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Venezuela: A High-Risk Relationship?

Managing Venezuelan clients under a sound compliance program.


Business between the United States and Venezuela is booming, with record highs in trade and private capital investments last year. At the same time, perceived risk is on the rise due to Venezuela’s suspected role in narcotics trafficking, relationship with Iran and alleged support of the FARC. Financial institutions can both retain their Venezuelan clients and manage risk by developing a sound compliance program that will satisfy heightened regulatory scrutiny.

Venezuela was the United States’ third-largest trading partner in Latin America in 2007, with a record $50 billion in trade, just behind Brazil at $50.2 billion. Despite political tensions, total trade increased 8.6 percent, compared to only 4.6 percent in Mexico. The United States remains Venezuela’s largest oil customer, buying 65 percent of output.

In addition, the Central Bank of Venezuela reported a record $19 billion in private capital transferred abroad last year, not including undocumented transfers. Approximately 60-70 percent of those transfers find their way into the US by various means, including bank deposits, portfolio investments and real asset purchases. Underpinning this volume of international business are the financial institutions that make the monetary transfers possible.


The U.S. State Department, in its 2008 International Narcotics Control Strategy Report, criticized Venezuela for its drug trafficking role in the western hemisphere, refusal to cooperate with the US on counter-narcotics activities, weaknesses in its anti-money laundering regime, and corruption in the banking sector.

Venezuela is also being considered for the State Department’s "State Sponsors of Terrorism" list following the release of documents showing Venezuela’s alleged active support of Colombia’s FARC. The political and economic ramifications are many, including possible sanctions that would significantly limit the ability of US companies to do business with Venezuelans.

Venezuelan governmental financial entities have an added risk due to Venezuela’s close ties to Iran. The Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) have imposed certain sanctions on Iran and issued alerts regarding possible money laundering and terrorist financing.

As a result, Venezuelans and their businesses could pose a heightened risk for money laundering or terrorist financing. They could face systematic bank account closures and denial of other services by wary financial institutions who might consider them an unacceptable risk, considering that monetary penalties can be severe and even constitute the loss of their licenses. 


Financial institutions conducting business with Venezuela should consider the risks involved in continuing the financial relationship and how to best manage them, in order to ensure compliance with anti-money laundering and anti-terrorism regulatory requirements.

These requirements demand that U.S. financial institutions exercise caution and due diligence when assessing the risk associated with each of their foreign correspondent accounts and services that are offered through their organization. Furthermore, federal regulations require financial institutions to conduct extensive due diligence of foreign customers who pose a high risk.

Since guidelines require compliance programs be risk-based, resources should be allocated towards enhanced due diligence procedures for clients that pose the greatest risk of money laundering or terrorist financing for the financial institution. The regulations require financial institutions to consider pertinent information concerning their foreign customers, the jurisdictions in which they are located or licensed and any money laundering or terrorist financing information provided by U.S. government agencies. Venezuelan nationals would fall within these parameters.

However, U.S.-based financial institution can offer their services to foreign "high risk" entities and individuals, including Venezuelans, as long as they have a sound compliance program that identifies, measures, controls and monitors the risks.


Companies operating with potentially risky clients should implement adequate due diligence and strategies to Know Your Customer (KYC) / Customer Identification Programs (CIP). Assess whether foreign customers represent a significant risk for money laundering based on relevant factors and proper documentation. In terms of compliance and KYC, the Compliance Officer must clearly understand the foreign clients’ activities, especially those clients for which wire transfer services and investment accounts are offered. Relationships between senders and beneficiaries must be understood and the legitimate purpose of transactions documented in the customer files. Specific steps to ensure Risk Management are outlined below.

Develop a "Risk Matrix"

Assign a risk rating to individual customers, and according to the rating, develop an appropriate strategy to request information and perform enhanced due diligence. The rating should consider factors such as:

  • Companies located in high risk countries
  • Companies without licenses or charters as required by local law
  • Operating an offshore license
  • Whether owners/principals appear on OFAC or similar lists
  • Services or business activities that are cash-intensive and/or classified as possible instruments for money laundering or terrorist financing
  • The lack of a written AML compliance program
  • Clients in jurisdictions or countries that are not subject to regulatory supervision meeting the requirements of the US Patriot Act.

Enhanced Due Diligence for High Risk Clients

Submit an enhanced due diligence questionnaire to clients considered high risk. Review the company’s approach to anti-money laundering/anti-terrorism regulation and supervision, assess their implementation of these procedures, conduct background checks on principal owners and review any publicly available information.

Customer Compliance with Anti-Money Laundering/Anti-Terrorism Financing

High risk foreign clients that are subject to their own local anti-money laundering/anti-terrorism financing regulatory requirements should demonstrate that they have made reasonable and realistic efforts to systematically implement an effective compliance program. Focus attention on these clients’ risk management systems and the methods utilized to identify, measure, control, and monitor their own compliance.

Private Banking Accounts

If a private banking account is requested or maintained by, or on behalf of, a foreign person, the due diligence policies, procedures and controls must, at a minimum, include reasonable steps to:

  • Identify the nominal and beneficial owner(s) of the account
  • Identify the lines of business and source of wealth of the client
  • Identify the source of funds deposited into the account
  • Prevent money laundering through the account
  • Report any suspicious transactions
  • Conduct enhanced scrutiny of any account by, or on behalf of, any senior foreign political figure or any immediate family or close associate, reasonably designed to detect and report foreign corruption transactions

Maintain Proper Documentation

  • Background checks
  • Business licenses
  • Valid identification for the owners
  • Copies of all licenses and permits
  • List of shareholders/owners
  • References
  • List of all countries in which they operate
  • Regulatory requirements of the countries
  • Copy of compliance program
  • Conduct onsite visits
  • Expected business activity "profile"
  • Independent review of anti-money laundering compliance program
  • Know your customer’s customers: business purpose, relationship with client, profile, countries involved, databases searches, etc.  

High risk categorization, whether fair or not, does not necessarily mean sudden financial death or the end of access to international financial systems. However, be aware that these relationships will be scrutinized and monitored more extensively than others, and companies must be prepared to cooperate and comply with all requests for information. As for financial institutions, the risks are always manageable, as long as you know now to identify, manage, and control them.

This article is republished with permission from Tendencias, the magazine of Kroll InfoAmericas. 


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