Inside, confidential and off the record
The rotten PDVSA
"Rojo Rojito Iceberg"? by Christian Perez Font
Corruption at PDVSA is no longer being viewed as an isolated case but rather as part
of a widespread culture of corruption in the oil rich country which now sits at the
bottom (168/180) of Transparency International's Corruption Perceptions Index.
On February 26, 2019, the Department of Justice (“DOJ”) announced the indictment of two Florida businessmen on charges of foreign bribery, wire fraud and money laundering in connection with its probe on corruption at Petróleos de Venezuela S.A. (PDVSA). [i] According to the indictment, starting in 2009 and continuing through at least 2013, Rafael Pinto Franceschi of Miami, FL and Franz Muller Huber of Weston, FL provided bribes to three PDVSA officers to secure business and the payment of overdue past invoices. [ii] Two of the three PDVSA officials implicated in this case have already pleaded guilty in separate enforcement actions. [iii]
What is shocking to me about this latest development is not the development itself, but rather our general reaction to it (or lack thereof). A good way to illustrate this feeling is an old Venezuelan expression that is used to reflect lack of shock or importance: “ Que es una raya más para un tigre? ” which can be translated to “ It makes no difference if the tiger has an extra stripe ”. The problem though, and what should be most shocking, is that the PDVSA tiger has so many stripes that it is now starting to look more like a black panther. In fact, according to U.S. and foreign investigators, corruption at PDVSA is no longer being viewed as an isolated case but rather as part of a widespread culture of corruption in the oil rich country which now sits at the bottom (168/180) of Transparency International's Corruption Perceptions Index. [iv] To put PDVSA corruption into perspective, consider these four simple facts:
a) As of this date, the DOJ has charged twenty-one individuals with PDVSA corruption-related offenses. Out of this total, fifteen have already pleaded guilty and have either been sentenced or are awaiting sentencing. [v]
b) In September 2018, a judge in the tiny country of Andorra indicted 28 Venezuelans, including the cousin of former PDVSA boss Rafael Ramirez, [vi] on charges of taking $2.3 BB in bribes in exchange for facilitating contracts with PDVSA [vii] and no, it is not a typo, the number really is $2,300,000,000. Also, for greater context, these bribes were apparently paid over the course of just 5 years (2007-2012). The current Venezuelan regime has been in power for 20 years now.
c) A number of ongoing international investigations are likely to yield more evidence of widespread corruption at PDVSA in the near future. For instance, the Lava Jato (Petrobras) investigation in Brazil continues to evolve and government authorities both in Brazil and in the US are looking at possible corruption charges against multinational trading powerhouses like Glencore, Vitol Group, Lukoil and Trafigura who were heavily engaged in doing business with Petrobras. In fact, in December 2018, Brazilian federal prosecutors charged twelve individuals in connection with an alleged bribery scheme at Petrobras involving Vitol Group. [viii] Among those indicted, Antonio Maarraoui, the company's head for Latin America and the Caribbean, [ix] a territory that also encompasses… Yes, you guessed it, Venezuela. Considering that PDVSA is significantly larger than Petrobras it is foreseeable that whatever is found in connection with this case will pale in comparison to what they will find in connection with PDVSA.
d) According to data published by Alek Boyd, an internationally recognized investigative reporter specializing in corruption-related matters, PDVSA's oil sales from 2001 to 2016 totaled approximately $1.3 trillion. [x] Despite this incredibly high amount, PDVSA's infrastructure [xi] and finances along with those of Venezuela itself lie in ruins with the country experiencing 7-digit inflation, food shortages, power blackouts and the worst humanitarian crisis that the western hemisphere has ever seen. Where did all this money go? The answer is self-evident.
To summarize, the indictments so far are likely to be just the tip of the iceberg and for us to begin to understand and grasp the extent of corruption at PDVSA perhaps we should look at this from an Archimedean perspective which would indicate that if the visible portion of an iceberg merely represents 10% of its total mass, then what you don't see represents… “Eureka”.
[i] See https://www.justice.gov/opa/pr/two-businessmen-charged-foreign-bribery-connection-venezuela-bribery-scheme , last consulted on March 01, 2019.
[ii] See id.
[iii] See id.
[iv] See https://www.transparency.org/country/VEN , last consulted on March 01, 2019.
[v] See Note 1.
[vi] Mr. Ramirez himself was recently ordered to pay $1.4 billion in the context of a Racketeer Influenced and Corrupt Organizations Act (RICO) action brought by Harvest Natural Resources, Inc. in 2018 before the US. District Court for the Southern District of Texas. See Harvest Natural Resources, Inc. et al v. Juan Jose Garcia Mendoza et al – No. 4:18-cv-00483 (S.D.TX Feb 13, 2019).
[vii] See https://www.bbc.com/news/world-latin-america-45507588 , last consulted on March 01, 2019.
[viii] See https://www.reuters.com/article/us-brazil-corruption-vitol/vitol-bribery-case-in-brazil-sees-12-charged-for-graft-idUSKCN1OJ2RN , last consulted on March 01, 2019
[ix] See id.
[x] See https://infodio.com/180219/pdvsa/turnover/rafael/ramirez/1.3/trillion , last consulted on March 01, 2019.
[xi] According to estimates, PDVSA's production currently sits at merely 1.48 million barrels per day, far from a historic high of 3.45 million in 1997. See https://tradingeconomics.com/venezuela/crude-oil-production , last consulted on March 01, 2019.
Christian Perez Font / Linkedin / March 01, 2019