC, testified that S. 1454 does not properly balance privacy and law enforcement requirements. It would subject small and medium businesses to excessive bureaucracy and unnecessary expense.

As Congress continues to hold hearings on entity transparency, two of the main bills are S.1454 and the Corporate Transparency Act (H.R.3089/S.1717). They both have similar definitions of beneficial ownership. Similarly, they both make the information easily available to law enforcement and financial institutions. Both bills make $40 million available to states for transitional costs from the Treasury and Justice Departments’ asset forfeiture funds.

Both bills exempt publicly-traded companies. Similarly, each bill also exempts companies that have a physical presence in the U.S., more than $5 million in annual revenues, and at least 20 employees in the U.S., so that it narrowly targets those shell entities most likely to be abused by money launderers. In the Q & A period, the rationale for the thresholds was discussed.

In the next issue of the IELR, the differences of the bill and the high points of the debate in the hearing will be discussed.

IRS Issues Notice for Denying, Canceling, and Limiting Passports to Seriously Delinquent Taxpayers

January 16, 2018 by Bruce Zagaris Leave a Comment

On January 16, 2018, the Internal Revenue Service issued a notice, furnishing taxpayers with information about the implementation of new section 7345 of the Internal Revenue Code (Code), enacted by Section 32101 of Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, on December 4, 2015.

Section 32101(a) of the FAST Act added new Code section 7345. Under it the Department of the Treasury (Treasury) must notify the Department of State (State Department) if a certification is made that an individual has a “seriously delinquent tax debt.”

Such certification or a reversal of such certification may only be made by the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, Commissioner or specified delegate).

Upon receipt of a section 7345 certification, section 32101(e) of the FAST Act provides that the State Department will generally deny an application for issuance or renewal of a passport from such individual, and may revoke or limit a passport previously issued to such individual. The IRS and State Department will begin implementation of these provisions in January of 2018.

Under section 7345(b)(1), a “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual, greater than $50,000, and for which:

A notice of federal tax lien has been filed under section 6323, and the taxpayer’s right to a hearing under section 6320 has been exhausted or lapsed; or
A levy has been issued under section 6331.

Pursuant to section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016.

The $50,000 federal tax liability threshold is calculated by aggregating the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual.

Analysis

The Joint Committee on Taxation estimated that the bill’s revocation or denial of passports to some individuals with tax debts of over $50,000 should net the government $395 million through 2025.

One of the potential problems will be, in the case of taxpayer living or temporarily out of the U.S., the taxpayer may not receive notice of the seriously delinquent tax debt until late in the 30 or 90 day time limits. Since it may take time for the taxpayer to receive forwarded mail abroad and since resource-deprived agencies, such as the IRS and State Department, may not act, as required by statute, due to lack of capacity, a taxpayer may have difficulties meeting the time limits.

Since the $50,000 threshold triggering the denial, cancellation, or limitation on passports includes the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual, this amount can be reached easily without knowledge of a taxpayer.

The new law illustrates how the U.S. government is increasingly connect tax debts with travel. Another recent change is that the names of taxpayers owing more than $100,000 to the IRS are put into the Treasury Enforcement Computer Service (TECS). When the taxpayer enters the country, his name is flagged by TECS. An Immigration Customs Enforcement official must then take the taxpayer to secondary inspection and ask a series of questions about his assets, so that the IRS can be able to more easily collect the tax debt.

In 2006, the so called “Reed Amendment” provision was part of immigration reform. The Reed Amendment provision bars re-entry to the U.S. of former citizens who expatriated for a principal tax avoidance purpose in the opinion of the Attorney General. The responsibility to administer and enforce the provisions was formerly within the Immigration and Nationality Service, which was within the Department of Justice at the time. In 1996, Janet Reno was the Attorney General of the United States and did not want to implement the law. Now the INS has been transferred to U.S. Customs and Immigration Service within the Department of Homeland Security.

In an appropriate case, the Revenue Officer can request a Prevent Departure Order. An ICE Departure Control Order or a Prevent Departure Order is an administrative action similar to the Writ Ne Exeat Republica.

A Prevent Departure Order can prevent a non-U.S. citizen from exiting the U.S., pending the resolution of a collection matter.

The authority for the Prevent Departure Order is contained in 22 C.F.R. § 46.2(a), which states in part: “…No alien shall depart, or attempt to depart from the United States if his departure would be prejudicial to the interest of the United States under the provisions of 46.3.”

In I.R.M., the IRS concludes that 22 C.F.R. § 26.3(h) applies to a collection investigation because it allows ICE to prevent the departure of:

Any alien who is needed in the United States in connection with any investigation or proceeding being, or soon to be, conducted by any official executive, legislative, or judicial agency in the United States or by any governmental committee, board, bureau, commission, or body in the United States, whether national, state, or local.

