A Battle Over Billions in Stolen Venezuelan Funds Is Heating Up in Miami Federal Court

May 26, 2020by Jay Weaver, Miami Herald (TNS)
The logo of Venezuelan state-owned oil company PDVSA atop a gas station in Caracas, on November 14, 2017. (Federico Parra/AFP/Getty Images/TNS)

MIAMI — The fate of billions of dollars squirreled away in the bank accounts, luxury properties and exotic cars of convicted Venezuelan officials and their business cronies has become entangled in a colossal legal battle in Miami federal court.

On one side is Venezuela’s opposition party, struggling to recover vast sums of money stolen by senior officials in the Nicolás Maduro regime through bribery and financial schemes in its state-run oil company.

On the other side is the U.S. government, which — as long as Maduro remains in power — refuses to turn over any assets seized from the dozens of defendants charged with plundering Petróleos de Venezuela, S.A., and hiding the money in U.S. and European bank accounts.

The legal and political hurdles to any resolution are high.

For one thing, Maduro has shown little sign of losing his grip on the presidency amid Venezuela’s economic free fall — despite being recently indicted on narco-terrorism charges by the U.S. Justice Department and the country’s national oil company, PDVSA, being placed on a Treasury Department sanctions list.

Moreover, secret negotiations between Justice Department lawyers and representatives of Venezuela’s opposition party headed by Juan Guaidó over how to distribute the PDVSA money have sputtered. The opposition’s lawyers admitted in a recent court filing that “it does not appear that such an agreement is near fruition at this time.”

That lack of progress has heightened the importance of a massive Venezuelan corruption case in Miami that could have repercussions for the future of Venezuela’s embezzled government funds.

“If it all hasn’t been spent on Ferraris and real estate, we’re talking about billions of dollars at stake,” said Russell Dallen, a lawyer and investment manager with businesses in South Florida and Caracas, who has followed the series of Venezuelan money-laundering prosecutions in Miami and Houston. “The money was all stolen from PDVSA.”

The Miami case accuses PDVSA officials, businessmen close to Maduro’s regime and other associates of converting a $40 million loan to the national oil company into a $600 million windfall in 2014 and 2015 through a favorable currency-exchange system available only to political insiders.

Of the nine defendants charged in the case, three have pleaded guilty, including Abraham Edgardo Ortega, the former executive director of financial planning at PDVSA. He admitted pocketing $12 million in bribes for helping shell companies make sham loans to the state-run oil enterprise so they could be repaid through the government’s preferred currency-exchange system. A federal judge has already allowed the federal government to forfeit Ortega’s millions as part of his plea agreement.

Last year, his individual case opened the door for the Venezuelan government to step into the fray in the hope of recovering not only Ortega’s illicit payments deposited in South Florida, but also all the money that the government claims it lost resulting from his corrupt conduct as a senior oil official.

However, it was soon discovered that Maduro’s attorney general was leading the effort to recover that money on behalf of the Bolivarian Republic of Venezuela. U.S. prosecutors made it clear that the Trump administration only recognized Maduro’s political opponent, Guaidó, the leader of the National Assembly, as interim president of Venezuela. Then, a lawyer designated by Guaidó entered the picture, saying that the opposition was the rightful representative of the Venezuelan republic.

But now, after the failure of negotiations behind the scenes, Guaidó’s legal representative and a Washington, D.C., law firm have taken a 180-degree turn in their tactics. Rather than being advocates for the Venezuelan republic, they are seeking to recover the money in the Miami case for the benefit of PDVSA, claiming the national oil company is a “victim” of embezzlement by so-called Venezuelan kleptocrats. The Justice Department not only refuses to recognize PDVSA as a victim under federal law, but also believes that the state-run oil company under Maduro has been “complicit” in bribery and financial schemes that have drained the nation of valuable resources for food, medicine and housing.

The outcome of this dispute with U.S. prosecutors in Miami and Washington could have implications for the billions of dollars being targeted by the Justice Department in various Venezuelan corruption prosecutions in the United States.

In a court filing, Guaidó’s U.S. lawyers at Arnold & Porter describe Ortega as a “rogue employee” who committed his crime against Venezuela’s state-owned oil company and therefore PDVSA is a victim under U.S. law and entitled to funds seized by the Justice Department.

“The record shows that Ortega, then an executive of PDVSA, conspired to embezzle hundreds of millions of dollars from PDVSA and launder the proceeds,” according to a court filing. “Ortega accepted $12 million in bribes and was slated to get even more when the authorities stepped in; in exchange, he manipulated the levers of PDVSA from within to channel fake ‘loan repayments’ to shell companies in order to extract money from PDVSA.”

