Petrocaribe Cooperation Agreement As Means to Conceal Illegal Activities and Rampant Corruption

2018 FH LAC Internal draft

Petrocaribe Cooperation Agreement as means to conceal illegal Activities and Rampant Corruption.

Introduction.

This report will explain how Petrocaribe, which was conceived as a multilateral agreement energy of cooperation based on to strengthen energy security in the Caribbean and Central America, became in a financing mechanism to divert money as well as to conceal illegal activities and rampart corruption acts such as the use of fictitious projects to legitimized millions of dollars, which came from multinational money laundering transactions. PDVSA, PDV Caribe, and some of the mixed companies’ operations are plague with inadequate financial controls that make difficult to detect fraudulent transactions, false or inexistent contracts with consulting firms, loans which are never repaid, creation of off-budget funds, where those funds are not subject to central banks controls, manipulation of Venezuela currency exchange system, and spending in billions in services and equipment combined with drug trafficking funds flowing back to companies’ executives, government officials and businesses as kickbacks. Part I explains nature, characteristics, and evolution of Petrocaribe Agreement as well as the intuitional platform. Part II describes how PDV Caribe, a subsidiary of PDVSA, was created to handle all operation under Petrocaribe Agreement. Part III addresses the importance of the mixed companies constitutes by PDVSA and PDV Caribe with each one of the state energy companies of Petrocaribe Agreement’s states parties. This part analyses some of the corruption scandals that involves Cuba (Cuvenpetrol); Nicaragua (Albanisa), El Salvador (Alba Petróleos), and Haiti (Societe d’ Investissement Petion Bolivar). Part IV points out how the Venezuelan government created a structural fund, the ALBA Caribe Fund, into which energy savings are paid. Venezuela made an initial payment of US$112 million. Those funds are allocated to economic and social development projects in the beneficiaries countries. Finally, Part V deals with the ALBA Food Fund, which was established with the purpose of contributing to food self- sufficiency, by means of the support to the comprehensive rural support, the sustainable

1 agricultural production, and the distribution and swapping of products, to face the speculation and the use of food as raw material to fuel production.

1) Petrocaribe Agreement. On June 2005, upon the initiative of late Venezuelan President Hugo Chavez, the governments of Antigua and Barbuda, Bahamas, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname and Venezuela, agreed, in Puerto La Cruz, Venezuela, on the creation of Petrocaribe, a Cooperation Agreement originally based on the premise to strengthen energy security in the Caribbean and Central America. Nowadays, 19 countries are part of this regional initiative, as five nations joined Petrocaribe in subsequent years: Haiti (2007), Nicaragua (2007), Honduras (2008), Guatemala (2012) and El Salvador (2014).1 Since its creation, Petrocaribe has served as political tool to increase Venezuela’s influence in the region as well as a financing mechanism to conceal illegal activities and rampart corruption such as the use of fictitious projects to legitimized millions of dollars, which came from multinational money laundering transactions. Chavez assured Caribbean leaders that Petrocaribe will provide their countries with affordable oil for an indefinite period. Venezuelan oil agreements also sought to finance further gas and oil exploration and production, while reducing reliance on the giant oil firms of the private sector.2 “Petrocaribe introduced a lending scheme for oil purchases from Venezuela where conditionalities adjust to price fluctuations among predetermined thresholds. As a result, if the oil barrel falls below US$40, up to 30 percent of the bill will be financed by a 17-year loan, with a two-year grace period and an interest rate of 2 percent. Similarly, when the barrel exceeds US$40, the term for payment is extended to 25 years, with a two-year grace period and the interest rate falls to 1 percent.”3 Petrocaribe’s member states may also offer goods and services to pay off oil shipments.

1 See Otaviano Canuto &Frank Fuentes, The Huffington Post. Oil Prices and the Future of Petrocaribe [online], available from: https://www.huffingtonpost.com/otaviano-canuto/oil-prices-and-the- future_b_8209010.html (accessed February 09, 2018). 2 Michael Dodson; Manochehr Dorraj, Populism and Foreign Policy in Venezuela and Iran, 9 Whitehead J. Dipl. & Int'l Rel. 71, 2008, p.76. 3 See Otaviano Canuto &Frank Fuentes, supra note 1. The Huffington Post. Oil Prices and the Future of Petrocaribe [online], available from: https://www.huffingtonpost.com/otaviano-canuto/oil-prices-and-the- future_b_8209010.html (accessed February 09, 2018).

