Venezuela Prohibits Financial Transactions with Off-shore “Fiscal Paradises”

Merida, June 22^nd, 2010 (Venezuelanalysis.com) – Sudeban, Venezuela’s independent bank and financial institutions regulator that acts under the Banks and Financial Institutions Law, with the approval of the Central Bank of Venezuela (BCV), passed a resolution last week to prohibit financial operations and transactions with off-shore banks in countries that apply little regulation.

That is, in the words of the resolution, “in countries, states, or jurisdictions with low taxes, without supervision or monetary, banking, or financial regulation and with strong bank secrecy protection.”

In Sudeban’s press statement it emphasised that the prohibition was only between Venezuelan financial institutions and other such overseas institutions situated in “fiscal paradises” where there are highly favourable tax situations and “freedom in their operations” but the resolution does not in any way limit or affect commercial relations with such countries.

The statement motivated the measure as a mechanism of “prevision that mitigates the risks that can cause economic instability as a result of operations or transactions with risk levels that are higher than normal or than what is generally accepted … and that … constitute potential losses of financial resources [from Venezuela] or the impossibility of knowing the origin or destination of those.”

The Venezuelan government, the BCV, and Sudeban have been cracking down on speculation and other financial abuses recently, including investigating, temporarily closing, and nationalising some small banks, investigating stockbrokers, and passing resolutions and reforming laws, such as the recently reformed Illicit Exchange Law, which made the BCV the only institution allowed to facilitate foreign exchange buying and selling.

Last Thursday president Hugo Chavez also announced that a total of US$1 billion in reserves would be liquidated in order to meet the requests of 1,802 companies seeking less than $1.5 million and 582 companies requesting between US$1.5 million and US$3 million, which represent 80% of the total number of companies with requests with CADIVI.

Since 2003 the government has fixed the exchange rate of the bolivar to the dollar, initially at 2.15 to the dollar, and now at 4.3, in order to limit capital flight, increase foreign currency reserves, and encourage domestic investment.

Any companies or individuals seeking dollars in order to import must request them from CADIVI, or buy them on the regulated foreign exchange market through the BCV, where dollars tend to cost more than the official exchange rate.

The 2,384 companies being supplied with dollars come from food, health, commerce, metal, chemical, information, textile, graphic, machinery and auto sectors.

Chavez said that between 1 January and 15 June this year, CADIVI has authorised US$11 billion for exports, an increase of 24% compared to the same period last year.

Of that money so far authorised this year, US$332.8 million went to the graphic, paper, and footwear sector, a large increase with respect to last year. Also in the first five months, CADIVI authorised US$1.48 billion for the health sector, also a large increase on last year.