Exclusive: Venezuela taps small banks to handle dollar deals

Mon Mar 20, 2017 10:05am EDT
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By Corina Pons and Ana Isabel Martinez

CARACAS/MEXICO CITY (Reuters) - Venezuela's government is using little-known banks, including a small Puerto Rican lender, as intermediaries for some international trade operations after Citigroup (C.N: Quote) last year stopped providing such services, according to the owner of one of the banks and government officials.

The government has turned to relatively unknown institutions to provide a service known as correspondent banking, as international banks are increasingly concerned about the risks of doing business with socialist-ruled Venezuela amid investigations into corruption and drug trafficking.

It also coincides with complaints by President Nicolas Maduro that Venezuela is struggling to obtain financial services amid a severe economic crisis characterized by triple-digit inflation and chronic shortages.

Government officials call the drug allegations a campaign against their administration by ideological adversaries in the United States, and insist Venezuela's problems are being caused by an "economic war."

The situation does not affect payment of state oil company PDVSA's high-yielding bonds, which continue to be serviced by Citi due to contractual obligation, according to a 2016 letter from Citi to PDVSA bondholders seen by Reuters.

The country's relationship with global banks is also complicated by a 14-year-old currency control system that requires businesses to acquire dollars through the government rather than private banks.

Correspondent banks provide an essential service that allows countries to import goods and maintain links to the global financial system. Italbank, the Puerto Rican lender owned by Venezuelan entrepreneur Carlos Dorado, has served as one for Venezuela since 2016.

Dorado told Reuters that Italbank offers correspondent services to state-owned Banco de Venezuela, which is the country's largest bank, and handles part of the government's offshore business transactions.   Continued...

A woman walks past a branch of Italcambio currency exchange in Caracas, Venezuela February 14, 2017.  REUTERS/Marco Bello