Tag Archives: corruption

Oil corruption in icier climes

Screen Shot 2015-04-27 at 7.20.55 PMI focus a lot on energy industry corruption in Latin America and Latinish America (Texas, California), but please don’t get the idea that oil stinks worse in southern latitudes. No, you can pretty much count on the energy industry attracting interesting characters like flies to shit.

You have drivers, power plants and other fuel-burners demanding USD2 trillion a year worth of gunk to be pulled out of the ground, refined and shipped to their far-flung machines. The companies who comply with this demand do what they can to seal the oil and its derivatives hermetically into pipes and tanks and tubes and ships. When all goes right, the stuff never sees sunlight before it’s burned. In the other direction, money is supposed to be just as well contained. Credit cards slide into gas pumps, letters of credit are transferred from power plant operators to refiners, tax collectors take their direct deposits, and money travels back up the line, retracing the route of the oil. But with so much money. So much money. So much money at stake, you just can’t stop people from trying to poke holes into the system. It’s too tempting. They can get physical oil, or much better, get virtual streams of cash, never contaminating their silk ties with the stink of sulfur and pitch.

Here in Canadialandia, land of the Canadialandians, the desire to extract a bit of money and power from the oil system is as irresistible as anywhere else. A new publication is chronicling the local money and power games: National Observer.

Subscribe to its tweets since the kids these days refuse to provide an RSS feed and since “following” something on Facebook is unreliable. Thanks to Jesse Brown of Canadaland, chronicler of happenings here in Canadialandia, land of the Canadialandians, for highlighting National Observer on his podcast. If you care about Canadian politics you can subscribe to his podcast — which wisely does have an RSS feed.

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Nervis or El Mundo? Hard to decide whom to trust

Screen Shot 2015-03-20 at 3.21.20 AMWho to believe when it comes to $50 million bribes in Venezuela? Do we believe Nervis Villalobos? Here’s what he told this website in 2013:

Nervis Villalobos, a former deputy minister of energy in Venezuela, denies having carried a message offering a bribe from electricity contractor Derwick Associates to Venezuela Oil Minister Rafael Ramirez.

The allegation against Villalobos appears in a lawsuit filed a week ago by Otto Reich against two principals of Derwick and an alleged associate of theirs. Villalobos called in response to my request for comment on the case.

“I know Derwick very well,” he said. Later, he said “they aren’t unknown to me.” He said it was possible that he had flown in a jet belonging to the company, adding that he flies at times on rented jets and that he doesn’t always know who owns them.

He said he “hasn’t had anything to do with PDVSA, the Ministry, or anything like that” since he left government in 2006. He said his government service left him unable to open a US bank account, and that his name has shown up in several news articles, but that the accusations are false. He doesn’t usually respond because “if one starts to defend oneself against every attack, one ends up going crazy.”

Villalobos said his work usually consists of feasibility studies and other consulting work in the Venezuelan electricity industry.

And here’s what El Mundo, the Madrid newspaper, is reporting today:

The Spanish company Duro Felguera paid a fortune to a Chavista leader for his “oral” consulting in the bidding for a huge contract in Venezuela, according to documentation collected by the Spanish investigation at Banco Madrid.

In the dossier from the Executive Service for the Prevention of Money Laundering (Sepblac) it gives evidence of a suspicious contract from Duro Felguera with Nervis Villalobos, a former deputy minister of energy in Venezuela in the Hugo Chávez administration, according to police sources consulted by El Mundo…

Villalobos’ company didn’t have any documentation, but rather was to provide “general oral information, and could also assemble written reports if deemed necessary,”… Investigators consider it unbelievable to pay $50 million for oral reports…

The goal of the contract, according to police sources, was “advise on the possible granting of a public works contract for a combined-cycle thermoelectric power plant of 1,080 MW (Termocentro).” The new contract was dated 12 April 2011, but meanwhile, 4 May 2009, the company managed to score a construction contract for Termocentro to provide Caracas with power, to be completed in 2013, with a value of 1.5 billion euros…

Duro responded yesterday with “this is about a totally normal and legally notarized contract.” They added that “no organ of the state has requested information about this from Duro Felguera, nor have we been object of any investigation.”

