How corporate ownership data can help you respond to FinCEN's advisory on corruption in Venezuela

Last month the US Treasury's Financial Crimes Enforcement Network (FinCEN) issued an "Advisory on Widespread Public Corruption in Venezuela" (PDF).

The document aims to "alert financial institutions of widespread public corruption in Venezuela and the methods Venezuelan senior political figures ... may use to move and hide corruption proceeds".

To help banks identify and report "suspicious activity that may be indicative of Venezuelan corruption," FinCEN outlines a number of "financial red flags", all grouped under a general heading that draws attention to the issue of government agencies and state-owned enterprises (SOEs).

The advisory's essence is highlighted in this passage: "Based on this reporting and other information, all Venezuelan government agencies and bodies, including SOEs, appear vulnerable to public corruption and money laundering. The Venezuelan government appears to use its control over large parts of the economy to generate significant wealth for government officials and SOE executives, their families, and associates. In this regard, there is a high risk of corruption involving Venezuelan government officials and employees at all levels, including those managing or working at Venezuelan SOEs." And FinCEN's advice is to take a risk-based approach when dealing with SOEs – or, by extension, any other companies of which Venezuela has a stake of at least 50%.

And this is the nub of the problem: only a small number of corporations are directly state-owned, but collectively these entities own hundreds of companies. Can you effectively identify these controlled subsidiaries? And can you monitor the constant change of ownership across all of these companies? For example, if a company four levels down a chain acquires another company, that company is then also deemed to be an SOE. Do you have processes to detect this type of change?

Recent US sanctions include those imposed on the prominent state-owned oil company, Petroleos de Venezuela. But the status of other SOEs will be much less obvious.

Identifying and monitoring SOEs and related entities

Using the structured corporate ownership data on the Orbis database of nearly 250 million private companies from around the world, we can isolate these companies through a relatively straightforward search strategy, for which we take "Venezuela" to mean the country itself, its government or a Venezuelan public authority, such as a government ministry.

As a further step, we can then also include all of these companies' subsidiaries down multiple levels and branches. For each level in the structure we can select any ownership percentage threshold we choose as a cut-off, according to what constitutes "control". Once all of the SOEs are identified, we can automatically monitor any changes to ownership or acquisitions that might call for inclusion or exclusion of an SOE status.

By way of example, the table below shows just the first page of the very large list of companies generated when we select 50% ownership at each level as the cut-off.

And the diagram below, generated by Orbis's Ownership Explorer tool, is a sample ownership structure for one of these companies chosen at random. This shows the route up to its indirect partial ownership by Venezuela.

While we make no suggestion that any of these companies are implicated by corruption, identifying them for enhanced due diligence can help with your risk-based approach to compliance.

Also see my related blog post on How Bureau van Dijk can help you comply with the tricky OFAC and EU "50% rule".