In 2003 Hugo Chavez implemented a currency control system in Venezuela, which in turn created a black market for foreign currency and the means for corrupt insiders to manipulate these controls to earn huge sums of money.
PDVSA, the state oil company and the source of almost all of the nation’s export earnings, was required to transfer dollars to a new agency, the Commission for the Administration of Foreign Currency (CADIVI), which then sold those dollars at an overvalued artificial official rate, but only to a selected few. Those who do not have access to this official rate must turn to the black market to obtain foreign currency.
The rigged central exchange rate through the state-controlled DICOM auction system as of 22 October 2018 was 63.81 Sovereign Bolivars (VES) to 1 USD. The black-market exchange rate was 171.34 VES to 1 USD. Without access to the preferential rate, dollars are almost triple the price. Since Venezuela is heavily dependent on imports paid for in dollars, life is nearly three times more expensive without access to the official exchange rate.
Who accesses the official rate? The most recent auction data showed only 9 companies and 975 individuals as successful bidders, from a total of 40,045 companies and 563,777 individuals registered to participate. With a population of 32 million, the vast majority of Venezuelans’ demand for foreign currency is being satisfied by the black market. Even among those who are the registered participants, 99.98% of companies and 99.83% of individuals needed to seek dollars on the black-market. Only a selected few are allowed to buy at the official rate, enabling those insiders to cash in to an extraordinary extent.
This corruption machine enables 1,000 dollars to be turned into 1 million in a matter of days. Anyone with privileged access to the system can earn a fortune by purchasing US dollars at the official price and then selling these dollars on the black-market. The process can be repeated time and time again. The corrupt officials who run the system earn a fortune in kick-backs from those to whom they grant access to the preferential rates.
The US Department of Justice has indicted a sizeable number of Venezuelans on money laundering charges related to funds obtained through the corrupt foreign exchange scheme. The DOJ alleges that the defendants exploited the disparity between official exchange rates and market values to defraud PDVSA and, by extension, the people. Court documents state that in 2014 the open market rate was 60 bolivars to $1, while the official rate was just 6 bolivars to $1. The defendants are accused of acquiring bolivars on the open market and selling them for 10 times that value on the official exchange and then seeking to launder the proceeds of their corruption through South Florida real estate and other investments in the USA. Venezuelan officials are accused of taking bribes for giving access to the favourable official exchange rate.
The $1.2 billion in this case is just a drop in the ocean. Hundreds of billions of dollars have been stolen through Chavez’s currency control system. It represents the largest theft in Venezuelan (and possibly South American) history.
The robbery continues even today. That the government is committed to allowing regime elites to enrich themselves during a massive humanitarian crisis is deeply reprehensible.
More information on the Venezuela Campaign can be found on their website.