The writ ne exeat republica is designed to enable the IRS to collect against a non-U.S. citizen who is about to depart from the U.S. or who no longer resides in the U.S., but is temporarily present in the U.S. and who has transferred his assets outside of the country to avoid payment of his federal tax liability.

The writ ne exeat is a court order, by which a U.S. Marshall is required to arrest and jail a defendant who fails to post bail or other security in a specified amount – I.R.C. § 7402(a) and 28 U.S.C. § 1651.

Litigation is likely against the provisions in FAST to deny, cancel, or limit passports. Whatever the outcome, linking travel, migration and tax enforcement seems to be gaining momentum.

OECD Issues Mandatory Disclosure Rules to Combat CRS Avoidance and Offshore Structures

January 10, 2018 by Bruce Zagaris Leave a Comment

In December, the OECD issued a public consultation document, requiring mandatory disclosure rules to combat CRS avoidance and offshore structures. Comments are due January 15, 2018.

The consultation document is prepared in response to the Bari Declaration, issued by the G7 Finance Ministers on 13 May, 2017. It calls on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures.”

The Declaration states that these discussions should include consideration of “model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report.” The consultation document sets forth at the end of the document model legislation.

The reason for the consultation document is that the International Consortium for Investigative Journalists (ICIJ) has shown, especially through the publication of the Panama Papers and the Paradise Papers, certain professional advisers continue to design, market, or assist in the implementation of offshore structures and arrangements that can be used by non-compliant taxpayers to circumvent the correct reporting of relevant information to the tax administration of their jurisdiction of residence.

Due to these continuing offshore structures and arrangements and in response to the mandate from the G7 Finance Ministers, the OECD is currently considering a range of approaches that could be taken to address arrangements designed to circumvent or attempt to circumvent the CRS (“CRS Avoidance Arrangements”) and the use of non-transparent offshore structures to conceal actual beneficial ownership (“Offshore Structures”). Such approaches include measures focussed on improving intelligence for tax administrations within the existing information exchange and legislative framework (e.g. improved collaboration through JITSIC,as well as the use of group requests and spontaneous exchanges of information), as well as policy measures, such as additional regulatory intervention or additional disclosure obligation.

The proposed model rules contained in the consultation require an Intermediary (or taxpayer) to disclose certain relevant information to its tax administration regarding CRS Avoidance Arrangements an d Opaque Offshore Structures. Disclosures of such information can assist tax administrations in gathering intelligence on schemes that are being used or marketed to taxpayers in their respective jurisdictions. In addition, the model rules were designed to facilitate the spontaneous exchange of information where the information provided by Intermediaries relates to one or more specific Reportable Taxpayers.

It is contemplated that such information would be spontaneously exchanged with the tax administration(s) of the jurisdictions in which the concerned Reportable Taxpayer is resident for tax purposes pursuant to the applicable international legal instruments. The modalities, timing and form of the information to be spontaneously exchanged will be further defined in an operational agreement.

A mandatory disclosure regime contains five key elements:

(a) A description of the arrangements that are required to be disclosed (i.e. the hallmarks of a disclosable scheme).

(b) A description of the persons required to disclose such arrangements (i.e. the Intermediaries that are subject to reporting obligations under the rules);

(c) A trigger for the imposition of a disclosure obligation (i.e. the point in time when an obligation to disclose crystallises under the rules)

(d) A description of what information is required to be reported (including any exceptions from reporting).

(e) Appropriate penalties for non-compliance.

The hallmarks are very broadly worded.

In some cases the requirement to report is retroactive to July 15, 2014, the date the CRS became effective.

The consultation paper says the requirements respect legal professional privacy, but it appears narrowly defined.

Because the model law has penal provisions, the consultation paper has important potential consequences.

A fuller discussion of the consultation paper will appear in the January 2018 issue of the International Enforcement Law Reporter.

OECD Global Forum on Tax Transparency Highlights Enforcement Initiatives in Annual Report

January 2, 2018 by Bruce Zagaris Leave a Comment

On December 20, 2017, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes issued its annual report.

It noted the fact that 50 jurisdictions have committed to starting Automatic Exchange of Information in September 2017 pursuant to the OECD Common Reporting Standard (CRS). As the jurisdictions that participated in the 2017 exchanges are preparing to use the data for enforcement purposes, most of the remaining jurisdictions are preparing now to make their initial exchanges in September 2018. Already the report on the 2017 implementation period is ready. The Global Forum is preparing to conduct full reviews of the implementation of automatic exchange of information (AEOI) by 2020.

The OECD has developed a plan of action to expand AEOI to developing countries.

The Global Forum has finished the first round of peer reviews on exchange of information on request (EOIR). Almost all the jurisdictions have received a satisfactory level of implementation. The GF will now conduct a second round of peer reviews against the 2016 Terms of Reference.

