One startup lists as its address a small home in a working-class district in Venezuela's capital whose owner has never heard of the firm. Another is a Hong Kong-based shell company created in 2020. Yet another belongs to a Spanish commodities trader indicted in the U.S. for allegedly helping Russian oligarchs launder ill-gotten profits.
They are among the dozens of obscure middlemen and go-betweens at the center of a new crackdown in Venezuela on corruption in the state-run oil industry that has government insiders scurrying for cover. At the same time, regular Venezuelans are asking how more than $20 billion in proceeds from oil shipments seemingly vanished.
The purge began this month when authorities arrested 21 people, including business executives, senior officials and a lawmaker, as part of an investigation into missing payments for oil shipments. In a sign of the government’s desire to promote its anti-corruption crusade, state media this week were filled with images of the defendants dressed in orange jumpsuits walking into their initial judicial hearing.
Corruption has long plagued Venezuela — the OPEC nation was the fourth-most corrupt in the world in the latest rankings by Transparency International — but those in positions of power are rarely held accountable.
And when high profile arrests do take place, Venezuelans tend to view them as the result of a behind-the-scenes tug of war among rival heavyweights in the ruling socialist party, and not any impartial meting out of justice in a country where most institutions lack independence.
An entrenched culture of corruption and the inherently opaque nature of trading illegal crude oil take malfeasance to another level.
“These are two things that come together at the same time," said Francisco Monaldi, a Venezuelan economist who heads the Latin America energy program at Rice University’s Baker Institute for Public Policy. “It would be very difficult for even a much less corrupt state to implement all the necessary controls.”
While the fallout from the scandal continues, it already has felled one major power broker — Tareck El Aissami, the country's oil czar. He quit in the wake of the arrests, which included the detention of a close associate, Joselit Ramirez, who had been serving as Venezuela's cryptocurrency regulator. The U.S. already considered both of them fugitives from justice.
While Venezuelan authorities have not mentioned El Aissami as a target in the investigation, most of the shady transactions at state-run oil giant Petroleos de Venezuela SA occurred under his watch and while Asdrubal Chávez, a cousin of the late President Hugo Chávez, served as president of the company, known widely as PDVSA.
“As a revolutionary militant, I place myself at the disposal of the socialist party leadership to support this crusade .... against the anti-values that we are obliged to fight, even with our lives,” El Aissami tweeted to announce his surprise resignation as oil minister.
Internal PDVSA documents obtained by The Associated Press show the state oil company was owed $10.1 billion as of August 2022 from 90 mostly unknown trading companies that have emerged as major buyers of Venezuelan crude since the U.S. imposed economic sanctions in a campaign to oust President Nicolás Maduro.
An additional $13.3 billion, corresponding to 241 tanker shipments, is owed directly to the national government as a result of an October accounting maneuver by PDVSA that reassigned responsibility for collecting the unpaid invoices directly to the Maduro administration in lieu of cash royalties. That is more than the entire foreign currency reserves held at Venezuela’s central bank.
All the oil cargoes were sold on consignment at a deep discount owing to the sanctions, which have dissuaded more established traders from doing business with Venezuela.
PDVSA's reliance on intermediaries surged in 2020, when the Trump administration expanded sanctions with the threat to lock out of the U.S. economy any individual or company, regardless of nationality or location, that did business with Maduro's government.
The punishing action, combined with a pandemic-induced global slump in demand for oil, led PDVSA's production that summer to drop to as little as 350,000 barrels a day — just 10% of what it produced when Chávez took office in 1999.
To sell what little is being produced, Maduro, with the help of allies Russia and Iran — themselves under U.S. sanctions — has had to rely on a complex network of intermediaries. Most are shell companies, registered in jurisdictions known for secrecy like Panama, Belize and Hong Kong. The buyers deploy so-called ghost tankers that hide their location and hand off their valuable cargoes in the middle of the ocean before they reach their final destination, usually in Asia.
To get around Western banks, Venezuela started accepting payments in Russian rubles, bartered goods or cryptocurrency.
But not everyone paid.
The internal documents show that uncollected payments owed to PDVSA by the go-between brokers range from as little as $526 to $1.2 billion as of August.
Among those on the delinquent list is Walker International DW-LLC, which owes PDVSA about $77 million, according to the internal documents. The company is registered in the United Arab Emirates but lists as its Venezuela address a modest house almost at the foot of the mountain range that separate Caracas from the Caribbean Sea.
The owner of the home, Andres Muzo, expressed shock that his home could somehow be connected to a case of international corruption.
“I’m finding about this right now,” Muzo said after seeing his address in Dubai corporate records, which were first unearthed in a November report by the Venezuelan investigative news website Armando.info. He shook his head and said he would ask the people who rent his adjacent garage for a car wash and oil-change business if they knew anything.
“They have tools in there, but no, we don’t know anything,” Muzo said standing outside the home with decorative clay tiles on the roof and brown ceramic tiles on the weathered façade. “They must be clandestine companies, I would say. They have nothing, nothing under my name, not even a piece of paper.”
A small lock keeps shut the rolling garage door with a message that instructs drivers not to block it.
At least 15 of the 90 defaulters accumulated debts for two consecutive years.
The broker with the largest debt is M and Y Trading Co. Little is known about the company, which was registered in Hong Kong in late 2020. But it owes PDVSA more than $1.2 billion, according to the internal documents, which someone knowledgeable about the transactions shared with AP on the condition that they remain anonymous.
Another preferred vendor was United Petroleo Corp, which was registered in Panama in 2021 and owes more than $468 million to PDVSA. One of United's cargoes — a 600,000-barrel shipment last September — is at the center of a controversy on the Dutch Caribbean island of Curacao, where the Venezuelan crude is being stored at a facility tied to U.S. investors in possible defiance of sanctions.
Yet another of PDVSA's go-to partners was Treseus International. The commodities broker took possession of only $16 million worth of oil from PDVSA, almost all of which it has paid. But the company, which did not respond to an email seeking comment, stands out for the alleged criminal activity of its chief executive officer, Juan Fernando Serrano.
Serrano, a commodities trader, was indicted last year on money laundering charges in a New York federal court for conspiring to smuggle oil on behalf of wealthy Russian businessmen. That court also wants El Aissami and Ramirez on charges of violating U.S. sanctions stemming from El Aissami's 2017 designation by Washington as a “drug kingpin” for allegedly helping cartels smuggle multiple cocaine shipments through Venezuela.
Venezuelan authorities have yet to say how much money may be missing, nor has the government mentioned specific companies it is investigating. But Maduro has used some of his recent evening appearances on state TV to warn ministers and other officials against corruption and urge them to do their jobs. Ruling party supporters even gathered for an anti-corruption protest in Caracas.
“I think it's a horrible thing. One trusts people and doesn't know they are a lion in sheep's clothing,” said Lidia Rondón, a housewife who participated in the demonstration. “This destroys us all.”
Past crackdowns — like the arrest of a former PDVSA president in 2017 — did little to clean up the Venezuelan oil industry, which is responsible for almost all of the country's hard currency earnings. Many analysts suspect Maduro is looking to finally address critical cash flow problems and stabilize the economy before next year's presidential election.
“Coffers are bare and the country is entering an election year in which Maduro wants to convey a message that Venezuela is getting back on track,” said Geoff Ramsey, a senior fellow at the Atlantic Council. “The more it becomes clear that the economy remains in dire straits, the more Maduro will look for people to take the fall.”
