17/10/2024

Venezuela

Overview

Widespread corruption in Venezuela has led to its low ranking of 177th out of 180 countries on Transparency International’s Corruption Perceptions Index. Scoring just 13 out of 100, it is considered one of the most corrupt countries in the region and in the world according to the Berlin-based organization.

The oil sector has been a particularly vulnerable to corruption. Venezuela has the largest known oil reserves in the world, with the state-owned company, Petróleos de Venezuela S.A. (PDVSA), controlling the entire oil sector of the nation.  Between 1999 and 2017 PDVSA made more than USD 1 trillion from oil production and this centralisation of control over vast financial resources has been a major source of corruption. In 2016, two former economic ministers requested an investigation into around USD 300 billion of PDVSA’s earnings that they claimed were missing.

Corruption is not exhaustively related to the oil sector in Venezuela. Documented cases of corruption include corruption scandals related to manipulating exchange rates, engaging in the illegal gold trade, and involvement in drug trafficking, forgery, and bribery.

Accurately determining the amount of public money stolen in Venezuela is challenging, with estimates often ranging from tens of billions to hundreds of billions of dollars. In 2017, the opposition-led National Assembly reported documenting USD 87 billion in misappropriated funds. Much of this money is to yet be recovered.

These corruption scandals have long gone unchecked. However, according to Transparencia Venezuela, in recent years, prosecutors, courts, and parliaments in at least 20 countries have begun investigating the embezzlement of Venezuelan money, with assets surpassing USD 24 billion.

Asset recovery in Venezuela

Sanctions as a tool for asset recovery

Sanctions have been used as a tool in asset recovery and specifically targeted unilateral sanctions have been applied as a “smart” measure to address the wrongdoing of a certain group, individual or business entity.

A notable example of the use of sanctions in relation to suspected stolen state assets are the U.S. sanctions imposed with respect to the CLAP programme in Venezuela. In 2019, the U.S. Treasury Department imposed sanctions on Venezuela’s CLAP (Local Committees for Supply and Production) food programme, citing serious allegations of corruption. These sanctions target several individuals and entities linked to the programme with close ties to the Venezuelan political elite, including businessman Alex Saab. The Treasury Department accused Saab of embezzling funds meant for food distribution and manipulating the programme to consolidate political power by rewarding supporters and punishing opponents. Further investigations revealed that a substantial portion of the funds allocated for CLAP food imports was likely misappropriated. According to the U.S. Treasury, the Venezuelan government paid inflated prices for food boxes and retained the surplus, resulting in hundreds of millions of dollars in fraud.

Alex Saab was arrested in Cape Verde and extradited to the US in 2021 with legal and financial actions seizing assets including properties worth millions of dollars and financial accounts across various jurisdictions including his home country, Colombia.

Proceedings overseas

Multiple PDVSA related money laundering and corruption cases have been brought to court across various foreign jurisdictions including in Spain, Portugal, Andorra, Switzerland, Lichtenstein and New Zealand.

One of the more significant cases is the case of Alejandro Andrade Cedeno, a former bodyguard to Venezuelan President Hugo Chávez, who eventually rose to the position of national treasurer. In December 2017, he pled guilty in the United States to a charge of conspiracy to commit money laundering, related to his involvement in a fraudulent currency exchange scheme. In his plea agreement, Andrade confessed to receiving over a billion dollars in bribes from multiple co-conspirators, including Venezuelan businessman and Globovision president Raúl Gorrín Belisario. These bribes included cash, private jets, yachts, luxury cars, homes, champion horses, and high-end watches. Andrade provided his co-conspirators with access to U.S. dollars at the official government exchange rate, which they then sold for bolivars on the black market at rates up to ten times higher, allowing them to amass enormous wealth.

Andrade was sentenced to ten years in prison in the Southern District of Florida. As part of his plea deal, he agreed to forfeit $1 billion in assets, including at least six properties, ten vehicles, a dozen horses, twenty luxury watches, and nine financial accounts, some of which were in Swiss banks.

Asset returns

With high quantities of Venezuelan assets confiscated and frozen abroad, the question remains as to how to return funds and best practices for that.

The Fondo para la Protección Social del Pueblo de Venezuela, or the Social Protection Fund was an initiative discussed between Venezuela’s government and the opposition, set up as an effort to address the ongoing political and humanitarian crisis in Venezuela. It was set to transfer up to USD 3 billion to the Venezuelan people over the coming years. A key aspect of this agreement involved the repatriation of Venezuelan assets that are currently frozen under various international protection mechanisms. These assets would be returned to Venezuela through an independent trust fund, ensuring that they are used for the benefit of the population. In 2024 however, negotiations on the advancement of the Fund have substantially stopped, due to the political unrest following the presidential election. According to experts, there are currently little chances that the Fondo will go through in the coming period. 

Venezuela’s national asset recovery regime

In 2024, Venezuela’s National Assembly passed an asset forfeiture law intended to combat corruption by allowing the government to confiscate assets linked to criminal activities without requiring a criminal conviction. The legislation is seen as a significant measure against corruption, especially given the ongoing anti-corruption operation that has already led to the detention of 61 individuals, including former officials and businessmen. Congressman Diosdado Cabello, who introduced the legislation, stated that around 10,000 assets linked to illicit activities could be targeted under this new law.

However, the effectiveness of this law is in doubt due to the country’s deeply politicized institutions and widespread corruption within the justice system, even if the law is based on the UN Model Law system.

Our work in Venezuela

CiFAR has been engaged in Venezuela since 2021, supporting civil society engagement in asset recovery. A focus of our work with partners has been on advocacy around the potential asset return mechanisms. This has included: 

  • Capacity building and collaboration with civil society in Venezuela to promote transparency and civil society involvement in future international asset return mechanisms: training programmes on communication strategies, support in developing international engagement strategies, support to engagement on cases in European countries, including Spain, Portugal and France 
  • Capacity building to political actors involved in discussions on international asset recovery mechanisms 
  • Research on international best practices on return mechanisms applicable to the Venezuelan context and on potential return structures for return mechanisms to Venezuela 

Further reading

Reports

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Management and oversight of independent return funds

This report explores international best practices for the oversight of independent return mechanisms, drawing on both principles and examples from other returns, for the Venezuelan Social Fund. In doing so, it explores the unique characteristics that the Social Fund would operate within.

Read it here (EN / ES)

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Best Practices for Independent Return Funds: Lessons for Venezuela

This report explores more general best practice when it comes to establishing an independent return mechanism. Drawing on experiences from Kazakhstan, Equatorial Guinea, Uzbekistan and Nigeria, it discusses how transparency, accountability and participation can be built into return mechanisms and identifies recommendations for the Venezuela fund

Read it here (EN / ES)

Blogs

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Independent return funds: launch of two new reports

These reports respond to the efforts underway to establish the Fondo para la Protección Social del Pueblo de Venezuela, whichis expected to transfer up to USD 3 billion to the people of Venezuela in the coming years. The Fund is the result of negotiations between the Maduro government and Venezuelan opposition to advance a political and humanitarian solution to the ongoing crisis and would see the return of assets currently frozen under various international control or protection mechanisms outside of Venezuela through an independent trust fund.

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The Glencore Scandal: A Deep Dive into Asset Recovery and Global Justice

Glencore, a giant in the world of multinational commodities trading and mining, has found itself at the epicentre of one of the biggest corporate scandals in recent history. Allegations of widespread bribery and corruption have not only tarnished the company’s reputation, but also raised urgent questions about the ethical conduct of multinational corporations.