An overhead view of real-estate property in Miami. The Maduro regime’s cronies have leveraged loopholes in US real-estate markets to launder money on behalf of the Venezuelan government. Photo Credit: PxHere
In June of 2020, the federal government seized two multimillion-dollar Miami properties owned by Jesus Veroes and Luis Chacin, Venezuelan businessmen who pled guilty to violations of the Foreign Corrupt Practices Act. Veroes and Chacin admitted to bribing officials at Venezuela’s state-owned electricity company, Corporación Eléctrica Nacional (CORPOELEC), for procurement contracts and funneling over $60 million in corrupt funds through US financial institutions and real estate transactions.[i]
These high value seizures highlight flaws in a years-long federal initiative to divest corrupt Venezuelan actors from US real estate markets. Despite a coordinated interagency assault, Venezuelan criminal networks continue to launder illicit funds through US real estate by capitalizing on state and federal under-regulation of corporate incorporation requirements. The proliferation of Venezuelan-owned, US shell companies allows corrupt actors to undermine the efficacy of the Trump administration’s efforts to address public corruption in Venezuelan President Nicolás Maduro’s government.
Since January 2016, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has issued geographic targeting orders designed to inhibit money laundering in the real estate sector. Title insurers are required to report information regarding certain all-cash purchases of residential real estate by legal entities in markets considered prone to abuse: Manhattan, Miami-Dade County and several others.[ii] Through published advisories, FinCEN has also listed CORPOELEC and other Venezuelan state-owned-enterprises as potential “vehicles to move, launder, and conceal embezzled corruption proceeds” and provided guidance to assist financial institutions in identifying suspect transactions.[iii]
Treasury’s Office of Foreign Assets Control (OFAC) and the State Department have sanctioned dozens of actors involved in these schemes, freezing financial assets and restricting international travel.[iv] Simultaneously, the Justice Department has aggressively prosecuted both sanctioned and non-sanctioned offenders. One ongoing criminal proceeding in the Southern District of Florida has identified Venezuelan businessmen and public officials accused of laundering $2.4 billion from Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s state-owned oil conglomerate.[v] Much of that revenue was invested in high-value real estate located in Texas and Florida.[vi]
Difficulties of the Current Approach
Criminal actors continue to exploit US real estate markets through the incorporation of shell companies, a booming industry. Shell companies – legal entities designed to conceal their ultimate (or beneficial) owners – shield criminal actors from oversight. Often, the publicly-listed controlling figures within these companies are law firms, hired associates, or relatives of criminal actors, obfuscating the illicit origination of the funds. Shell companies are popular vehicles for money laundering and, as of 2017, were estimated to account for 30% of all-cash real estate purchases in high-risk US jurisdictions.[vii]
While more companies originate annually in the US than anywhere else in the world, the industry remains largely under-regulated. Each state maintains its own incorporation and beneficial-ownership disclosure requirements, as well as its own corporate registry. Although certain federal beneficial-ownership reporting requirements do exist under the Securities Exchanges Act and Bank Secrecy Act (including the Customer Due Diligence Rule), these apply solely to publicly-traded companies.[viii] Uneven reporting requirements allow criminal actors to exploit opaque environments and intra-jurisdictional investigatory barriers.
Legislation under consideration by the House and Senate auspices reforms in reporting requirements. The Corporate Transparency Act of 2019, which passed the House last October, would expand FinCEN oversight to cover many newly-formed corporations and LLCs, requiring beneficial-ownership disclosure and annual information updates. FinCEN, in turn, would be authorized to disclose such information to investigating law enforcement agencies.[ix] The Senate introduced a similar bill last June – the True Incorporation Transparency for Law Enforcement (TITLE) Act – which would require states, not FinCEN, to collect beneficial-ownership information.[x] Both bills promise greater visibility for state/federal agencies and financial institutions into the true source of corporate funds.
As the means available for corrupt Venezuelan actors to circumvent federal enforcement mechanisms and conceal illicit funds in US real estate markets dwindles, elite support for President Maduro will wane. The Obama and Trump administrations have focused their attacks on the Maduro government through targeted sanctions against high-profile regime backers: Defense Minister General Vladimir Padrino, Attorney General Tarek Saab, Oil Minister Tareck El Aissami and many others.[xi] While several sanctioned actors have defected, notably former intelligence chief General Manuel Figuera, most have survived US and multilateral actions through offshore investments.[xii]
Enhancing the corporate reporting requirements which have, among other things, allowed sanctioned figures such as Padrino to acquire $4.5 million in US properties through family-managed shell companies will isolate Maduro’s key backers from the international financial system and undermine the corrupt calculus which undergirds their support for his regime.[xiii] As is the case for many of today’s issues of national security within the globalized economy, foreign problems often demand domestic solutions. Beneficial-ownership reforms may prove to be the lynchpin in curtailing corrupt foreign investment in US real estate markets, a precursor to the decline of a corrupt and repressive foreign regime.
[i] “Two Former Venezuelan Officials Charged and Two Businessmen Plead Guilty in Connection with Venezuela Bribery Scheme,” United States Department of Justice, June 27, 2019. ; Katherine Kallergis, “Feds to Seize Miami Real Estate Allegedly Tied to $60M Venezuelan Money Laundering Scheme,” The Real Deal, June 27, 2019.
[ii] “FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami,” Financial Crimes Enforcement Network, January 13, 2016. ; “FinCEN Renews Real Estate ‘Geographic Targeting Orders’ to Identify High-End Cash Buyers in Six Major Metropolitan Areas,” Financial Crimes Enforcement Network, February 23, 2017.
[iii] “Advisory on Widespread Public Corruption in Venezuela,” Financial Crimes Enforcement Network, September 20, 2017.
[iv] “Treasury Sanctions Officials of the Illegitimate Maduro Regime Involved in Rampant Corruption,” United States Department of the Treasury, June 27, 2019.
[v] “Two Members of Billion-Dollar Venezuelan Money Laundering Scheme Arrested,” United States Department of Justice, July 25, 2018 ; Clare Ribando Seelke, “Venezuela: Overview of U.S. Sanctions,” Congressional Research Service, August 20, 2020.
[vi] Daniel Harris and Victor Salazar, “Managing Sanctions-Related Risk in Venezuela: State-Owned Enterprises, Corruption, Narcotrafficking, and Beyond,” Kharon, March 2019.
[vii] Jodi Vittori, “How Anonymous Shell Companies Finance Insurgents, Criminals, and Dictators,” Council on Foreign Relations, September 7, 2017.
[viii] Marcus A. Asner et al., “Shining a Spotlight: US Legislation to Require Disclosure of US Companies’ Beneficial Ownership,” Arnold & Porter, June 3, 2020.
[ix] Peter J. Henning, “Is This the End of Anonymous Shell Companies? Not Too Fast,” The New York Times, July 11, 2019.
[x] Asner et al.
[xi] “Treasury Targets Venezuelan President Maduro’s Inner Circle and Proceeds of Corruption in the United States,” United States Department of the Treasury, September 25, 2018. ; “Treasury Sanctions 13 Current and Former Senior Officials of the Government of Venezuela,” United States Department of the Treasury, July 26, 2017.
[xii] “Treasury Removes Sanctions Imposed on Former High-Ranking Venezuelan Intelligence Official After Public Break with Maduro and Dismissal,” United States Department of the Treasury, May 7, 2019.
[xiii] “The General and his Corporate Labyrinth,” Organized Crime and Corruption Reporting Project, April 10, 2020.