…Villalobos moved money at will in the Spanish affiliate of the Andorran bank, where he had on hand 3 million euros in his accounts. In April 2012, he transferred $2 million to another account of his in Miami and in March 2014 got Banco Madrid to lend him 1 million euros to buy a home in Spain, using shares of a Venezuelan company in the Islands as collateral.

Nervis come clear things up, I thought you said you did feasibility studies.

Meanwhile, in New York…

61O0JDS8ZBL._SL1000Remember how Otto Reich sued the kids behind Derwick Associates for a bunch of stuff including racketeering? And then how the kids, popularly known as the Bolichicos, said hey, the court doesn’t have jurisdiction, and I’ll prove it by showing my personal data, but I want all that to be confidential? No? Well, anyway, that’s one of the main things that has happened so far in that case.

Well Otto Reich (no longer confused with Otto Rock) has now gone back and requested that the court make all the confidential Derwick details public. In the public interest, and because the Bolichicos supposedly never properly pleaded their case.

There is a very strong presumption in the Second Circuit – based on the First Amendment – that judicial documents (including submissions in connection with dispositive motions) must be available to the public and may not be sealed absent compelling circumstances. The Second Circuit has ruled repeatedly that a paiiy seeking a sealing order must meet an extremely high burden to justify its request, and that the Court may not grant such a request, or order documents to be filed under seal, without making specific findings on the record overcoming that Constitutionally-based presumption. None of the factors or procedures necessary to permit the sealing of documents relating to the Motions has been satisfied here. Accordingly, the Court’s Interim Sealing Order requiring the filing of documents under seal should be vacated, and the parties’ submissions in connection with the Motions, including the parties’ discovery letters, should be unsealed and made available to the public like in every other case in the Southern District of New York…

There is no reason – much less a compelling one – that could justify the Court’s sealing of the parties’ submissions relating to Defendants’ Motions. There are no “higher values” that could conceivably justify preventing public access to this information.

I’m running low on popcorn.

Front page of El Mundo (Madrid): Chavista leaders named in Spain laundering probe

Screen Shot 2015-03-15 at 11.43.11 PMI have rarely been so surprised by a news story as I was by this article in El Mundo, from Madrid. I’ll translate the key portions, but if you can handle a bit of ye olde español please click through and read it there. I’m sure many people contributed to this crackdown but one of the few to put name and face to his criticisms of this group of alleged thieves has been Alek Boyd. Dude, take a bow.

Chavista bigwigs investigated for laundering in Banco Madrid

…Police sources assure El Mundo that a dossier in the hands of the Anti-Money Laundering Commission touches on at least three ex-deputy ministers of Venezuela, the ex-intelligence chief, an ex-executive of the state oil company PDVSA, and a businessman considered close to Chávez, who has handled funds in Spain that allegedly derived from massive bribes in exchange for contracts from the Venezuelan regime.

All these Venezuelan bigwigs appear in the list of clients discovered in the Spanish affiliate of the Banca Privat d’Andorra (BPA), without the entity having taken necessary measures to avoid money laundering, a very grave compliance failure under Spanish law…

The Spanish investigation goes beyond information released Monday by FinCEN, the anti-laundering unit in the USA, and gives specific names showing that at least part of the Bolivarian regime’s power structure took advantage of its position of power to do business for itself, behind the back of the pueblo. The US statement said “BPA facilitated transfers in the amount of $4.2 billion” related to Venezuelan public corruption. It didn’t give names.

According to police sources, among the clients at Banco Madrid were the former Deputy Minister of Energy Nervis Gerardo Villalobos. The Spanish investigation connects him with companies in Madeira and the Virgin Islands and he is considered close to Venezuela’s current UN ambassador, the former president of the giant state oil company, Rafael Ramírez…

According to the investigation, Villalobos received “consulting payments” from the Spanish company Duro Felguera, which was chosen in May 2009 for a 1.5 billion-euro contract to build a combined-cycle power plant to provide power to Caracas.