2 The products that Venezuela may purchase at preferential rates may include certain items such as sugar, bananas, medicines, and other goods or services to be determined that are believed to be affected by the trade policies of rich countries. According to the Venezuelan government, the main objective of Petrocaribe was to add energy saving programs to supply-related agreements. In this regard, under the Petrocaribe scheme the Venezuelan government arrange credits and exchange technologies enabling beneficiaries’ countries to develop energy-efficient management making it possible for them to reduce their oil consumption and to provide a wider range of services. Petrocaribe “also significantly increased the overall debt of recipient states. In some cases, external financing from Venezuela comprised 10-20 percent of individual recipient state gross domestic product (GDP), including 15 percent for Haiti and 20 percent for Nicaragua.”4 “Petrocaribe provided immediate-term budget support to recipient states that faced severe fiscal constraints when oil prices were over $100 per barrel.”5 However, the true reason for Venezuela generous cooperation was to use Petrocaribe as a political tool to increase Venezuela’s political influence in the region. In this sense, Petrocaribe was part of a plot to exert influence in the Organization of American States (OAS) eroding the political freedom of the state parties.6 Almost immediately after its establishment, Petrocaribe became an instrument for the creation of a vast network of people and organizations that control dubious, non-auditable, trade and services operations generating enormous amounts of money and avoiding international financial controls. According to a testimony of Douglas Farah before the Haitian Senate Judiciary Committee, President of BI Consultants LLC & Senior Visiting Research Fellow at the National Defense University Center for Complex Operations, Venezuela’s national oil company, Petróleos de Venezuela, S.A. (PDVSA) has been using the Petrocaribe Agreement and its investments in hundreds certain and sometimes fictitious projects to legitimized millions of dollars -originated from money laundering transactions- as investments so the dirty money can

4 David L. Goldwyn & Cory R. Gill, The Waning of Petrocaribe? Central America and Caribbean Energy in Transition, Atlantic Council [online], May 2016, p. 5 available from: http://publications.atlanticcouncil.org/Petrocaribe/petrocaribe.pdf (accessed February 10, 2018). 5 Id. 6 See Id.

3 enter the financial stream to be repurposed for other uses.7 “A revealing insight came to light in March 2015 when the U.S. Treasury Department’s Financial Crimes Enforcement Network designated the Banca Privada D’Andorra the premier bank of the most secretive banking jurisdiction in the world, as a bank of primary money laundering concern.”8

1.1. Petrocaribe Agreement’s Institutional Platform. Petrocaribe ‘s decision making instances include a Ministerial Council, and an Executive Secretariat. a) Ministerial Council. The Ministerial Council is made up by the Ministers of Energy (or their equivalent) of the state parties of the Agreement, and its functions are:

 Coordinate the corresponding policies, strategies and plans;

 Delegate duties and responsibilities in the bodies that may be created for the

performance of specific tasks, whenever it is deemed necessary;

 Agree on and approve of the topics with priority interest for the Organization, as well as the studies, workshops and work groups providing the technical and legal

support;

 Exercise the maximum accountable instance in relation to the performance of the

Executive Secretariat;

 Agree on the admission of new members and the withdrawals that might occur;

 Hold a regular meeting each year and as many special meetings as it may be deemed

necessary;

 Appoint a president and an alternate who shall call and chair the meetings. b) Executive Secretariat. The Executive Secretariat shall be exercised by the People’s Ministry for Energy and

Oil of the Bolivarian Republic of Venezuela, the following being its duties:

 Prepare the agendas for the Ministerial Council meetings.

 Directly manage and administrate the business of Petrocaribe.

7 See Douglas Farah, Testimony Before the Senate Judiciary Committee, S1241: Modernizing AML Laws to Combat Money Laundering and Terrorist Financing November 28, 2017, SD-226, p.5. 8 Id. at 7.

4  Guarantee the execution of and follow up the decisions made by the Ministerial

Council, as well as submit the corresponding reports and recommendations.

 Set the priorities in terms of studies and projects defined by the Ministerial Council.

