Authorities Investigate 190 Companies for Currency Exchange Fraud in Venezuela

Mérida, 20^th October 2014 (Venezuelanalysis.com) – Venezuelan authorities are investigating 190 companies for suspected fraudulent use of preferential dollars granted for product imports.

The investigations are part of a policy by President Nicolas Maduro, who last year set up a commission to identify incorrect use of foreign currency granted to companies in 2011, 2012 and 2013.

The South American country has maintained currency exchange controls since 2003 in order to prevent capital flight and plan the use of foreign currency earnings, which almost entirely come from oil sales. As a result access to foreign currency is limited, with companies and individuals applying to the state regulator if they wish to purchase foreign currency for imports, travel or foreign study.

The government currently operates three official exchange rates ranging between 6.3 and 50 bolivars to the US dollar. On the black or “parallel” market, a dollar can cost up to 100 bolivars. In consequence, there exists a speculative activity in Venezuela whereby those with access to preferential currency can sell this money or goods imported with it at a black market price for an immediate profit.

In the current phase of investigations, the currency exchange regulator Cencoex is summoning companies to demonstrate that they have used preferential foreign currency grants for the purpose that they were requested. If a company fails to do so, it is banned from requesting further access to foreign currency. It can also face a criminal investigation for fraudulent use of foreign currency, which may carry a prison sentence of 3 to 7 years for those involved.

Along with price speculation, hoarding and contraband smuggling, the Venezuelan government considers fraudulent use of foreign currency to be part of an “economic war” by hostile business groups that is creating problems such as goods shortages and high inflation.

The political opposition and some economists argue that the tightening of currency controls has reduced imports and caused shortages, and that such policies are part of an overly statist or “irrational” economic approach which is to blame for current problems.

According to Venezuelan financial daily El Mundo, from 2003 – 2013 the state regulator granted US $300 billion in foreign currency to over 10,000 companies. The paper also reported that former finance minister Jorge Giordani stated last year that of this amount it is estimated that $20 billion was given to “false” companies that used the money for fraudulent ends.