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CUBAZUELA : How Firms Scammed Venezuela's Foreign Currency System
























Written by Armando.Info*



Friday, 15 May 2015






Firms allegedly exploited Venezuela's official exchange rate for financial gain.



Overcharging and falsification of exports from Ecuador to Venezuela has become a lucrative business for complicit officials, and drained billions of dollars from the country's treasury.




It is a strange paradox for an oil-exporting country: the US dollar has become Venezuela's rarest and coveted good. Even more so than precooked corn flour, toilet paper or even medicine. 



This has become even more true recently, as falling international oil prices caused foreign currency inflows to drop by more than half (there's a $40 billion public deficit forecast for 2015).



But dollars were rare even before this, during the oil boom of 2003 to 2008. President Hugo Chavez -- who died in office in March 2013 -- implemented Venezuela's foreign currency control system for political reasons in 2003. The nation's foreign currency administrator, known as Cadivi, closed the tap that allowed dollars to flow into the hands of Venezuelan citizens. This also affected businesses looking to import goods, and multinational corporations trying to take their profits out of Venezuela.




This article was originally published by Armando.info in April 2015, in partnership with El Universo and El Nuevo Herald. It was translated and edited for clarification, and reprinted with permission. See Spanish original here.





Under Cadivi, Venezuela established several official rates for exchanging the local currency, bolivares, for dollars. With Venezuelan demand for dollars chronically undersupplied, dollars are sold on the black market at much higher rates than official exchanges. This vast price difference has created new and appetizing business opportunities through which great fortunes have been amassed -- illegally.





The setup still exists under Chavez' successor, President Nicolas Maduro. However, a new government body known as Cencoex (which, loosely translated, stands for the Center of Foreign Trade) has replaced Cadivi.





The range of schemes used to take advantage of this currency exchange rate are only just now coming to light. 



The range of schemes used to take advantage of this currency exchange difference are only just now coming to light. But they all have the same starting point: access to dollars at the official rate. 




A joint investigation by Ecuadorian newspaper El Universo and the Miami daily El Nuevo Herald, in cooperation with Armando.info, reviewed schemes involving various transactions carried out with Sucre currency -- the common currency for the ALBA trade bloc (which includes Venezuela, Ecuador, Bolivia, Nicaragua, and other nations). 




The investigation found that the Sucre served as a platform for at least 60 Venezuelan companies and 30 Ecuadorian firms to carry out multi-million dollar operations involving fictitious exports and ghost companies -- as well as bank accounts in Panama, the Bahamas, and Anguilla.




The Venezuelan businesses involved in these operations made transfers to Ecuador in exchange for fake exports to Venezuela.



The Venezuelan businesses involved in these operations made transfers to Ecuador in exchange for fake exports to Venezuela. Meanwhile, dollars flowed to foreign accounts mainly based in the United States andPanama. There were payments made in advance, before the merchandise even arrived in country; there were exports with inflated values; and there were fake shipments of products that never actually made it to Venezuela.




Almost half of these cases involved Venezuelan state contractors involved in businesses like construction or food imports. This gave them the legal justification needed to access dollars at Cadivi's preferential rates, in order to facilitate imports and exports.;





In a special hearing in 2014, Cencoex called on 27 of the firms involved in these operations to prove they were using foreign currency for legitimate purposes. Eleven of them did not appear at the hearing and were sanctioned for it. 




Among the irregular transactions were transfers of at least $159.8 million, at preferential rates, from two Venezuelan state contractors to a company in Ecuador for prefabricated house kits. These were supposed to help build two housing developments in Venezuela-- a total of 8,432 homes. 



However, one of the contractors involved has only just recently registered its construction materials and is now being investigated by Ecuador's Attorney General. 



The end result? An empty lot in Venezuela's Valles de Tuy -- a Caracas suburb - waiting to maybe someday house families.





The empty lot in Valles del Tuy, Venezuela.











The Housing Project that was Never Built



In Valles del Tuy, there sits a fenced-off parcel of land that was supposed to be used in a massive state housing program, started under President Chavez in 2012. 


It was known as the Great Venezuela Housing Mission (Gran Mision Vivienda Venezuela). 


However, you'll find no billboards bearing information about this project near the lot -- no construction workers or security guards either. Only a few bricks stacked near the entrance give the impression that someday, something will be built here, these 31 hectares of land in Urdaneta municipality, Miranda state.




