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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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How International Banks Pushed Venezuela To The Brink Of Bankruptcy

Venezuela sits on top of the world's largest proven oil reserve. The country is home to what is estimated to be a whopping 296.5 billion barrels, which accounts for a jaw-dropping 20 percent of global oil reserves. How can it be that a country so rich in resources has become one of the poorest nations in the world? Until relatively recently, Venezuela was the richest country in South America. Those days, however, are definitely over. “Venezuela is suffering one of the world’s gravest humanitarian crises,” writes the International Consortium of Investigative Journalists (ICIJ). “Inflation is out of control and the country’s oil industry, which once fueled the economy, is in shambles. One in three Venezuelans is not getting enough to eat, and about 5 million Venezuelans, more than one in six, have fled the country.”

As for Venezuela’s oil empire: “Venezuela’s fall from oil superpower to failing producer can be illustrated in one image: a single drilling rig working the world’s largest oil reserves,” World Oil reported earlier this summer. This is, in large part, thanks to a ruthless campaign by the Trump administration to cut the country off from the global oil trade. As of May, the nation with the most oil in the world had just one operational oil rig and one gas rig. 

“That marks a 96% decline since January, when drilling fell to levels not seen since 1963,” writes World Oil. “Having a single active crude rig takes the country back to the beginning of its oil industry, well before it became a founding member of the Organization of Petroleum Exporting Countries. The development underscores the toll that U.S. sanctions have taken on the nation as President Donald Trump escalates efforts to remove Venezuelan President Nicolas Maduro from power.”

Related: Colombia’s Security Crisis Deals Another Blow To Its Oil Industry
Venezuela’s economy was falling into ruin, however, long before Trump was elected. How did this once powerful nation become so economically unstable? The short answer is corruption. The complete answer involves a long and complex story about how the world’s banks helped the “boligarchs” of Venezuela to loot a nation and move the wealth of an entire country abroad, leaving the domestic economy in shambles. (“Boligarch” is a tongue-in-cheek reference to the rich elite of Venezuela, a portmanteau of the “oligarch” and the iconic South American independence figure Simon Bolívar, who late Venezuelan 

president Hugo Chávez idolized and who the Venezuelan currency - Bolívares - is named after.)

A new cache of secret bank reports obtained by BuzzFeed News and shared with ICIJ documents these financial transgressions in excruciating detail. Known as the FinCEN Files, this leak “shows how boligarchs moved vast sums of dollars in public money out of Venezuela, including money intended for housing and other basic services, even as the country’s economy was collapsing” and “includes more than 2,100 suspicious activity reports filed by banks to a U.S. Treasury Department agency known as the Financial Crimes Enforcement Network.”

In addition to highlighting the exorbitant sums of money that Venezuelan elites like Alejandro Ceballos Jiménez and his family managed to ferry out of the country and into offshore bank accounts, these documents also “reveal the pivotal role played by banks in Europe and the United States in facilitating the flow of money from Venezuela, despite blatant red flags signaling financial improprieties” and reveal London and New York’s Wall Street to be instrumental loci of these corrupt financial transfers. “Major global banks also played a part,” reports ICIJ. “JPMorgan Chase, based in New York, and Standard Chartered, headquartered in London, processed questionable transactions while serving as correspondent banks, an intermediary role in which multinational banks plug smaller lenders into the global financial system.”

While banks did report over $4.8 billion worth of suspicious transactions with links to Venezuela between the years of 2009 and 2017 (nearly 70 percent of which involved public money and intimately involved the Venezuelan government, often from the state oil company, as a direct actor) we will never know about most of the money spirited out of Venezuela. What we do know is that it’s grossly underreported. 

Related: Why Russia Is Pushing Unneeded Nuclear Power Plants On Egypt

If a bank “knows, suspects, or has reason to suspect” that a U.S.-involved financial transaction involves ill-gotten gains or has no apparent business purpose, it is mandated to report that transaction to FinCEN. Lenders have the responsibility to vet those that they lend money to for illegal activity.  “Instead, the FinCEN Files documents show banks often filed reports only in response to bad press about clients — and sometimes, as they faced inquiries into their own actions.”

Many of the “boligarchs” that looted the nation continue to win lucrative government contracts in Venezuela, and continue to ferry that money out of the domestic economy. The U.S., for all their hard lining on Venezuela, has done relatively little to stop this process or reprimand their own banks who are intimately involved and are largely shrinking their duties to report suspicious Venezuelan transactions. 

While the Trump administration has “sanctioned more than 90 officials in Maduro’s government and state institutions, including the Central Bank of Venezuela and the state oil company,” many other private entities have gotten away with their crimes and a whole lot of money. “Most of the Venezuelan government’s business partners have avoided repercussions, despite glaring red flags in their financial activities. Out of at least 26 people, companies, and government entities with suspicious transactions related to public funds cited in the FinCEN Files, three have been sanctioned by the Office of Foreign Assets Control.”

The Venezuelan economy is not set to bounce back any time soon as long as it remains one of the most corrupt countries in the world, even if it is the most oil-rich. And that one lone oil rig? Its days may be numbered

By Haley Zaremba for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 23 2020 said:
    It isn’t the first time international banks helped bankrupt the economies of many developing countries. They brought the economies of Mexico and Brazil to bankruptcy in the 1980s. Venezuela is no exception.

    Despite the fact that Venezuela sits on the world’s largest proven oil reserves, its economy was in dire straits because of corruption and mismanagement of the oil business long before US sanctions were imposed on it.

    Still, US sanctions have transformed an already dire situation into a real humanitarian tragedy and for what? I will tell you for what. It is for the United States to effect a regime change by imposing its puppet Juan Guaido so as to get its hands on the world’s largest oil wealth.

    And despite their suffering and poverty, Venezuelans still express the willingness to rise up against the perceived threat of “Yankee imperialism”. After all, it was the Bolivarian revolution that liberated countries of South America from Spanish oppression.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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