contributor perspectives

Jul 25, 2019 | 10:00 GMT

5 mins read

Corruption Lies at the Heart of Venezuela's Chaos

Board of Contributors
Eduardo Salcedo-Albaran
Board of Contributors
Numerous people wearing caps in the colors of the Venezuelan flag take part in a protest against the government of President Nicolas Maduro on Venezuela's day of independence.
(RAFAEL BRICEÑO SIERRALTA/NurPhoto via Getty Images)
Contributor Perspectives offer insight, analysis and commentary from Stratfor’s Board of Contributors and guest contributors who are distinguished leaders in their fields of expertise.
Highlights
  • Venezuela is suffering from unique humanitarian, economic and institutional crises, but the common root of all three problems is the country's widespread corruption.
  • Officials in President Nicolas Maduro's government have absconded with billions of dollars from the public budget by abusing the official exchange rate.
  • As the links between the humanitarian disaster and graft become more evident, it will increasingly become harder to stabilize Venezuela in the long run.

It's a humanitarian, economic and institutional crisis that has grabbed the world's attention. According to the United Nations refugee agency, more than 4 million Venezuelans left their country between 2015 and June 2019, seeking refuge in Colombia, Peru and Brazil. In the economic field, the International Monetary Fund projects that Venezuela's hyperinflation will reach a whopping 10 million percent this year. And in terms of institutions, the country has had two presidents since January: Nicolas Maduro, who is supported by the Venezuelan security forces but lacks diplomatic recognition from most of the West, and Juan Guaido, who enjoys Western support but lacks local military support.

But lost amid Venezuela's dire humanitarian, economic and institutional crises is the underlying cause that is fueling the country's chaos: corruption. Deeply ingrained at all levels of Maduro's government, corruption is devouring Venezuela's wealth as it exacerbates Caracas' other problems and complicates the prospect that the country will overcome its woes for some time to come.

Bringing Up the Rear 

Since 2015, Venezuela has plumbed the depths of Transparency International's Corruption Perception Index (CPI), ranking 168 out of 180 countries and scoring no more than 17 or 18 points out of 100. By way of comparison, Burundi — whose long-time president has drawn criticisms for hanging on to power and clamping down on the opposition — ranked higher than Venezuela, earning 22 points in 2017.

In last year's CPI, in fact, Venezuela had Afghanistan (16 points), South Sudan (16) and Chad (19) to share for company. All three are countries that are characterized by weak and small economies, and none of them boast massive oil reserves — unlike Venezuela.

High levels of opaqueness, egregious public mismanagement, legal uncertainty, an overconcentration of power in Maduro's hands and a profound lack of checks and balances lie at the root of Venezuela's low CPI. Today, the country provides the perfect institutional conditions to foster graft on a macro scale unseen anywhere else in the Western Hemisphere. Even so, Venezuela's CPI score doesn't reflect the magnitude of the country's situation and the scandalous sums of money that have gone missing from the budget during the past decade. Indeed, no other country in the Americas has witnessed such a convergence between massive injections of cash due to booming oil prices and cases of money laundering, corruption and drug trafficking involving high-level officials.

Today, Venezuela provides the perfect institutional conditions to foster graft on a macro scale unseen anywhere else in the Western Hemisphere.

In a recent report, the Venezuelan chapter of Transparency International reviewed cases of corruption and money laundering against Venezuelan officials and businesspeople in the United States, Colombia, Andorra and other countries in which Maduro's government has used the financial system to channel and launder profits gained through corruption.

And because of Maduro's extensive powers, the Venezuelan judiciary focuses on partial prosecutions that benefit the regime, meaning that real cases of graft involving the government never make it before a judge. As a result, it is only foreign jurisdictions that prosecute money laundering cases related to corruption in Venezuela.

Absconding With Billions

Brazil's "Lava Jato" (Car Wash) scandal, one of the biggest cases of transnational corruption ever recorded anywhere, drew international attention because of the huge bribes that changed hands — some of which reached $100 million. The Brazilian case, however, pales in comparison to what has happened in Venezuela.

To understand the magnitude of Venezuelan corruption, consider the amount of the public budget that went missing when authorities manipulated and abused official exchange rates to overpay loans to privileged companies involved in corruption. In one scheme that occurred in December 2014 and May 2015, Venezuela's national oil company, Petroleos de Venezuela (PDVSA), acquired a loan of $41 million — corresponding to 7.2 billion Bolivars — from a certain firm before paying it back for a huge markup of $600 million, according to an indictment at the Southern District of Florida. According to the prosecution, payments like these went to companies that then used other fictitious firms to channel the money to friends and conspirators of officials inside PDVSA and Maduro's government. Ultimately, the shady dealings allowed officials in the national oil company and the government to abscond with $1.2 billion from the Venezuelan public budget as part of two loans.

But this is just one case. In another that the Southern District of Florida is also hearing, officials allegedly engaged in improper conduct that cost the budget more than $2.4 billion. Together, these two cases account for $3.6 billion in lost funds for Venezuela's public budget.

As the Democratic Republic of the Congo has shown, the convergence of massive corruption and abundant natural resources will almost inevitably degenerate into a situation in which people are victimized on a widespread scale. With Venezuela's crisis set to deepen — to the extent that it might result in famine and send millions of refugees streaming into the country's neighbors — the spotlight will soon fall more on the causal links between the humanitarian catastrophe and unprecedented corruption. Such a perfect storm of endemic corruption and humanitarian disaster will throw formidable obstacles in the way of any stabilization effort in the country or the region — thereby hindering even further the chances of a regime change promoted by the United States.

Eduardo Salcedo-Albaran is the director of Scientific Vortex Foundation Inc., a transnational research group and nonprofit that develops concepts, methodologies and inputs for public policy under integrative science principles. He is currently developing transdisciplinary research on transnational criminal networks in Colombia, Peru, Guatemala and Mexico.

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