A company called Thermo Group is in charge of building the project. It includes 1,688 two-bedroom apartments and 1,144 three-bedroom apartments in 104 four-level buildings. 


These are the terms of a contract worth 937,393,600 bolivares (a little more than $217 million dollars at the lowest official exchange rate at the time) signed March 27, 2012 between company representatives Samuel Chocron Obadia and Menahem Michel Edery, and Venezuela's Ministry of Housing and Habitat, represented by Ricardo Molina -- who remains in office even today.





On the same day, Thermo Group and ELM Import won Venezuelan government contracts to build housing developments worth $654 million. Both contractors agreed to buy prefabricated housing kits from an Ecuadorian firm, the Global Construction Fund.




Thermo Group was created in 2003 in order to commercialize beauty products for "hairdressing salons, perfumeries, and general products for personal use", as well as representing domestic and foreign companies. 



In 2010, it expanded into selling prefabricated houses, building materials, and house manufacturing products, according to company documents. In 2011, Chocron and Edery were still company shareholders.




On March 27, 2012, Minister Molina signed a cooperation agreement with another company, ELM Import, and its owner, Hector David Sirit Rodriguez, in order to build 5,600 homes in Miranda City, also in Valles del Tuy. The project was valued at 1,873,769,000 bolivares (a little over $435 million dollars, at the lowest official exchange rate at the time) and had a 24-month deadline from the time of signing.




Those who lived near the proposed housing development said the project included multiple unknown contractors. Local council member Felix Alayon could not comment on what ELM Import's specific contribution to the project was supposed to be. Nevertheless, during the development process, Venezuelan human rights group Provea did file a lawsuit against the city of Miranda, citing delays and obscure dealings. This was years before ELM Import received its contract from the Ministry of Housing. 





Thus, on the same day, Thermo Group and ELM Import won Venezuelan government contracts to build housing developments worth $654 million.




Both contractors agreed to buy prefabricated housing kits from an Ecuadorian firm, the Global Construction Fund. Thermo Group stockholder Edery also acted as the primary director of Global Construction Fund's Venezuelan subsidiary.






Global Construction Fund signed a $465 million contract to sell prefabricated houses to ELM Import and Thermo Group.







According to reports, Global Construction Fund issued invoices to Thermo Group and ELM Import for the sale of manufactured homes between 2012 and 2013. 



In order to move forward with imports and payroll, both contractors asked the Venezuelan Ministry of Industry for a certificate, which would confirm there was insufficient domestic production of various construction materials, meaning these materials needed to be imported (this is the government's requirement for authorizing imports and releasing the necessary currency). Minister of Industry Ricardo Menendez Prieto authorized these certificates in September 2012, approving the import of $409 million worth of prefabricated houses.




Global Construction Fund -- headquartered in Colombia -- created at a firm under the same name in Ecuador. Colombian national Alvaro Pulido Vargas and Venezuelan national Luis Sanchez Yanez were listed as partners. Another company under the same name was registered in Venezuela in March 2012, with Edery as director.





The Venezuelan subsidiary -- first established in Venezuela's central Carabobo state and later in Caracas -- originally included two other people -- Gioia Pifano Antonini and Martiza Antonini Bruzual -- as shareholders. But the same year it was created, the company changed names and in November all shares went to a Spanish firm called FGDC Latam. 


FGDC is a Spanish acronym for "Global Construction Fund." In turn, the Spanish firm was owned by a company registered in Malta in October 2012, called FGDC Malta Holdings Limited.



The Venezuelan subsidiary's 2012 and 2013 balance sheets listed several projects -- a commercial center, a sports field, an aiport hotel, and a housing complex. Most of these were built in the central state of Vargas.

[...]






A Stream of Millions


In December 2012, Global Construction Fund -- created just a few months earlier -- signed a $465 million contract to sell prefabricated houses to ELM Import and Thermo Group.





Documents obtained in Ecuador showed that Global Construction Fund's Ecuadorian subsidiary created an ad hoc panel manufacturer in Duran (near Guayaquil). Another Venezuelan firm was supposed to be in charge of this new manufacturer.




Yet despite this increased production capacity, between December 2012 and March 2013, Global Construction Fund only exported $3.1 million worth of merchandise toVenezuela. During that same period, the Ecuadorian subsidiary received $159.8 million from ELM Import, one of the two Venezuelan state contractors running the project. 





