Editor's Note: We received this article for publication on Axis of Logic from Venezuela on the condition that we protect the author's anonymity.

(Update: See the the related article on Bloomberg News, below)

- Les Blough, Editor

This is a response to Ramon Santiago's May 20, 2010 report, Another boomerang stuns the Venezuelan bourgeoisie published on Axis of Logic, the extent of fraud, money laundering, exchange rate speculation leading to high inflation is becoming clearer as the hours tick by.

On Thursday evening (May 20th) President Chávez, in a broadcast on the state television channel, Venezolana de Televisión (VTV), spoke at length about the illegal activities of the stock and financial brokers. Chávez mentioned various brokers which had been raided and in some cases their directors arrested. These include Venevalores, Italbursatil, Positiva, Heptagon, Ban Valor, Finalca, Premier, Equitas, Bestinvest, Bencorp plus Vencorp and two others in Anzoategui state and BBO in Caracas.

BBO's web page provides some interesting information on BBO. For example: BBO’s capital amounted to US$72.1 million in 2001. What's especially important to know is where this money originated. On the page concerning company information it states:

"bbo Financial Services, Inc., tiene su domicilio en Barbados; en tanto que las oficinas de sus empresas filiales en Venezuela, bbo Servicios Financieros Venezuela, bbo Casa de Bolsa y bbo Sociedad Administradora de Fondos Mutuales, están ubicadas en el Centro San Ignacio, Torre Kepler, Piso 8 Urb. La Castellana. Caracas, Venezuela. "Las personas interesadas en hacer contacto por vía telefónica, pueden hacerlo a través del número de teléfono (Master) 00-58-212-6202611" Translation: bbo Financail Services Inc., has its headquarters in Barbados as well as offices of its subsidiaries in Venezuela; bbo Financial Services Venezuela, bbo Stock Brokers and bbo Adminstrative Society for Mutual Funds are located in the Centro San Ignacio, Torre Kepler, Piso 8 Urb. La Castellana. Caracas, Venezuela. Persons interested in contacting us by telephone can do this by calling 00-58-212-6202611.

The important word in the Spanish text is Barbados. In his May 20 broadcast, President Chávez stated unequivocally that instructions were being received to set the parallel exchange rate US$/Bs.F. from Barbados.

Whether or not BBO’s headquarters in Barbados is up to its neck in currency manipulation should be investigated by the Attorney General’s Office in Caracas. The political objective for this financial maneuver would be to destroy the Venezuelan economy by triggering a wave of hyperinflation and by extension bring down the government.

An even murkier aspect of this conspiracy is that of laundering the proceeds of money gained from drug trafficking which destroys so many lives and wrought many social problems, especially for young people in the Americas.

13 Venezuelans arrested in Florida

During his May 20 broadcast President Chávez referred to a case which had recently come to public notice. (It concerns the arrest of 16 people in the US state of Florida for allegedly laundering drug money from Venezuela, via Puerto Rico. Around US$7 million is involved but what is interesting from a Venezuelan point of view is that the US authorities have not made any contact with Venezuela nor requested information on the identities of the Venezuelans whom they arrested.

U.S. Immigration and Customs Enforcement officials said 16 people have been indicted after arrests in Florida, Puerto Rico and New York. Three of those arrests were in Puerto Rico. Most of the suspects were indicted on money laundering conspiracy charges, which carries a maximum 20-year sentence.
Facing 20 years in a US prison is not an appealing prospect for anyone and, as President Chávez said, this will encourage the Venezuelans in custody to plea-bargain by saying whatever their (CIA?) handlers want to hear, in exchange for reduced jail time.

The subtext of course suggests the possibility of the U.S. attempting to frame the Venezuelan government. Specifically, the 13 Venezuelans may be pressured into testifying that the Venezuelan government and perhaps the president himself was somehow involved in this money laundering conspiracy, paving the way to accuse the President himself. We must wait before speculating further on this possibility but it will come as no surprise if we see these kinds of accusations appear on the front pages of the western media in the future.

Where did these narco dollars come from?

This is the key question for all concerned – including the Venezuelan stock broking fraternity. If the source of the funds was from drug sales in Venezuela then it is highly likely that the transactions were originally made in Venezuelan bolívares, which cannot be easily converted into US dollars – unless the perpetrators have an institutional setting such as the stock brokerage houses or some other currency exchange mechanism.