 Propose to Ministerial Council that funds be assigned to carry out the studies that

may be necessary. 2) Creation of PDV Caribe to the implementation of Petrocaribe Agreement. PDV Caribe, a subsidiary of PDVSA was created to handle all operation under Petrocaribe. Energy policies comprise oil and its derivatives, gas, electricity, as well as the development of alternative, renewables energies.9 PDV Caribe is in charge of the logistics (distribution, terminals, storage facilities, and refinery capacity). With the creation of PDV Caribe, the Venezuelan government intended to eliminate the intermediaries along the value chain, increase the energy infrastructure of the beneficiaries’ countries as much as possible to diminish their dependence on the transnational actors.10 3) Mixed Companies. PDV Caribe, S.A. has constituted mixed companies with each one of the state energy companies of Petrocaribe Agreement’s country parties. Those bilateral agreements arise from the necessity of implementing the operation of the premises and conditions established in the Petrocaribe Agreement. In this sense, mixed companies are the vehicle to develop and leverage the infrastructure of storage units, terminals, service stations, liquefied petroleum gas (LPG) filling plants and refineries, as well as the coordination of transport logistics both for reception and for distribution of products, which translates into the progressive elimination of the intermediation of private sectors in the supply chain of petroleum derived products, resulting in a reduction in the weight of the energy bill in the signatory countries of the Agreement. Additionally, the mixed companies represent the means to transfer technology and management knowledge of the oil industry to the states parties.11

9 PDV Caribe (Internal communication from Luis Riva, PDV Caribe, Director Manager to Asdrubal Chavez, PDVSA’s Vice-president), Resultados del Acuerdo Petrocaribe en el Periodo Septiembre- 2005 a Julio-07, Agosto, 2007, p. 8. 10 See Petrocaribe Agreement. 11 PDV Caribe, S.A., Legal Counsel Department (Internal document), Mixed Companies, 2007, p. 1.

5 The constitution of the mixed companies implied a bilateral agreement between PDV Caribe, S.A. and the state energy company to destiny resources to a common goal, such as the leveraging of energy infrastructure in each country. These resources can be raw materials; capital; technology; market knowledge; sales; distribution channels; personnel; financing; and other products.12 Until 2015 there were incorporated 15 mixed companies (See Table below).13 In this part of the report, we will focus in the companies that have been denouncing as means to conceal illegal activities and rampant corruption. According to some investigations, the reality is that PDVSA, PDV Caribe, and some of the mixed companies’ operations are plague with inadequate financial control that makes difficult to detect fraudulent transactions, false or inexistent contracts with expensive consulting firms, loans which are never repaid, creation of off-budget funds, where those funds are not subject to central banks controls, manipulation of Venezuela currency exchange system, and spending in billions in services and equipment combined with drug trafficking funds flowing back to companies’ executives, government officials and businesses as kickbacks.14 The expert insists that money laundering is performed through a network with hundreds of shell companies or screen that hide a variety of business for illicit profits. In this vein, we will mention some of the corruption scandals that involves Cuba (Cuvenpetrol); Nicaragua (Albanisa), El Salvador (Alba Petróleos), and Haiti (Societe d’ Investissement Petion Bolivar). COUNTRY ENTERPRISE SETTING-UP ALBA PETROCARIBE (Belize Energy) 55% PDV Caribe S.A. /45% BELIZE Belize Limited PETROLEUM AND ENERGY LIMITED 55% PDV Caribe S.A. / 45% DOMINICA Dominica PDV CARIBE (Dominica) LTD NATIONAL PETROLEUM COMPANY LTD El Salvador ALBA PETROLEOS El Salvador, S.E.M. 60% PDV Caribe S.A. / 40% ENEPASA

12 Id. 13 Id. 13 SELA, Evolution of the Petrocaribe Energy Cooperation Agreement, Caracas, Venezuela, June 2015, p. 14 [online], available from: http://www.sela.org/media/1950653/evolution-of-petrocaribe.pdf (accessed February 10, 2017).