Global Construction Fund only exported $3.1 million worth of merchandise to Venezuela. During that same period, the Ecuadorian subsidiary received $159.8 million from a Venezuelan state contractor. 





[...] This caught the attention of Ecuador's Attorney General's Office, which began an investigation in July 2013, and charged Global Construction Fund's shareholders with alleged money laundering





Evidence of overcharging and using fake invoices were presented. But the case suffered a setback when it was declared null in 2014, due to the Attorney General's failure to obtain legal authorization to seize invoices during a search of Global Construction Fund's Ecuador office. The case remains in its preliminary investigation phase. 





ELM Import and Thermo Group, who were contracted to supply Global Construction Fund's Venezuela unit with prefabricated houses, benefited from being assigned foreign currency at preferential rates through Cadivi. Together, the firms issued 572 currency exchange requests between 2004 and 2012, all of which were approved.





But in 2012, both of these companies broke through a new ceiling -- they entered the ranks of the top companies receiving the greatest amounts of foreign currency from Cadivi. That year, ELM Import saw its 244 requests approved, for a total of $210 million. Meanwhile, Thermo Group had 276 requests approved -- over $238 million. It's worth noting that 2012 was the same year the firm signed its agreement with the Ministry of Housing and Habitat to construct houses. 





Two years later, with Cadivi now dissolved, Thermo Group was one of the companies called before Cencoex to prove it had correctly used its foreign currency allotments. 




Attempts to contact representatives of ELM Import, Thermo Group, and Global Construction Fund in Venezuela were repeatedly made. 




Someone in the offices registered in ELM Import's name said that the company had moved two years ago. The company's public phone number is now linked to a firm called Herravan Fittings and Accessories (Herrajes y Accesorios Herraven). They confirmed that ELM Import had changed locations.
Attempts to contact representatives of ELM Import, Thermo Group, and Global Construction Fund were repeatedly made.





ELM Import transferred at least $2.7 million to import-export firm Negosupersa, via local bank Banco Territorial (which has since gone bankrupt). Ecuador's Superintendent of Companies dissolved Negosupersa in August 2013 for providing a false address. That same address was also used by Global Construction Fund in Guayaquil. Nevertheless, Global Construction Fund's lawyer, Jorge Zavala Egas, told El Universo that he knew of no business relationship between his client and Negosupersa. 




According to trading database ImportGenius, Negosupersa sent exports to at least eight Venezuelan firms. One of these firms included Representaciones Santa Caterina. The firm's director, Arnaldo Sosa, said by telephone that Ecuadorian authorities had contacted them, the firm supplied all requested paperwork, and no irregularities were found. Sosa also said his firm did not receive preferential currency rates from Cadivi. "The exports were carried out in a standard manner. Everything was resolved, thank God," he said. 





The offices of Thermo Group, Global Construction Fund's Venezuelan subsidiary, and Cencoex did not respond to interview requests.





A Global Construction Fund promotional video. 








A Tangled Web of Million-Dollar Transfers

According to Ecuadorian documents, the Global Construction Fund in Ecuador received payments from Cadivi by presenting invoices for exports that had never happened. Other times, Global Construction Fund presented the same invoices twice.




Global Construction Fund bought materials -- including tiles, toilets, and electrical cables -- from various Ecuadorian providers. One of these was an Ecuadorian company that signed a contract with a Venezuelan firm, for millions of dollars worth of cables.




In Ecuador, Global Construction Fund lawyer Jorge Zavala Egas told El Universo the firm had received $159 million in advance payment, something set up by Venezuela's central bank in 2012. He also said there was no evidence to confirm accusations that exports had been over reported. He also said Global Construction Fund sent no representatives to Cencoex's hearing because there was no legal justification.

[...]

While Ecuadorian judicial officials and journalists across the region try to untangle this web of million-dollar transfers between these interconnected firms, construction material sits in Valles del Tuy, waiting. The neighbors don't know what happened with the proposed building project, or what will happen, but sometimes they do see trucks coming and going. 






*This article was originally published by Armando.info in April 2015, in partnership with El Universo and El Nuevo Herald. It was translated and edited for clarification, and reprinted with permission. See Spanish original here.







http://www.insightcrime.org/news-analysis/how-firms-scammed-venezuela-foreign-currency-system

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