Prosecutors in Ecuador are investigating $135 million in suspicious transactions that flowed through a shared virtual currency system with Venezuela, highlighting the ways criminals can exploit financial systems designed to facilitate trade for their own gain.
According to Attorney General Galo Chiriboga, the Attorney General's Office has started investigating $135 million in “illegal exports” to Venezuela that flowed through the Unitary System of Regional Compensation (which goes by the Spanish acronym SUCRE), a virtual currency adopted in 2009 by members of the regional trade bloc ALBA that was designed to ease trade, reported Agence France-Presse.
Exporters allegedly sent only $3 million worth of goods to Venezuela, but claimed income of over $130 million, according to AFP, a money-laundering tactic known as trade mis-invoicing. The money reportedly stayed in Ecuador for only 72 hours, eventually heading to the United States, Venezuela, and other tax havens.
InSight Crime Analysis
Although the attorney general did not specify which companies are under investigation or on which dates the suspicious transactions occurred, their investigation was likely prompted by an investigation published in April by Ecuadorian newspaper El Universo, Miami-based newspaper El Nuevo Herald, and Venezuelan journalist outlet Armando.info.
In that investigation (which InSight Crime translated here) reporters uncovered $238 million in suspicious SUCRE transactions involving 60 Venezuelan companies and 30 Ecuadorian companies, much of which ended up in Panama and Florida. Companies routinely overvalued their exports, allowing them to launder vast amounts of money, and in some cases claimed exports that never existed at all.
SEE ALSO: Coverage of Money Laundering
Trade mis-invoicing happens when companies claim their exports are worth more than they actually cost. In one case cited by the Wall Street Journal, an Ecuadorian exporter claimed a one-kilo shipment of calcium carbonate cost $1,000, when in reality calcium carbonate costs 17 cents. That extra $999.83 can then be claimed as legitimate income, allowing illicitly obtained profits to enter the financial system.
Hundreds of millions of dollars pass through the SUCRE every year, much of it legitimate trade. See the Wall Street Journal’s graphic below on how the SUCRE actually works:
Claiming overvalued exports is not just a money-laundering tactic. In Venezuela, both importers and exporters routinely overvalue their products to get access to the government’s preferential exchange rate, allowing them to sell cheaply obtained dollars for much higher rates on the black market, where strict currency controls have created vibrant, but illegal, parallel currency exchange markets, according to the New York Times.
The latest investigation is far from the first when it comes to illegal use of ALBA's SUCRE. In 2013, authorities deemed over five percent of SUCRE transactions suspicious, and numerous reports have chronicled how Ecuadorian and Venezuelan banks, as well as importers and exporters have abused the virtual currency. If the latest investigation is any indication, the amount of suspicious SUCRE transactions could well exceed that five percent figure.