Kudos to the NY Times for trying to document the massive plundering in Venezuela under the Chavistas.
Venezuela’s Economy Suffers as Import Schemes Siphon Billions
CARACAS, Venezuela — The weed whackers were $12,300. Each.
Then there was the $1.8 million machinery to kill and gut chickens. When the police checked it, they found a worthless jumble of rusted scrap metal.
And there were the businessmen who collected $74 million to ship chemicals and other products from abroad — but sent almost nothing in return.
For years, Venezuela has had a hole in its pocket, a very big hole.
The government’s complex currency system has led to exorbitant schemes by importers, who wildly inflate the value of goods brought into the country to grab American dollars at rock-bottom exchange rates. Sometimes, they fake the shipments altogether and import nothing at all.
Then they just pocket the dollars that the government provides, or sell some of the money for a gargantuan profit on the soaring black market here for American currency.
Tens of billions of dollars needed for vital imports have been drained this way from Venezuela’s treasury, officials say, but the loss is especially painful now.
With the huge drop in the price of oil, Venezuela’s only major export, the nation’s central bank reported last week that the country’s foreign currency reserves, essential for international trade and debt payments, were at their lowest level in almost 12 years.
That has Venezuelans on the left and the right in rare agreement, clamoring for someone to be held accountable for the vanished billions.
“It’s scandalous,” said Víctor Álvarez, a leftist economist and government minister under Hugo Chávez, the former president who died in 2013. “It’s like the robbery that our people were subject to in the time of the conquest and the colonies, when the gold and silver were carted off by the ton.”
During the boom years of high oil prices, little was done to stop the billions that disappeared through corruption and fraud.
But today, with the country in a deep economic crisis marked by recession, crippling inflation and shortages of goods like milk, condoms and shampoo, the missing billions are particularly conspicuous.
Many store shelves lie bare, and people wait in line for hours to buy basics, a crisis made much worse by the years of hemorrhaging dollars through import fraud.
“Taking into consideration the behavior of oil prices, these are resources that we could use right now,” said Ricardo Sanguino, a governing party legislator appointed by President Nicolás Maduro to lead a commission to investigate the fraud.
Estimates of the import fraud vary, but a former president of Venezuela’s central bank, Edmée Betancourt, has said that up to $20 billion of the $59 billion that went to product imports in 2012 disappeared through fraudulent transactions.
One economic consulting firm, Ecoanalítica, estimated that about $69.5 billion was stolen through import fraud from 2003 to 2012. It said that 20 percent of the importing done by private companies had been bogus, while 40 percent of the imports carried out by government agencies and government-run companies had been fraudulent.
The schemes have been so rampant that exporters in a free-trade zone in Panama invoiced $1.4 billion in shipments to Venezuela. Yet Panamanian officials said that $937 million of that was a sham, with companies billing for goods that never existed.
At the heart of the import ploys are the country’s currency controls, which were begun in 2003 by Mr. Chávez. They are based partly on the populist notion that providing cheap, essentially government-subsidized dollars to importers translates to cheap imported goods for the masses.
But economists say the controls create vast incentives for fraud.
“There are lots of Venezuelan multimillionaires thanks to this system,” said one importer of clothing, food, medicine and other products, who spoke on the condition of anonymity. He said that he regularly shipped in only about 10 percent of what he claimed to be importing.
Venezuela is heavily dependent on imports for food and other basic goods, as well as for raw materials needed to manufacture many items. But exporters abroad do not want to trade in bolívares, Venezuela’s currency. They want dollars or other foreign currency, like euros.
So in Venezuela, importers obtain government permission to import a product and then apply to the nation’s currency control agency to buy the dollars needed to pay for the shipment from abroad.
The system is rife with opportunities for abuse, the main one being wildly inflated invoices.
In the weed whacker case, two companies imported 88 machines for a total invoice of over $1 million, according to government documents. The companies claimed that each machine cost up to $12,300, even though investigators found that similar items cost as little as a few hundred dollars each.
In another case, the documents assert, a company importing agricultural equipment declared the value of a machine to remove kernels from ears of corn as $477,750, when the real price was about $2,900.
Such maneuvers mean automatic profits, which only multiply once the money goes through the black market.
An importer can buy United States currency from the government for as little as 6.3 bolívares to the dollar, then turn around and get as many as 280 bolívares to the dollar on the black market.
Venezuelans call the churning of bolívares and dollars “the bicycle” because the process can go around and around indefinitely, generating exorbitant profits in both currencies along the way.
A s the economic crisis has deepened in recent months, the government has cut back sharply on the dollars available to importers, worsening shortages but still not eliminating opportunities for fraud.
“In Venezuela, your real business isn’t your ‘business,’ ” the importer said. “Your real business is what’s behind your ‘business.’ ”
He explained that hefty bribes, which can add up to hundreds of thousands of dollars per deal, needed to be paid at numerous steps to receive permission to import a product, to get speedy approval for applications to buy foreign currency, to certify fraudulent imports and to have the dollars released.
He said that after paying bribes and other costs, an importer could wind up with about 60 percent of the dollars originally bought from the government. The actual merchandise brought into the country is often beside the point, the importer said, and many times he gives his away to military officers or government officials.
Jorge Giordani, a former finance and planning minister, has often railed against the fraud that permeates the system.
“It’s a financial system that operates like a sieve,” he said in a recent interview.
The scale is mind-boggling, creating distortions in the regional economy.
In Ecuador, prosecutors charged three Venezuelan businessmen with using a bevy of shell companies to receive about $74 million for inflated or phantom shipments to Venezuela in 2012 and 2013.
The scheme contributed to the collapse of an Ecuadorean bank that reported losses of tens of millions of dollars. Ecuadorean prosecutors have alleged other ploys involving other companies, totaling about $150 million in fraudulent exports to Venezuela.
Large amounts of the money siphoned out of Venezuela pass through the United States. The authorities here identified the shipper of the bogus chicken processing equipment as a Florida company.
Ecuadorean prosecutors have tracked millions of dollars transferred to the United States by companies involved in the Venezuelan fraud.
And a United States Treasury Department investigation made public in March uncovered a money laundering ring that had moved $4.2 billion out of Venezuela though import-related schemes and other means. The investigators determined that at least $50 million had passed through the American financial system.
Mr. Maduro, a leftist president who was elected by a narrow margin in 2013, has often come under pressure to attack government corruption.
In December 2013, Mr. Maduro appointed the commission to investigate the import ploys, calling them “a fraud against the republic.”
“I am going to reveal to the country the truth about what happened there, because it was a vulgarity,” Mr. Maduro said.
Jesús Faría, a member of the commission and a governing party lawmaker, said in a television interview last month that in just a sampling of cases, the commission had found that more than 250 companies “had broken the law and that the prosecutor’s office had hundreds of companies to evaluate and investigate.”
“Nevertheless, I have not seen that any of these companies have been punished,” he added.
There appears to be only one criminal case in which prosecutors have charged a high-level official at the currency control agency with wrongdoing.
The official, Francisco Navas, was arrested in 2013 and has yet to stand trial. He is charged with money laundering and conspiracy, accused of taking bribes to sign off on millions of dollars of payments to companies for bogus imports. According to the testimony of an agency vice president, Mr. Navas charged companies the equivalent of about 46 cents for each dollar he approved.
His lawyer, Alonso Medina, said that Mr. Navas was a scapegoat, charged so that the authorities had someone to “hold responsible before public opinion.”
Venezuela’s Economy Suffers as Import Schemes Siphon Billions - NYTimes.com