PDVSA, a Major Money Laundering Operation

PDVSA went from being one of the most prestigious companies in the world to a corporation linked to organized crime.
Ricardo Guanipa D’erizans / Diálogo | 3 July 2019

Transnational Threats

The decline of PDVSA’s oil production accelerated in 2018 and continued to plummet in 2019. (Humberto Matheus, NurPhoto/AFP)

State-owned company Petróleos de Venezuela (PDVSA), which was the heart of the Venezuelan economy, continues in a downward spiral that sped up with the U.S. government-imposed economic sanctions of January 2019. The United States froze commercial relations with PDVSA for being an instrument for money laundering, corruption, and fraud. According to former PDVSA executive Horacio Medina, who retired in 2002 after more than 20 years of service and now lives in exile in the United States, PDVSA's downfall was the result of unsound management, a lack of knowledge from executives appointed by Nicolás Maduro, and corruption.

The tenure of Bolivarian National Guard Major General Manuel Quevedo as president of PDVSA, since November 2017, has been a key factor in the crisis that the oil company experiences, Medina told Diálogo. “Quevedo lacks knowledge, experience, and contacts in the oil industry, which explains why oil production has plummeted in Venezuela to less than 750,000 barrels per day.” In 1998, a year before Hugo Chávez took over, PDVSA was producing more than 3 million barrels per day.

According to Medina, one of the main causes for the decline dates back to December 2002, when Chávez fired more than 25,000 workers, including many subject matter experts who were essential to the development of the country's oil industry. Corruption, Medina said, is more evident in the conflicts of interest created by a government that appoints the same official to several positions. As examples, Medina mentioned Rafael Ramírez, Venezuelan minister of Energy and PDVSA president between 2003 to 2013, and Carlos Malpica Flores — nephew of Maduro's wife, Cilia Flores — who was national treasurer and PDVSA vice-president between 2013 to 2015.

Malpica's appointment to the board of PDVSA, Medina insists, intensified the corruption in the company, which “was becoming a massive industrial money launderer at the service of narcotrafficking,” the petroleum engineer said. “That's where the massive money laundering cycle through PDVSA started.”

Connections to organized crime

Information concerning links between Chavismo and narcotrafficking date back to Chávez's government, thanks in part to investigations by the Drug Enforcement Administration (DEA) that show active Venezuelan service members’ involvement, said former DEA Inspector General Félix Jiménez.  

“They would ship cocaine from Colombia through Venezuela,” Jiménez told Diálogo. “Chávez already knew about these officials' criminal activities when he was in office; he removed from the border all the personnel he didn’t trust and appointed his friends who were generals, and who had one or more suns [badges depicting the sun which Venezuelan generals wear] to lead cocaine trafficking operations with Colombian narcotraffickers, hence the name the Cartel of the Suns.”

The DEA began to suspect that the Venezuelan oil company was also being used to launder profits from narcotrafficking and to send state money abroad. As an example, Jiménez mentioned the case of Andorra, a tax haven in the Pyrenees between France and Spain, where prosecutors allege that a network of corrupt Venezuelan officials had accepted bribes for more than $2 billion. More recently, in February 2019, Bulgarian authorities said that millions of dollars had been transferred from PDVSA to a small bank in their country. 

For his part, Medina said that Chávez and Maduro had simulated fictitious sales and crude production operations to justify profits coming from narcotrafficking, which were operated “directly by Ramírez.”

“They used gas production figures and turned them into oil barrel production equivalents,” Medina said. “They also used diluents to produce extra heavy crude. They counted it as oil barrel production.”

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