14 See Farah, supra note 7.

6 55% PDV Caribe S.A. / 45% PETROCARIBE Grenada PDV GRENADA LTD GRENADA LTD Societé d’investissement Petion Haiti 49% PDV Caribe S.A. / 49% Haitian State Bolívar, S.A. 49% PDV Caribe S.A. / 51% PETROLEUM Jamaica PETROJAM LIMITED CORPORATION OF JAMAICA ALBA de Nicaragua, Sociedad Anónima 51% PDV Caribe S.A. / 49% Empresa Nicaragua (ALBANISA) Nicaragüense de Petróleo (PETRONIC) Dominican 49% PDV Caribe S.A. / 51% Dominican Refinería Dominicana de Petróleo, S.A. Republic State Saint Kitts and 55% PDV Caribe S.A. / 45% ST. KITTS AND PDV ST. KITTS NEVIS LIMITED Nevis NEVIS ENERGY COMPANY LIMITED 55% PDV Caribe S.A. / 45% PETROCARIBE Saint Vincent & PDV SAINT VINCENT AND THE ST. VICENT AND THE GRENADINES (SVG) the Grenadines GRENADINES LTD LIMITED Suriname PDV SURINAME N.V. 50% PDV Caribe S.A. / 50% SURFUEL PDVSA CUBA, S.A. 100% PDV CARIBE 49% PDVSA CUBA, S.A. / 51% CUVENPETROL, S.A. COMERCIAL CUPET, S.A. 50% PDVSA CUBA, S.A. / 50% Transportes del ALBA INC. INTERNATIONAL MARITIMA, S.A. Cuba 50% PDVSA CUBA, S.A. / 50% TROCANA World INC. WAGONEER INTERNATIONAL LIMITED 50% PDVSA CUBA, S.A. / 50% VARIATION TOVASE Development CORP. LIMITED 14% PDVSA CUBA, S.A. / 51% GRUPO CUVENPEQ, S.A. EMPRESARIAL DE LA INDUSTRIA QUIMICA (GEIQ), 35% PEQUIVEN, S.A.

Source: SELA, supra note 14, at 14. 3.1. Cuba (Cuvenpetrol).

7 Regarding the Cienfuegos refinery project, the Venezuelan government reports an investment of US $136 million for this project, but founds in the amount US$ 400 million per annum have been transferred from PDVSA to Cupet after approving such transferences in a single stroke. It is unknown how much of those funds were invested in the Cienfuegos refinery project and how much in the Matanzas project, and how much ended as kickback payments. Those are noun-auditable accounts. Venezuela has invested extensively in the Cuban economy. There were at least 370 joint investment projects signed between 2000 and 2011, although there is little information available regarding the number fully implemented.15 Among the most important of these was an investment of $2 billion in the Cuban Cienfuegos and Hermanos Díaz refineries as part of a deal signed between PDVSA (Petróleos de Venezuela S.A.) and CUPET (Cuba Petróleo, Cuba’s state-owned oil and gas company). At the end of 2008, Venezuela increased the amount of oil it shipped to Cuba from 87,000 bpd in 2007 to 111,700 bpd in 2008, of which 21,700 bpd was destined for the joint venture refinery at Cienfuegos. This deal allows Cuba to export more profitable refined petroleum products, including jet fuel, diesel, and gasoline.16 An estimate suggests that Cuba sold refined petroleum products for $880 million in 2008.17 However, it is difficult to estimate Cuba’s earnings from these exports precisely because some are used to satisfy Petrocaribe quotas. Beyond the oil relationship, the Venezuelan Economic and Social Development Bank (BANDES) is reported to have invested 70 percent of its funds in Cuba, in excess of $1.1 billion, as of 2011.18 Venezuelan oil sold to Cuba is heavily subsidized as only 60 percent is paid for in the first 90 days while the other 40 percent is financed at a one percent interest rate over 25 years.19 Venezuelan crude oil shipments to Cuba reached 38,000 barrels per day (bpd) in 2003, increasing to 97,000 bpd in 2008 under the terms of Petrocaribe. Combined crude and refined oil

15 Ted Piccone & Harold Trinkunas, The Cuba-Venezuela Alliance: The Beginning of the End, June 2014, p.3 [online] available from: https://www.brookings.edu/wp- content/uploads/2016/06/CubaVenezuela-Alliance-Piccone-Trinkunas.pdf (accessed February 11, 2018). 16 Id. 17 Id. 18 Id. 19 Id. at 5.