As of November 2017, the number of countries participating in the Multilateral Convention on Assistance in Tax Matters (CAM) reached 115. An additional 11 countries have requested to join.

More than 96% of the jurisdictions that have committed to implement the AEOI Standard also have decided to join the CRS Multilateral Competent Authority Agreement (the CRS MCAA) for putting in place necessary arrangements for exchanging financial account information. Hence, multilateralism on exchange of information is gaining momentum.

The GF’s annual report highlights the progress made in exchange of information and the targets set for 2018.

Clearly, EOIR and AEOI have developed gateways to facilitating the access to financial information by tax authorities. The authorities are increasingly using the data to develop enforcement cases against taxpayers and tax intermediaries.

The January issue of the IELR will have an article on these developments.

The Ties That Bind: Paradise Papers Reveal More Connections between Trump Officials and the Kremlin

November 6, 2017 by Zarine Kharazian 1 Comment

On Sunday, the International Consortium of Investigative Journalists (ICIJ), along with 95 media partners, among them the New York Times and the Guardian, leaked 13.4 million documents revealing information about the offshore tax investments of more than 120,000 high-profile individuals and companies to the public.

The project, called the “Paradise Papers,” included the names of Trump administration officials involved with offshore accounts linked to the Kremlin:

Commerce Secretary Wilbur Ross maintained a stake in a shipping company, Navigator Holdings, which includes among its clients the Kremlin-connected Russian petrochemical company Sibur.
Russian investor Yuri Milner, whose investments include a real estate company partly owned by Trump advisor and son-in-law Jared Kushner, used Kremlin-backed funds to invest heavily in U.S. social media companies, such as Facebook and Twitter.

While offshore investments are not illegal in and of themselves, Ross’s and Kushner’s financial ties to Russia are worth particular scrutiny against the backdrop of Mueller’s investigation, as well as revelations about the sheer scope of the systematic Russian propaganda operation mounted on U.S. social media platforms during the 2016 election.

To explore the full extent of over a dozen Trump advisers’ and backers’ offshore connections, visit the ICIJ’s “The Influencers” project page.

Venezuelan Inspector General Alleges Fraud in Oil Rig Deal with Saudi Company

March 17, 2017 by Jacob Rasch 1 Comment

On March 6, 2017, the Venezuelan Inspector General’s office recommended that the Public Prosecutor’s office investigate possible corruption in a deal between the Venezuelan government and Saudi oil company PetroSaudi. The Inspector General’s office recommended that the Public Prosecutor charge five executives of the Venezuelan state-run oil company, Petroleos de Venezuela S.A. (PdVSA) of embezzling public funds in connection with the lease of an oil rig owned by PetroSaudi.

The rig, the PetroSaudi Saturn, was rented by PdVSA in connection with an offshore oil project entitled “Marsical Sucre”. However, this project has yet to produce any actual oil, despite the $1.3 billion price tag of the lease between PetroSaudi and PdVSA. The Inspector General has accused the PdVSA executives of paying a highly inflated lease rate to PetroCaribe, with the charge being that the amount was inflated so that the excess money could then be embezzled.

Such a project would be labeled a boondoggle even in normal economic times — though such waste and possible graft was commonplace at PdVSA during the oil boom of the 2000s — but the collapse of the oil market over the last several years has launched Venezuela’s economy into deep recession, putting heavy pressure on the Venezuelan government. Both the Public Prosecutor’s office and the Inspector General’s office launched separate investigations into the PetroSaudi Saturn deal earlier this month.

The rig is the second one purchased by PetroSaudi, a company founded in 2005 by Saudi royal family member Turki Bin Abdullah Al Saud, for doing business in Venezuela. The first such rig, the Neptune Discoverer, was financed by embattled Malaysian bank 1MDB; the U.S. Department of Justice alleges that $700 million in financing of that deal was diverted and not used for the purchase of the rig, though the DoJ has not yet accused PetroSaudi of wrongdoing. The Saturn rig was leased by PdVSA from PetroSaudi in September 2010 at $485,000 a day for seven years, without a bidding process. Venezuelan lawmaker Luis Parra argued that the rig should have cost about $230,000 a day, and added: “There’s no reason whatsoever to justify the difference between the average price and the exorbitant price PetroSaudi charged PdVSA” for the Saturn. Both the Discoverer and the Saturn have been poorly equipped for the jobs they were contracted for, and have completed fewer than 10 wells out of 70 planned.

A London court ordered PdVSA on March 13, 2017, to pay more than $130 million in unmade payments to PetroSaudi. PdVSA is suing PetroSaudi in the United Nations arbitration court in Paris for allegedly failing to meet the terms of the Saturn contract.

More information can be found in a Wall Street Journal article linked here: https://www.wsj.com/articles/petrosaudi-used-funds-from-1mdb-venture-to-finance-venezuela-project-1489570206