Venezuela: Beware money flows to Panama, Liechtenstein, Monaco and Hong Kong (as well as Andorra)

Banks and companies dealing with Venezuela need to be extra vigilant for transactions and contracts involving intermediaries using offshore entities or accounts in Panama, Liechtenstein, Monaco and Hong Kong as these are at risk of being identified as linked to corruption and FCPA / Bribery Act violations.

That’s the implicit message behind the shock waves that have spread this week after the US Treasury identified a private bank in the European microstate of Andorra as being at the centre of a major money-laundering and corruption scheme that syphoned off some USD2bn from the Venezuelan state oil company, PDVSA.

Financial intelligence sources have told Latin iQ that officials “in the US and Europe” are currently looking at money flows linking Venezuela to Panama, Liechtenstein, Monaco and Hong Kong, as well as Andorra.

The Treasury’s Financial Crimes Enforcement Network, FinCEN, on 10 March named Banca Privada d’Andorra, BPA, as a bank of “primary money-laundering concern”, and said that a Venezuelan third-party money-launderer used BPA to deposit the proceeds from a string of corrupt business deals with PDVSA.

“Hundreds of shell companies”, many of which apparently domiciled in Panama, were used by the money-laundering network, which worked closely with high-ranking Venezuelan officials, the FinCEN said. Methods employed included false contracts, mischaracterised loans, and over- and under-invoicing.

According to the FinCEN, a high-level manager at BPA in Andorra took “exorbitant commissions” to facilitate the transactions, which began at least as far back as 2009 and continued into 2014.

The Andorran, Panamanian and Spanish financial regulators have responded swiftly: regulators in these countries have taken administrative control of BPA’s headquarters and its subsidiaries, BPA (Panama) and Banco Madrid.

But several aspects of this come as no surprise to those in the know.

There have long been rumours in Caracas that Andorra was one of several favoured locations where corrupt officials would seek to hide funds derived from kickbacks through testaferros, or financial fronts.

BPA itself also had a suspect reputation. In May 2011 the Uruguayan central bank’s anti money-laundering unit fined BPA’s subsidiary in Montevideo for anti money-laundering compliance failures.

In Panama, BPA was granted an international banking licence only in 2011. It had USD121m in deposits at the end of 2014, an increase of more than 200% on a year earlier. Practically all of its deposits are of foreign origin.

The FinCEN’s announcement came on the day that Panamanian President Juan Carlos Varela named a new banking superintendent, Ricardo Fernández. The Varela government is poised to introduce an anti money-laundering bill in the coming days which, if approved, will require financial institutions to bolster reporting of suspicious transactions.

The notice also came the day after the US imposed sanctions on seven senior Venezuelan officials, including the heads of military intelligence and the police, for their involvement in alleged human rights violations.