8 product exports climbed to 104,000 bpd in 2012. For 2011 imports of crude oil from Venezuela made up 61 percent of Cuba’s total oil supply.20 For Venezuela, shipments to Cuba represented only 5.1 percent of total crude oil exports in 2011,12 although this proportion has been slowly increasing across time due to the steady decline in Venezuela’s production capacity resulting from a lack of investment in and maintenance of its oil industry. From Cuba, Venezuela receives professional services. By most accounts, there are 40,000 Cuban professionals in Venezuela, 75 percent of whom are healthcare workers.21 Civilian personnel, such as doctors and teachers, are deployed as part of a network of social assistance programs in Venezuela known as “misiones”, focused on basic community health, sports, and literacy programs, which form the backbone of the Bolivarian movement.22 Venezuela reportedly pays the Cuban government approximately $5.4 billion per year for the Cuban assistance.23 Since 2003, Cuba also provides advanced medical care for tens of thousands of Venezuelans in Cuba itself and hosts thousands of Venezuelan university students, particularly for the study of medicine.24 In 2014, the volume of processed crude in the Camilo Cienfuegos Refinery, in Cuba, was 50 MBD, the output obtained was: 7 MBD of gasoline and petrol, 17 MBD of jet fuel and distillates, 24 MBD of long residuum and 2 MBD of other products and special refined products.25 The expansion of this refining capacity in the region presents two ongoing projects at present, by adding Central America to this refining matrix. The first project is the expansion of the refining capacity of the current Camilo Cienfuegos Refinery in Cuba, by 50 thousand barrels per day.26 3.2.) Nicaragua (Albanisa). Alba de Nicaragua, S.A (Albanisa), PDVSA mixed company in Nicaragua, PDVSA owns 51 percent of the company and the Nicaraguan government owns 49 percent. “The inner circle the governing party Frente Sandinista de Liberación Nacional (FSLN) and its leader, President

20 Id. 21 Id. 22 Id. 23 Id. 24 Id. 25 SELA, supra note 14, at 25. 26 Id.

9 Daniel Ortega, controls Albanisa.”27 Daniel Ortega’s family, including his wife Rosario Murillo -who is the Nicaragua’s Vice- president- and his sons, Laureano and Rafael, are also active in Albanisa and its subsidiaries in Nicaragua.28 “Like the FMLN and Merino, the FSLN and Ortega are longtime allies of the FARC and have provided political and logistical support to the rebels for several decades.”29 Nicaragua’s journalists have reports that found that Albanisa redirected some $4 billion of its funds, originally earmarked for social programs, for “privatization.” “These investigations state that “the privatized money helped support political campaigns as well as elected officials allied with the ruling FSLN party.”30 3.3. El Salvador (AlbaPetroleos). The mixed company Alba Petróleos “serves as a critical part of a multi-national money laundering operation, constructed and operated by members of the Bolivarian alliance. Alba Petróleos’ management is entrusted exclusively to the inner circle of the governing Frente Farabundo Martí Para la Liberación Nacional (FMLN) party in El Salvador.”31 There, PDVSA owns 60 percent of the company and Salvadoran government owns 40 percent. The main individual involved is the FMLN’s de facto leader, José Luis Merino, also known as Ramiro Vásquez, a long-time FARC ally, who was named in November 2016 Vice Minister of Foreign Affairs for International Investments.32 “Merino has been working closely with the FARC since at least 1994 and was a key weapons supplier to the Colombian rebels for more than two

27 Farah, supra note 7, at 7. 28 Carlos Fernando Chamorro, Nicaragua tiene derecho a saber más de Albanisa, El Faro, April 12, 2016 [online] available from: https://www.elfaro.net/es/201604/opinion/18400/Nicaragua-tiene-derecho-a- saber-m%C3%A1s-de-Albanisa.htm (accessed on February 11, 2018). 29 Id. 30 Octavio Enríquez, Albanisa: el nuevo emporio, Confidencial, September 6, 2015 [online] available from: https://confidencial.com.ni/archivos/%20articulo/21956/albanisa-el-nuevo-emporio emporio (accessed February 10, 2018). 31 Douglas Farah, The Criminalized State in Latin America. In AEI Working Group on Transnational Organized Crime in the Americas, Kingpins and Corruption: Targeting Transnational Organized Crime in the Americas. American Enterprise Institute, June 2017 [online] available from: http://www.aei.org/wp- content/uploads/2017/06/Kingpins-and-Corruption.pdf (accessed February 10, 2018). 32 See Farah, supra note 7, at 6.

