World-Check Comments On Money Laundering Risk Presented By Venezuela

Jul 21, 2011   

As Venezuela continues to destabilize, anti-money laundering and Bank Secrecy Act compliance officers must take notice of the increased risks associated with doing business with corporations and banks located in the there. A destabilized Venezuela could result in a litany of AML and regulatory compliance issues ranging from money laundering to Iranian and Cuban Sanctions programs violations. On July 16, 2011, World-Check, one of the largest and most well respected business risk intelligence services in the AML community, issued a newsletter highlighting some of the greatest areas of concern and urging those in AML compliance to exercise “enhanced due diligence” when transacting business with Venezuela. A copy of World-Check’s newsletter can be read here.

As World-Check described in its report, the Venezuelan government recently announced that it will be selling $1.5 billion worth of dollar denominated bonds to the public. According to World-Check, the bond sale poses several risks for regulatory compliance officers. The bonds provide an easy way for money launderers to turn ill-gotten and illicit criminal proceeds, often in Bolivars or other South American currencies, into financial instrument that can be redeemed for US Dollars. As a result, there is a heightened risk that US dollars that make their way from Venezuela to US financial institutions will be the proceeds of criminal activity. World-Check advises that US financial institutions which accept US dollars from Venezuela must ensure not only that their AML compliance programs are designed to face such threats, but also that their employees are properly trained to ensure that these transactions receive increased due diligence.

Another cause for concern stems from Venezuela’s close relationships with Cuba and Iran. Iran and Cuba are subject to U.S. economic sanctions which prohibit or severely restrict trade and business with both countries. For example, the Iranian Transaction Regulations not only prohibit U.S. persons from “financing, facilitating, or guaranteeing” goods, technology or services to Iran, but also prohibit U.S. persons from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction performed would be prohibited under the IRT if performed by a U.S. person. See 31 C.F.R. §§ 560.206, 560.208. Additionally, the Cuban Assets Control Regulations prohibit the purchase, transport, import, or dealing in any merchandise: 1) of Cuban origin; or 2) is or has been located in or transported from or through Cuba; or 3) is made or derived in whole or in part of any article which is the growth, produce, or manufacture of Cuba. See 31 C.F.R. § 515.204. The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury administers and enforces economic sanctions programs.

On July 20, 2011, World-Check addressed a new concern for AML compliance officers when evaluating the risks of doing business with Venezuela: the potential for Cuban nationals to obtain fake Venezuelan passports. As explained by World-Check: “If American bankers open accounts for a Cuban national, relying upon a bogus Venezuelan passport, they violate OFAC sanctions in force against Cuba. Cuba is on the US list of State Supporter of Terrorism, and American companies and individuals cannot conduct any transactions with its nationals or entities.” World-Check’s July 20, 2011 newsletter can be read here.

As a result of the breadth and complexity of these regulatory schemes, although businesses may not directly engage in trade with Iran or Cuba, businesses may unknowingly violate OFAC sanctions because of the nature of their relationships with Venezuelan businesses who do. Examples of this can be read in our previous reports here and here. If you have questions pertaining to the OFAC sanctions on trade with Cuba and Iran, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.