The president of the company that oversaw the contracting, Electricidad de Caracas, and deputy minister of electrical development, was Javier Alvarado Ochoa… The police sources considered it unheard of that Banco Madrid didn’t communicate with Sepblac [Spain’s anti-laundering organization] nor undertake a special examination of these clients. The board of the bank and the bank itself have been reprimanded for serious and very serious offenses [for failing to report possible money-laundering]…

The insurance businessman Omar Farias also appears in the group… Farias ran the Spanish branch of the company Inversiones Porbónica.

In the Sepblac investigations, Farias appears as a key person with possible B accounts in Banco Madrid related with possible shady foreign dealings of the regime. The Spanish entity managed to block a 13-million [euro] operation realized by Farias, but didn’t undertake any investigation, according to sources familiar with the Sepblack dossier, which was presented last Monday to members of the board of Banco Madrid.

The mix of business and regime contacts is personified by another client of Banco Madrid, Carlos Luis Aguilera Borjas, ex-director of security for the government. In Spain, Borjas administered the company CLAB-Consultoría Inmobiliaria and is also one of the main shareholders and board members of Constructora Girardot 53, one of the companies that was blessed in the last decade with contracts to work on the Metro de Caracas, while Chávez was president.

The Spanish investigation is looking into relations between Aguilera and Spanish companies that received large contracts in the Metro de Caracas. In 2008, the Unión Temporal de Empresas (UTE) formed by CAF, Cobra, Constructora Hispánica and the company Dimetronic managed to receive a contract to remodel Line 1 of the metro in the capital for 1.4 billion euros…

Also from Chávez’s security apparatus is another Banco Madrid client, ex Deputy Minister Alcides Rondón.

It is one of the cases where the bank failed to exercise its required [due diligence]… It’s the same in the case of Francisco Rafael Jiménez Villarroel, ex-representative of PDVSA, also when Rafael Ramírez was in charge.

Yes, among those named are Nervis Villalobos, long alleged to be associated with various companies that overcharged Venezuela for electricity generating equipment; Duro Felguera, partner in one of the biggest gold-plated projects; Javier Alvarado, who aside from being head of EDC and Bariven at times is also father of a Bolichico; and a member of the illustrious Rondón family, which includes Rafael Ramírez’s wife (Beatriz Sanso Rondón de Ramírez) and Venezuela’s most powerful man, Diosdado Cabello Rondón.

Not much to add here except that this humble website did the only interview I’ve ever seen with Nervis Villalobos in which anyone asked him directly about alleged corruption. He denied it. Go take a look. (Read the comments, too.)

Oh also, the El Mundo article makes repeated mention of Otto Reich’s lawsuit in the US in which he specifically said that Alvarado’s son was involved in acts of corruption as part of Derwick Associates, the company that was remarkably successful at negotiating deals with the allegedly corrupt electricity industry in Venezuela. When Reich first sued, I was skeptical about how well his case would do. It’s doing pretty well. Derwick has gotten some charges thrown out, but the case is moving ahead, with lots of discovery. The recent court filings have mostly been a long back and forth of sealed documents. But what’s clear at this point is that someone, somewhere is taking notice of corruption in Venezuela’s electricity sector, and it’s not working out too well for those who collaborated with multi-billion-dollar extractions of Venezuelan wealth.

Did Pratt & Whitney do all it could to avoid a corrupt deal?

A document leaked to the web in November raises questions about whether multinational companies did all they could — and all they were legally required to do — to avoid participating in potential corruption in Venezuela’s electricity industry.

The document in question is a chain of e-mails between Pratt & Whitney Power Systems and ProEnergy Services. It, along with the others in that same collection of ostensible leaks, appears to show that some of the turbines eventually sold to Venezuela came from Pratt & Whitney Power Systems. At the time, that company was a unit of publicly traded United Technology Corp. (UTX), but has since been sold to Mitsubishi Heavy Industries Ltd. (7011.jp OTC:MHVYF ) and renamed PW Power Systems.

