FinCEN issued an advisory to inform financial institutions of "widespread" public corruption in Venezuela and to increase awareness of the money laundering methods that corrupt officials may employ to transfer and conceal corrupt proceeds.
FinCEN warned that transactions involving Venezuelan government agencies and officials, as well as state-owned enterprises ("SOEs") and their employees, may present a high likelihood of money laundering activities. FinCEN identified numerous red flags to help financial institutions identify possible schemes related to Venezuelan government corruption, including:
- transactions involving Venezuelan government contracts that (i) are directed to personal accounts, (ii) are directed to companies that operate in an unrelated line of business, or (iii) originate with or are directed to shell corporations, general trading companies or companies that lack a general business purpose;
- documents supporting transactions involving Venezuelan government contracts that (i) involve prices significantly higher than market rates or (ii) do not include sufficiently detailed documentation;
- payments involving Venezuelan government contracts that (i) originate from non-official Venezuelan or non-Venezuelan accounts or (ii) originate from shell companies;
- cash deposits rather than wire transfers in accounts of companies with Venezuelan government contracts;
- real estate transactions involving former Venezuelan officials or associates that are not in line with their official salaries; and
- corrupt Venezuelan government officials who want to abuse a U.S. or foreign bank's wealth management units by utilizing complicated financial transactions to move and hide corrupt proceeds.
In the Advisory, FinCEN also reminded financial institutions of their due diligence and anti-money laundering obligations.
Commentary / James Treanor
FinCEN's characterization of the money laundering risks attendant to dealings with the Government of Venezuela is sweeping. Based on suspicious activity reporting by financial institutions in recent years and other information, FinCEN asserts that:
"[A]ll Venezuelan government agencies and bodies, including SOEs, appear vulnerable to public corruption and money laundering. The Venezuelan government appears to use its control over large parts of the economy to generate significant wealth for government officials and SOE executives, their families, and associates. In this regard, there is a high risk of corruption involving Venezuelan government officials and employees at all levels, including those managing or working at Venezuelan SOEs" (emphasis added).
Financial institutions already are on high alert following the Trump Administration's imposition of sanctions prohibiting certain transactions involving the Government of Venezuela – including any parties owned or controlled by the Government of Venezuela, or acting on its behalf. FinCEN's Advisory should only reinforce the need to identify and appropriately scrutinize the involvement of the Government of Venezuela and related parties in any transaction.
In addition to the sanctions risk that such dealings present, financial institutions are now on official notice of the money laundering risks that may arise from dealings with any Venezuelan government agency, SOE, or their officials and employees.
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