HomeNewsAnalysisIs There a Link Between the Dollarization of Venezuela and Organized Crime?
ANALYSIS

Is There a Link Between the Dollarization of Venezuela and Organized Crime?

MONEY LAUNDERING / 24 OCT 2019 BY VENEZUELA INVESTIGATIVE UNIT EN

“Eat here for $1,” reads a large sign in red letters outside a fast food joint in the center of Caracas, the capital of Venezuela.

Rayza Calaforra comes her to eat almost every day. For one dollar, she can buy an arepa (a traditional corncake) for breakfast. When the menu changes, she can buy an empanada and juice for the same price.

“Even though an arepa or other food may be more affordable somewhere else, it's more practical for me to pay directly in foreign currency,” explains Calaforra, who receives part of her salary in US dollars, as do most Venezuelans with formal jobs.

SEE ALSO: Venezuela News and Profile

The deal is tempting in a country where the official currency is the bolívar, which is suffering from inflation at around 10 million percent. A year ago, the use of the US dollar was practically banned for Venezuelans. Transactions in dollars were under severe restrictions and the unlicensed use of the US currency could land people in jail.

Then everything changed. The country went from having tight controls on monetary exchanges to fiscal anarchy, where the dollar appears to have displaced the devalued bolívar. How Venezuela came to have thousands of US bills in free circulation is unknown. But today, tradesmen, businessmen, taxi drivers, fruit sellers, even doctors and lawyers carry out their transactions in dollars, or even euros.

But some experts have an explanation for the country’s new dollar craze: organized crime.

Luis Vicente León, president of survey company Datanálisisexplained that due to the scarcity of Venezuelan paper money, more than 35 percent of transactions in the country are conducted in foreign currency. But this has kicked the door wide open for the creation of shell corporations acting as fronts for money laundering operations. “As this situation continues, the market is very attractive for illicit operations,” he warned.

Criminal lawyer Luis Izquiel confirmed to InSight Crime that foreign currencies currently drive Venezuela’s precarious economy. “A large part of these bills enter our economy through organized criminal activities without us realizing it. No one can explain how an informal vegetable seller can quote a kilo of potatoes in dollars or how a taxi driver, in the middle of a blackout, charges for his services in dollars and has the cash on hand to give you your change.”

Criminals are also demanding US dollars be used for ransoms, extortion fees, and when desperate people pay to flee the country. Businessmen, merchants and police officers in the state of Aragua told InSight Crime that criminal gangs favor dollars be used when extortion payments as the cash cannot be traced.

Strengthening of Organized Crime

León added that there are multiple incentives for informal activities in Venezuela. “It is evident that organized crime will flourish in an economy isolated by US sanctions on government officials and state-run businesses, and hyperinflation and induced dollarization (play into their hands.)”

He stated that, based on data from economic consultancy Ecoanalítica, more than $6 billion in US currency is circulating within Venezuela, largely linked to three criminal economies: gold smuggling, oil smuggling and drug trafficking.

Alejandro Rebolledo, a former Venezuela Supreme Court Justice and money laundering expert currently living in exile, said "criminals have found the country to be a safe haven for smuggling food and medicine, counterfeiting medicines and spare vehicle parts, as well as for drug trafficking, illegal mining, kidnappings and extortions. Payments for all these [activities] are in dollars.”

Rebolledo told InSight Crime that neighborhoods designated as “peace zones” have been entirely surrendered to criminal groups, operating with impunity since the police do not enter.  “In Caracas, the 23 de Enero parish, which is controlled by ‘colectivos,' may have more arms and ammunition than any military battalion. All of the weapons trafficking and selling arms is handled in hard cash with US dollars, as are illegal activities inside prisons.”

SEE ALSO: Venezuela Mulling Outlandish Plan to Access Frozen Gold in London

Rebolledo says that the Nicolás Maduro administration has laundered billions of dollars from Venezuela using frontmen, to disguise these operations. He explained that the money laundering of the Venezuelan regime has been tracked through the arrests of Venezuelans or their associates abroad. “This is how they have identified the routes, names, bank accounts, PDVSA corruption cases, invoices and shell companies involved," Rebolledo explained.

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