Avoiding the pitfalls of doing business in Venezuela

Daniel Gutierrez, chair of the anti-money laundering compliance committee at the Florida International Bankers Association (FIBA), explains how financial institutions are acting to safeguard their customers' Venezuelan portfolios following the latest sanctions against Nicolás Maduro's regime. Gutierrez will discuss the topic at the 19th FIBA AML Compliance conference, to be held in Miami from March 11 to 13.

BNamericas: Are there opportunities to do business in Venezuela given the current turmoil?

Gutierrez: As you know, FIBA is located in South Florida which historically holds strong immigration and economic ties to Venezuelan nationals. Due to this, there are numerous business banking relationships that are housed within our member banks that have been very good customers for years.

The sanctions that have been applied have all evolved around the government of Venezuela and the Maduro regime. They are basically designed to cripple funds suspected of corruption and money laundering that allegedly have been under investigation and a concern to to our government.

The overall problem for the banking industry is that the sanctions on Venezuela are broad. Also, apart from sanctions you have The Financial Crimes Enforcement Network (FinCEN) advisory issued in September of 2017 in which banks are tasked with reporting suspicious activities as well.

That makes it very complex to continue doing business. FIBA's position is to advocate for best practices. If you're a bank looking to expand your portfolio (in Venezuela), the majority of institutions are taking cautious measures.

The banking industry is looking to address its portfolio of customers that it has known for years and is taking additional steps to know who they are dealing with, understanding the difficulties and what is permissible within the sanctions themselves. This may call for a bank to not only know it's customers (KYC) but its customer's customer. It's a very difficult time.

BNamericas: In which business sectors do customers of FIBA's institutions have interests in Venezuela?

Gutierrez: There is an array of customer types in the banks' portfolios. If they have anything that is related to oil they have likely taken precautionary measures to make sure they aren't affected by any sanction issues.

In the fourth quarter, given the heightening risk involving Venezuela, FIBA summoned several institutions here in Miami that have Venezuelan portfolios with a view to developing best practices with the help of high level attorneys. As part of these meetings, we have also designed a flow chart to provide guidance for institutions on how to act when sanctions are imposed, to update procedures, risk assessments, report unusual behavior and self-disclose any activity to OFAC [the Office of Foreign Assets Control] as well.

BNamericas: Is the Maduro administration's alleged links with drug trafficking cartels the main reason for AML compliance concerns in Venezuela?

Gutierrez: That's a question more suitable for the Department of Homeland security which has the intelligence to provide more information. I don't want to pinpoint just one issue like the drug cartels because from the news the industry has learned of other causes for concern like leftist guerrillas and illegal currency traders.

Currency restrictions implemented by the Maduro regime have created situations in which illegal money traders are flooding the border, particularly in the Cúcuta area in Colombia. It's a scenario that, according to media reports, has allowed opportunists to launder money.

BNamericas: Do companies and institutional investors with interests in Venezuela risk being locked out of the US financial system as is the case with Cuba?

Gutierrez: With Venezuela we currently don't have an embargo scenario. Sanctions haven't gone that far. FIBA is doing its utmost to ensure that institutions with portfolios in Venezuela are compliant. We are working with our members to ensure they have all of the training and guidance which would be the first point. Second, it's difficult for banks to maintain these type of portfolios because a great deal of due diligence is needed to avoid sanctions.

There is a compliance cost embedded with that which banks are considering from a cost-benefit analysis point of view. Again, the sanctions that have been imposed are very complex in nature. So banks have to go to great lengths to implement filters to prevent folks whose names have been flagged from going into our system. In the event those filters issue an alert, we are going to be stopping transactions and undertaking "super due diligence" to ensure there are no problems.

If you are a bank that is still doing business in Venezuela, the best approach is to instil these practices, including training, to be sure all the necessary checking is undertaken prior to any transactions which may create an AML problem with examiners and auditors.

BNamericas: Do you believe that change is imminent in Venezuela? How soon could business opportunities open up there?

Gutierrez: When Vice President Mike Pence came back from Bogotá last week, the first thing that [US secretary of state] Mike Pompeo announced was that there would be additional sanctions against Venezuela. The government is pursuing diplomatic solutions and the most powerful tool is sanctions. I don't see them going away soon. Just today [March 1] there were new sanctions imposed against high ranking officials for blocking aid convoys into the country.