10 decades.”33 Merino “has also worked in creating front companies for the FARC outside of Colombia.”34 On June 19, 2017 a bipartisan group from the House of Representatives wrote to Treasury Secretary Steven T. Mnuchin requesting his department investigate the “U.S.-linked banking activities” of Merino. The letter stated that Merino was reported to have “acquired hundreds of millions of dollars in unexplained wealth while helping the FARC guerrillas, corrupt elements of the Venezuelan government and other criminal groups move funds to safe harbor.”35 In El Salvador, Alba Petróleos generated on paper in a 5-year period (2012-2016), profits for $1.2 billion in profits, but it lent more that 90 percent of that money to other companies that its leaders controlled outside of El Salvador. An investigation in El Salvador uncovered more than $300 million from Alba Petróleos funneled to companies in Panama through shell companies controlled for Merino’s inner circle that takes loans from Alba Petróleos and its subsidiaries.36

Another investigation found that “Alba Petróleos’ network is controlled by a series of front men who respond to Merino and who sit on overlapping boards of directors, in order to control the flow of funds from El Salvador to overseas companies.” 37 According to their founding documents, these companies were established as vehicles for social development financed through subsidized Venezuelan oil. “PDVSA agreed to sell the

33 Farah, supra note 18, at 7. 34 Evidence of Merino’s arms trafficking and association with the FARC came in documents took from the camp of senior FARC commander Raul Reyes, killed by Colombian troops in Ecuador on May 1, 2008. For a complete analysis of those documents see: “The FARC Files: Venezuela, Ecuador and the Secret Archives of ‘Raúl Reyes, An IISS Strategic Dossier, International Institute for Strategic Studies, May 2011. See also Jose de Cordoba, Chavez Ally May Have Aided Colombian Guerrillas: Emails Seem to Tie El Salvador Figure to Weapons Deal. The Wall Street Journal, August 28, 2008, [online] available from http://www.wsj.com/articles/SB121988527305078325 (accessed February 10, 2018). 35 Letter from Jeff Duncan, Chairman of the Subcommittee on the Western Hemisphere Committee on Foreign Relations and Hon. Albio Sires, ranking member, et al to the Secretary of the Treasury, June 19, 2017, cited in Farah, supra note 7, at 7. 36 See Efren Lemus, Alba tiene ocho offshore en Panamá y así reduce impuestos en El Salvador, El Faro, April 1, 2016 [online] available from: https://elfaro.net/es/201604/el_salvador/18388/Alba-tiene-ocho- offshore-enPanam%C3%A1-yas%C3%AD- reduce-impuestos-en-El-Salvador.htm (accessed February 11, 2018), cited in Farah, supra note 7, at 8. 37 Moisés Alvarado, La red de testaferros del viceministro Merino, Revista Septimo Sentido, La Prensa Gráfica, August 29, 2017[online] available from: http://7s.laprensagrafica.com/la-red-testaferros-del- viceministromerino/ (accessed February 10, 2017), cited in Farah, supra note 7, at 8.