I found this interesting. Ever since 2011, when we first heard tales of Venezuelan state companies buying turbines at inflated prices, I always wondered how big companies like Pratt & Whitney, General Electric Corp. (GE), and Rolls Royce Holdings Plc (RR.L) could have gotten mixed up in this, since US law gives them a responsibility to run due-diligence checks on their local partners. In the words of Carl H. Loewenson, Jr. of big US law firm Morrison Foerster:

The simple fact is that parties should know with whom they are doing business. Companies and individuals should take necessary precautions to ensure that they have formed a business relationship with reputable and qualified third parties.

The extent of diligence that should be conducted on a particular third party is a fact-based inquiry that will vary depending on a number of factors, including the industry, the market, the type of transaction, and the historical relationship with the third party.

At a minimum, companies should understand the “qualifications and associations” of its third- party intermediaries. That is, companies should understand the business rationale for hiring the third party as well as the intermediaries’ business reputation and government affiliations. As the DOJ and SEC make clear in the Resource Guide, “the degree of scrutiny should increase as red flags surface.”

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Why it’s so easy to find corruption stories

Page 24 of OECD foreign bribery report

Page 24 of OECD foreign bribery report

The OECD has a new report about corruption. It gives people like me a good guide to where to look for scandal stories.

The OECD says state-owned enterprises are responsible for a huge part of the problem. Eighty percent of discovered cases of foreign bribery involved state companies. The natural resource industry is most vulnerable. Three quarters of cases involve intermediaries, many of them in offshore tax havens.

State companies, natural resources, and intermediaries in offshore tax havens. Where could we find such things? Sounds like there will continue to be work for those of us interested in energy corruption stories in Latin America.

Hat-tip to Global Witness for pointing out the new report. They want to help reduce corruption by pushing for an end to anonymous corporate registration. I think that will take some very concerted international cooperation. There is always some poor country that will want to whore itself out to corporations, whether as a tax haven, internet domain registry, or anonymous corporate registration hideout. Panama gets more transparent, along come Nevis and Mauritius.

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The problem with collaborators (Galt’s Gulch Chile, Argentine dictators, and Derwick Associates, oh my)

Ken Johnson, head of Galt's Gulch Chile, looks at proposed subdivision map at Curacaví city hall.

Ken Johnson, head of Galt’s Gulch Chile, looks at proposed subdivision map at Curacaví city hall.

I’ve been thinking about collaborators: people who go along with situations where they aren’t comfortable. Resisting or opposing would be hard, or cause legal inconveniences, or burn bridges, or ruin the chance of making big bucks. Some are just afraid. Collaborating with misbehavior, from a petty lie up to a major human rights violation, is normal and human. I probably go along to get along 99% of the time. But anyone who counts on reluctant collaborators is taking chances.

One example is Galt’s Gulch Chile (GGC). This is a proposed real estate development in the suburbs of Santiago, Chile, marketed toward libertarians and others who think the US, Canada and Western Europe are likely to collapse. Among its problems are that its managing partner, Ken Johnson, alienated a lot of workers, investors and buyers. By last November, when I visited the place for a Spring Celebration, some of the big names that were promoting the project were already feuding with Johnson over money and employment conditions. I sensed there were some odd personal dynamics but I figured they were the usual things one would get between a bunch of lone wolves trying to work together. Turns out it was worse. A few people have privately complained about Johnson; then a couple weeks ago, an early buyer went public alleging financial malfeasance. That broke the dam.

Suddenly, the interpipes were flooded with people who had been suspicious, those who claim to have warned buyers against the project, and even promoter-in-chief Jeff Berwick, saying that he was hoodwinked. He now claims he was already disillusioned with the project last August but chose to keep going along to get along so as not to cause other people any problems. Lawyer Erin Gallagly (who has never returned my calls seeking comment), in a now-deleted comment on Facebook, said she “witnessed a plethora of horror” in three months at GGC: failure to pay vendors, withholding pay from employees, threatening employees, financial mismanagement, and demanding that salespeople not share information.  Continue reading