Arnold & Porter declined to comment on its move to substitute PDVSA for the Venezuelan republic in its quest to recover money on behalf of the opposition party and Guaidó. According to a court filing, that strategic decision was made by Guaidó’s special attorney general, José Ignacio Hernández.

“The special attorney general concluded that the Republic is not the appropriate applicant for recognition of victim status and restitution, but rather the appropriate applicant is PDVSA,” the filing says, noting it was essential “to protect the assets of the Venezuelan people.”

To U.S. prosecutors, PDVSA, including its U.S. subsidiaries at Citgo, is synonymous with corruption — though the state-controlled oil company has not been charged in any corruption and money-laundering case in the United States.

In response to the Venezuelan opposition’s move in the Miami case, federal prosecutors said PDVSA — no matter who controls it — cannot receive any of the seized money in U.S. money-laundering cases targeting Venezuelan officials and kleptocrats because the state-run oil company does not qualify as a “victim” under U.S. law and it “participated in the pervasive corrupt conduct.”

“The fact that the government has not charged PDVSA with a crime in connection with the scheme or identified it as an unindicted co-conspirator in the charging documents filed against the defendants in these cases is of no moment,” Miami federal prosecutor Michael Nader and Justice Department trial attorney Paul Hayden wrote in a court filing.

To make their point, they said that over the past decade in the Miami and Houston cases “12 bribe-paying PDVSA contractors, 8 bribe-receiving PDVSA officials, and 1 intermediary have pleaded guilty in connection with the United States’ ongoing investigations into corruption at PDVSA.”

In addition to Ortega, they include: Edoardo Orsoni, former general counsel of PDVSA and one of its subsidiaries; Abraham Shiera and Roberto Rincón, PDVSA contractors; Jose Luis Ramos, former PDVSA purchasing manager; Javier Alvarado Ochoa and Cesar Rincón, former high-ranking officials with PDVSA’s procurement subsidiary, Bariven.

Last year, Treasury’s Office of Foreign Assets Control also levied sanctions against PDVSA and Houston-based Citgo to slow the flow of oil income to Maduro’s government. Also significant, Venezuela’s minister of petroleum, Tareck Zaiden El Aissami, a former vice president, was sanctioned by OFAC in 2017 and indicted last year in New York federal court on charges of violating the Foreign Narcotics Kingpin Designation Act and the related Treasury sanctions.

Prosecutors also noted that other countries, including Spain, Portugal and Switzerland, have opened criminal cases against PDVSA officials and their associates.

But Dallen and other legal observers disagreed with the U.S. government’s position, saying PDVSA is a victim because Ortega violated his fiduciary duty to the national oil company at a cost of hundreds of millions of dollars.

“If the U.S. is going to continue to prosecute people for taking bribes in violation of their fiduciary duties, then the government needs to be honest about the entire process,” said former federal prosecutor Joseph DeMaria, a Miami defense attorney who has represented Venezuelan businessmen. He noted that in the infamous New York federal case charging officials of the international soccer organization, FIFA, and other associates with bribery and corruption, a federal judge found that the organization was a victim.

“If there had been a trial, the government would have to prove that Ortega violated his fiduciary duty to PDVSA and then just like in FIFA, the issue would be clear. But, in this case they have a guilty plea and the government tries to slip around the elements of the crime and have it both ways — convict Ortega and also deny Venezuela victim status.

“If the government really wants to deprive the Venezuelan people of the money, they need to present their evidence to the court at an evidentiary hearing to prove that PDVSA itself is a co-conspirator,” DeMaria said.

Dallen, who is also a lawyer and close observer of Venezuelan affairs, agreed.

“This is not a victimless crime,” Dallen said. “The shareholders of PDVSA are the Venezuelan people, and their money was stolen from them. It was stolen by a horde of locusts, and now there are people in Venezuela who are dying and starving.”

U.S. District Judge Kathleen Williams, who is presiding over Ortega’s case, will soon decide on whether to hold a hearing on PDVSA’s effort to recover that money in the Miami case.

If that fails, legislation passed by Congress last year might provide an alternative for Venezuela’s opposition leader to recover the embezzled PDVSA funds. The law, pushed by one of Maduro’s most vocal critics, Florida Sen. Marco Rubio, would provide relief to Venezuela’s people by establishing a fund to manage assets seized from government officials and kleptocrats “that could be returned to a future democratic government in Venezuela.”


©2020 Miami Herald

Distributed by Tribune Content Agency, LLC.

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