11 companies oil at reduced rates, based on the premise that Albanisa and ALBA Petróleos could use their profits to invest in the development of education, health care, and other social goods.”38 In March 2015, Barclay’s Bank estimated “that Venezuelan oil going to Petrocaribe, including El Salvador and Nicaragua, had dropped by 50 percent from 2012 through 2014, from a total of 400,000 barrels per day (BPD) to 200,000 BPD.”39 According to leaked internal PDVSA documents, “oil’s production in 2017 continued to drop precipitously, after another major dip from 2015 levels in 2016.”40 That “means that the Central American structures were at best receiving less than 15 percent of the oil they started with (and likely not even that), and were selling it at less than 50 percent of the projected price.”41 However, both Central American oil companies underwent remarkable and inexplicable economic booms. During that period, Alba Petróleos’ revenues grew from 30 percent to 50 percent a year. Similarly, in Nicaragua Ortega has addressed that Albanisa boasts revenues of $400-500 million, which are not accountable to any government institutions. Instead, the money, which could be a sum totaling upwards of one fifth of the Nicaraguan national budget, operates as Ortega’s personal slush fund. Given the cratering oil exports from the beleaguered Venezuelan state, there are very few oil shipments that could legitimately explain the profits that both Albanisa and Alba Petróleos have reported.42 The biggest anomaly is the true origin of the funds for these multi-billion dollar enterprises. “In a rational economic world, the drastic cutbacks in Venezuelan cheap oil sales, brought on by falling production and internal economic collapse, coupled with the fact that the price of oil remains below $50 a barrel, would lead to a significant drop in the budgets of Albanisa and ALBA Petróleos, as it has in the other Petrocaribe nations.”43 Barclay’s Bank, in March 2015, estimated that Venezuelan oil going to Petrocaribe, including El Salvador and Nicaragua, had dropped by 50 percent from 2012 through 2014, from a total of 400,000 barrels

38 Id. 39 Farah, supra note 7, at 8. 40 Id. 41 Id. 42 Id. 43 Id.

12 per day (BPD) to 200,000 BPD.44 “The bank expected the oil flow to be further reduced in 2015, from 200,000 BPD to 80,000, which was accurate.”45 According to leaked internal PDVSA documents, production in 2017 continued to drop precipitously, after another major dip from 2015 levels in 2016.46 This means that the Central American structures were at best receiving less than 15 percent of the oil they started with (and likely not even that), and were selling it at less than 50 percent of the projected price. However, both Central American oil companies underwent remarkable and inexplicable economic booms. During that period, ALBA Petróleos’ revenues grew by 30 percent to 50 percent a year.47 3.4. Haiti (Societe d’ Investissement Petion Bolivar). Haiti owes Venezuela $2 billion – and much of it was embezzled, Senate report says.48 A special Haitian Senate Commission has accused 12 former governments officials and heads of private firms of embezzling $2 billion in Venezuelan oil loans. “The nearly $2 billion that was paid out came from the country’s Venezuelan oil largess, known as Petrocaribe.”49 That “debt is stretched over a 25-year period with a 1 percent interest rate and a two- to three-year grace period allowing the countries to use the savings to finance social and economic projects.”50 At the end of the investigation into the use of the Petrocaribe fund, the 5 senators of the Special Senatorial Commission of Inquiry (CSSE), [Senator Evallière Beauplan (PONT), Senator Nenel Cassy (Fanmi Lavalas), Senator Antonio Cheramy (VERITE), Senator Richard Lenine Hervé Fourcand (PHTK) and Senator Onondieu Louis (KID)] on the basis of the inventoried and analyzed documents, on the data provided and examined by the audit firm it had engaged for the purposes of this investigation, concluded that the management of the Petrocaribe Fund was marked for anomalies, irregularities, acts of malfeasance and prevarication, which suggest that those who were responsible for executing the programs and projects related to the Resolutions concerning the Petrocaribe Fund have not respected the norms and legal provisions

44 Id. 45 Id. 46 Id. 47 Id. 48 Jacqueline Charles, The Miami Herald, Haiti owes Venezuela $2 billion – and much of it was embezzled, Senate report says, November 15, 2017. Updated November 16, 2017 [online] available from: http://www.miamiherald.com/news/nation-world/world/americas/haiti/article184740783.html (accessed February 09, 2018). 49 Id. 50 Id.

