Managing Director, New York
The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) recently issued an advisory that alerted financial institutions about the threat of corruption in Venezuela. The advisory described the ways that political officials could disguise the proceeds of illicit activities and transfer them through the US financial system. It also pointed out red flags that would help financial institutions identify and report suspicious activity that could indicate such corruption.
The FinCEN advisory should come as no surprise given recent sanctions imposed by the Office of Foreign Assets Control (OFAC) against Venezuela. Venezuela has been susceptible to corruption, parallel and black markets, and currency controls that pose challenges for US and foreign financial institutions. And new OFAC sanctions against politically exposed persons (PEPs) may drive other, not yet sanctioned, PEPs to attempt to protect their assets, some of which may be proceeds of corruption.
Given the FinCEN advisory, financial institutions that have Venezuelan account holders or that conduct business with Venezuelan financial institutions—directly or indirectly—may see additional regulatory scrutiny around those accounts—especially around due diligence or enhanced due diligence, the monitoring of transactions processed through those accounts, and the reporting of suspicious activity.
Financial institutions that maintain correspondent banking relationships with Venezuelan financial institutions should consider focusing their efforts on additional due diligence of their customers’ customers, as well as the fund flows processed. They can perform additional due diligence if transactions involve foreign or US shell companies—the preferred modus operandi whereby PEPs create a layer between themselves and the assets that are in the name of the shell company.
Financial institutions with accounts linked to Venezuela should consider reviewing the due diligence efforts they conduct and increasing the risk rating of those accounts. They should also consider additional transaction-monitoring detection scenarios by focusing on the detection of payments that could be the results of corruption and the red flags outlined in the FinCEN advisory, as they reassess their compliance efforts with regard to Venezuela-linked accounts. Further, they should consider expanding their assessments of accounts with a view to discover potential Venezuelan linkage to accounts linked to Panama, Ecuador, and Colombia—jurisdictions that are known for use by those with Venezuelan ill-gotten gains.
So, now what?
It’s important that financial institutions take the following steps.
Stay tuned for more updates on our views on doing business in Venezuela and the potential risks and implications for your company.