Capital flight from Venezuela since 2003 has been done via the “swap market”. The method has been to buy Venezuelan government debt in bolivares and “swapped” for an equivalent bond in US dollars, using the parallel or “permuta” exchange rate.

This was done using a Venezuelan financial broker who deposited the dollar funds in a US bank account from his/her own account. The alternative was to exchange the bolivares illegally into cash dollars and smuggle them out of the country as appears to have been the case in this money laundering conspiracy, based on information available so far.

Whatever mechanism is being used, there is cause for concern that Venezuela stock brokers have been laundering drug bolivares into drug dollars and exporting the funds illegally to the US, using the swap market as a front for this activity. This is precisely the reason why Venezuelan Attorney General, Luisa Ortega Díaz, stated on May 22 that the Venezuelan government needed to know the origin of the funds in the overseas bank accounts of Venezuelan brokers. 

The case of the 13 Venezuelans arrested for this latest money laundering conspiracy comes one year after the Rosemont drug money laundering case of March 2009. Rosemont acted as a clearing house for 49 Venezuelan brokers dealing in the parallel US dollar/bolivar exchange market and its accounts were held in the Bank of America.

No evidence has been presented to suggest that this latest case and the Rosemont case are in some way connected. Nonetheless, Venezuelan brokers may be holding their accounts with Rosemont or a similar institution for the purpose of laundering drug bolivares for drug dollar currency swaps.

Conclusions 

These latest revelations from both President Chávez and the US Immigration and Enforcement Service should be investigated to get to the bottom of this “exchange rate and financial coup” against the Venezuelan people.

The Venezuelan brokers, acting in concert, undermined the value of Venezuela’s sovereign debt, the country's risk rating, the strength of its currency, the inflation rate and the confidence of Venezuelans themselves when prices for goods were climbing every week. It also appears that some were dabbling in drug money laundering.

This was definitely the case with the Rosemont scandal which was localized in the US. This time, however, the Venezuelan Attorney General via the Foreign Ministry is seeking information from the US authorities on the 13 Venezuelans arrested.

We understand that the Ministry of Justice and Interior has now identified the Venezuelans being held in custody and intelligence information will be “crossed” in order to determine what, if any dealings these criminals have had with Venezuelan financial brokers whose activities have been under the microscope by the Attorney General in Caracas long before the story appeared in the news last week.

The author must remain anonymous

Venezuela to Ban Brokerages From Bolivar Debt Sales
By Corina Rodriguez Pons and Daniel Cancel
May 28, 2010

May 28 (Bloomberg) -- Venezuela will prohibit brokerages from buying and selling government debt in bolivars as part of a new capital markets law to be presented next week, Ricardo Sanguino, president of the congressional finance committee said.

Brokerages, which were prohibited from buying and selling dollar-denominated securities on May 18 in a crackdown of the unregulated currency market, will still be allowed to trade in commercial debt and company stock, Sanguino said in a phone interview.

“The bill will try to limit brokerages to operations with commercial paper and stock from the private sector and remove them from debt operations issued by the government,” Sanguino said.

President Hugo Chavez is tightening regulation of the financial industry after blaming currency speculators for weakening the bolivar in the unregulated market this year and a surge in consumer prices. The central bank will oversee the buying and selling of dollar-denominated securities within a trading band to substitute the previous parallel market operated by brokerages.

Venezuelan companies depended on the parallel market when they couldn’t get government approval to buy dollars at the official rates of 2.6 and 4.3 per dollar. Trading has been closed in the market since May 13 and the central bank may inaugurate the new system next week, bank director Armando Leon told Globovision yesterday.

Chavez said late yesterday that his government will increase pressure on private banks operating in the country and that brokerages aren’t necessary in a country in a socialist country.

Banks will be the main intermediaries between clients and the central bank to buy dollars and will continue to trade bolivar-denominated debt, Sanguino said.

The government raided as many as 16 brokerages since May 13, took control of eight firms and jailed 10 brokerage directors, accusing them of illicit currency transactions.

Finance Minister Jorge Giordani said that brokerages were fueling capital flight, possibly laundering money and establishing artificial exchange rates in the parallel market.

Chavez said last night that with volatile international markets, Venezuela is stable after government action.

“Venezuela’s markets don’t go up or down, because their intervened,” Chavez said. “Why do we need brokerages in socialism? They know all the speculative tricks.”

--Editor: Alan Mirabella.

To contact the reporter on this story: Corina Rodriguez Pons in Caracas at crpons@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net

Source: Bloomberg