13 in the awarding of contracts and have not been concerned either with protecting the interests of the Haitian State.51 The report indicates that the facts revealed in the whole of the operations, prove that the majority of those who had the authority to order the disbursements, acted with a laxity, that the CSSE was able to deduce in almost all the cases: the negligence, inconsistencies and other anomalies were recurring. In such a case, the Commission states that it could no longer be mere material errors, but rather acts that could mislead and facilitate the operation of unlawful practices, collusion and trading in influence.52 The Commissioners say that the review of the contracts showed that more than half of them were signed outside the public procurement procedures (lack of transparency, good governance, etcetera), and in the disrespect of the contracts. standards of contract distribution (fairness, equal treatment, free competition, free access to public order, among others). The emergency laws that were adopted by successive governments from 2008 to 2016 have allowed Public Authorizing Officers and Public Accountants to exercise their power with an excess that sometimes borders on indecency. Under cover of these laws, both irrational and unlawful acts were performed in violation of regulations and laws on accounting and public finances.53 They assert that all the investigations carried out with the bodies concerned have demonstrated weaknesses of such a magnitude that it was necessary to consider all the cases in a specific way and place them in a more general context for the purpose of establishing individual and collective responsibilities because it appeared during the investigation that Petrocaribe was the object of a large-scale fraud. The most telling example is that the current situation of the Fund and the disbursements made through the 13 resolutions that concern it for the period from September 2008 to September 2016 are so tainted by irregular acts or fraudulent acts that it was necessary to carry out an analysis of the financial statements of the BMPAD, principal and first player in the management of the Petrocaribe fund. The finding is that it is difficult to comment on the accuracy and reliability of the fund balance, disbursements and contract management.

51 See Rapport Petro Caribe Octobre 2017, Senate De La Republique, October 2017 [online] available from: https://www.scribd.com/document/364151103/Rapport-Petro-Caribe-Octobre-2017 (accessed February 10, 2018). 52 Id. 53 Id.

14 Therefore, the management of the Fund according to what has been submitted by the BMPAD, does not reflect the financial situation of this fund.54 In this regard, we have that among the most serious irregularities detected in the scope of the Petrocaribe Agreement was the transfer of $ 400 million to Cuba without complying with PDVSA’s internal procedures, the payment of $ 5,000 dollars a month to Alba Petróleos executives to come monthly to Caracas transported (always) in PDVSA’s private planes to sign minutes of the Board of Directors. 4. Alba Caribe Fund. In 2008, the Venezuelan government created a structural fund, the ALBA Caribe Fund, into which energy savings are paid. Venezuelan made an initial payment of US$112 million. These funds are allocated to economic and social development projects in the beneficiaries countries. The Alba Caribe Fund which is constituted by resources coming from the savings generated by the financing of the oil bill and direct trade, as well as coming from financial and non-financial instruments.55 For the purpose of activating the Alba Caribe Fund the Bolivarian Republic of Venezuela contributed US$100 million in capital. Nine countries have benefited from this fund: Antigua and Barbuda, Belize, Cuba, Dominica, Grenada, Haiti, St. Kitts and Nevis, Saint Vincent and the Grenadines, and Nicaragua. At the same time, steps are being taken to evaluate and design new projects.56 5. Alba Food Fund. The ALBA Food Fund was created with the purpose of contributing to food self- sufficiency, by means of the support to the comprehensive rural support, the sustainable agricultural production and the distribution and swapping of products, to face the speculation and the use of food as raw material to fuel production. Haiti, Nicaragua, Dominican Republic, Guatemala and El Salvador, which are essential countries in the food programmes of Petrocaribe, presented percentages greater than average.57 Haiti represents a case for differentiated attention in the Caribbean Basin and, in particular, in the PETROCARIBE member countries, because 51.8% of its (2012-2014) population is undernourished, a percentage higher than the one of the

54 Id. 55 SELA, supra note 14, at 1. 56 Id. 57 Id. at 16.

15 (2000-2011) previous period, in which the impact of natural disasters and food availability is a local and regional challenge for the execution of the ALBA Food Fund.58 Conclusions. Almost immediately after its establishment, Petrocaribe became an instrument for the creation of a vast network of people and organizations that control dubious, non-auditable, trade and services operations generating enormous amounts of money and avoiding international financial controls. Petróleos de Venezuela, S.A. (PDVSA) has been using the Petrocaribe Agreement and its investments in hundreds certain and sometimes fictitious projects to legitimized millions of dollars -originated from money laundering transactions- as investments so the dirty money can enter the financial stream to be repurposed for other uses. The reality is that PDVSA, PDV Caribe, and some of the mixed companies’ operations are plague with inadequate financial control that makes difficult to detect fraudulent transactions, false or inexistent contracts with expensive consulting firms, loans which are never repaid, creation of off-budget funds, where those funds are not subject to central banks controls, manipulation of Venezuela currency exchange system, and spending in billions in services and equipment that combined with drug trafficking funds flowing back to companies’ executives, government officials and businesses as kickbacks.

58 Id.